Europe has a competitiveness problem. It does not have a predetermined future.
That distinction should govern any serious discussion of European decline.
Mario Draghi’s 2024 report was important precisely because the diagnosis no longer came only from outside critics. The European Commission’s subsequent Competitiveness Compass, Savings and Investments Union and single-market initiatives all accept variants of the same problem: Europe has valuable institutions, savings, talent and a vast market, but too much of that potential is weakened by barriers to scale, fragmented finance, high energy costs in important sectors, administrative burden and difficulty converting innovation into global companies.
The response does not have to be “more Europe” in every field or “less Europe” in every field.
A more useful principle is:
Use common scale where the problem genuinely requires scale. Preserve competition, optionality and local experimentation where it does not.
That approach is less ideologically satisfying than either centralisation or breakup. It is also much closer to the institutional problem Europe actually faces.
Key takeaways
- Europe’s problem is not lack of assets. It has a large market, deep household savings, research capacity, skilled people and strong institutions, but many of those resources remain fragmented or expensive to mobilise.
- Some European problems require more integration. Capital markets, defence procurement, energy networks and removal of internal-market barriers can benefit from scale.
- Integration should not mean uniformity everywhere. Europe also needs regulatory competition, mutual recognition, optional regimes, subsidiarity and space for jurisdictions to experiment.
Start by separating decline from diagnosis
“Europe is declining” can mean several different things.
It can refer to slower productivity growth relative to other major economies. It can refer to a smaller share of global output as other regions become richer. It can refer to weaker technology companies, energy dependence, demographic ageing, defence capacity or difficulty scaling firms.
Those are different metrics.
A relative fall in global share is not automatically failure if citizens become richer. A productivity gap matters more directly because it affects wages, public finances and the capacity to invest. A shortage of globally scaled technology firms can matter strategically even if small and medium-sized firms remain productive.
The first reform is therefore intellectual: define the problem before announcing civilisational decline.
Europe’s own institutions now recognise the competitiveness gap
The Commission’s Competitiveness Compass explicitly builds on the Draghi report and sets out three broad necessities: closing the innovation gap, combining decarbonisation with competitiveness, and reducing dependencies while strengthening security.
It also identifies horizontal enablers including simplification, removing barriers inside the single market, financing competitiveness through the Savings and Investments Union, skills and better coordination.
These are not libertarian talking points imposed on Brussels from outside.
They are evidence that the European system itself recognises friction in its current architecture.
That matters because the most useful article is no longer “Europe must admit the problem”.
It is: which diagnosis requires scale and which diagnosis requires more competition?
Reform 1: finish the market before building more government
Europe possesses a single market in law and many remaining internal barriers in practice.
The Commission’s 2026 “One Europe, One Market” roadmap is itself organised around strengthening integration and reducing fragmentation.
Removing barriers to establishment, services, capital and cross-border company activity can create economic scale without creating a single political answer for every policy question.
This is the distinction between integration that enlarges choice and harmonisation that removes alternatives.
Mutual recognition should therefore be a default tool where different national rules can coexist without creating material externalities.
Common rules are justified when incompatibility itself prevents the market from functioning or when the externality genuinely crosses borders.
Reform 2: make European capital more capable of becoming European risk capital
Europe has large household savings and many successful financial institutions.
The problem is not simply that Europe “has no money”.
The Commission’s Savings and Investments Union is explicitly designed to improve how savings are channelled into productive investment and to deepen capital-market integration.
This is a case where scale matters.
A growth company should not need to treat every national capital market as a separate financing universe. Investors benefit from deeper liquidity. Founders benefit from more growth capital and exit options. Pension and insurance systems can participate in productive investment within suitable prudential rules.
The libertarian mistake would be to oppose integration merely because it is European.
A larger competitive capital market can increase exit and optionality.
Reform 3: energy policy has to include industrial reality
Energy is not an abstract environmental variable for an industrial economy.
Its price, reliability and network capacity affect chemicals, metals, data centres, manufacturing, transport and household purchasing power.
Europe can pursue decarbonisation while accepting that an energy system must also be physically reliable and economically competitive.
The institutional question is again about scale.
Cross-border grids, energy markets and strategic infrastructure require coordination. The technology mix, permitting and local project choices do not necessarily require one identical solution everywhere.
A robust Europe should be capable of sharing networks without suppressing experimentation in generation, storage, nuclear policy, renewables or industrial heat where national circumstances differ.
Reform 4: regulate risks without freezing business models
Europe needs regulation. Property rights, competition, data protection, financial integrity and product safety are part of a functioning market.
The problem begins when compliance becomes a fixed cost that disproportionately protects incumbents or when detailed rules are harmonised before the technology and business model have stabilised.
The Commission’s own simplification agenda is an acknowledgement that administrative burden can damage competitiveness.
A better test for new rules is therefore:
- What concrete harm is being addressed?
- Can liability or enforcement solve it without prescriptive process?
- Can smaller firms comply without building a bureaucracy?
- Is mutual recognition possible?
- Is the rule reversible if technology changes?
Regulation should set boundaries for markets, not attempt to pre-design every market outcome.
Reform 5: let jurisdictions compete for talent and companies
Europe should not fear every difference between Member States.
Competition in company law, administration, taxation, talent programmes and public services can reveal better institutional designs.
That competition has limits. States should not externalise pollution, facilitate crime or use disguised subsidies that destroy the common market. Tax competition can shift burdens. Aggressive regulatory arbitrage can undermine legitimate standards.
But variation is also information.
If one country can register a company in a day, another can ask why it takes weeks. If one region designs faster permitting, others can copy it. If a talent regime attracts skilled workers without creating intolerable social costs, the results become observable.
A market of institutions should exist inside the market of goods and services.
Reform 6: use common scale for defence where sovereignty alone is too small
Defence is the strongest counterexample to reflexive decentralisation.
Modern air defence, intelligence, procurement, munitions capacity and high-end military technology are expensive and interoperable by necessity.
Fragmentation can be dangerous.
A Europe of politically plural states can still cooperate deeply on defence, common standards, procurement and strategic infrastructure.
The test should be functional rather than symbolic: what capability cannot be produced credibly at the smaller level?
This is subsidiarity applied honestly. Sometimes the answer is “move up”.
The strongest objection: fragmentation is part of Europe’s problem
A decentralist account can become self-protective by treating every central initiative as the cause of decline.
That is not credible.
Europe’s fragmented capital markets, remaining barriers in services, national procurement silos and incomplete cross-border infrastructure can themselves prevent scale. A company that has to re-solve regulation, financing and distribution country by country faces a real disadvantage against competitors in larger integrated markets.
Some European reforms therefore require more coordination and integration, not less.
The question is what kind.
The most defensible integration:
- removes barriers;
- creates interoperable infrastructure;
- pools capabilities with genuine scale economies;
- protects cross-border rights;
- adds optional legal forms or channels.
The least defensible integration:
- treats difference itself as a defect;
- turns temporary problems into permanent competences;
- replaces mutual recognition with unnecessary uniformity;
- prevents jurisdictions from testing alternatives.
Four variables define a better European architecture
Size: Europe already has continental economic scale. The problem is where that scale is actually usable.
Decentralisation: political authority can remain divided even while markets and infrastructure integrate.
Openness: Europe’s prosperity depends on internal and external trade, talent, capital and knowledge flows.
Exit: citizens and companies should retain meaningful choices among jurisdictions rather than finding that every national alternative has converged into one compulsory model.
The objective is not maximal fragmentation.
It is contestable integration.
What this means for a founder, investor or family
Institutional architecture eventually becomes personal.
A founder deciding whether to build in Europe cares about access to customers, capital, talent, energy, legal certainty, tax, stock-option treatment and the ability to expand across borders.
An investor cares about market depth, legal protection and whether capital can move efficiently.
A family cares about housing, education, security, mobility and the durability of tax and residence policy.
Those decisions do not require Europe to become one state.
They require Europe to make its scale economically available without making every jurisdiction politically identical.
That is the constructive alternative to declinism.
Europe can remain a civilisation of different countries, regions and cities while building common markets and capabilities where fragmentation is genuinely costly.
Its decline is not inevitable because institutional rules are not laws of physics.
They can be changed.
The question is whether Europe can distinguish the areas where it needs more scale from the areas where it needs more alternatives.
Sources
- European Commission — The Draghi report on EU competitiveness
- European Commission — Competitiveness Compass
- European Commission — EU competitiveness agenda
- European Commission — One Europe, One Market roadmap
- European Commission — Savings and Investments Union strategy
Disclaimer
This article is general economic, institutional and political commentary. It separates current official EU diagnoses and initiatives from the author’s interpretation of which reforms are desirable. Outcomes depend on policy design, implementation and economic conditions, and the article does not constitute investment, legal, tax or political advice.
