After Decades of R&I Investment,Europe Still Lags Behind Global Leaders
Research and Innovation (R&I) have long been the cornerstone of Europe’s growth strategy.As the Lisbon summit in 2000, the European commission (EC) has championed policies aimed at fostering smart, sustainable, and inclusive growth. Yet, despite decades of investment, Europe’s R&I system remains stuck in an “innovation gap,” trailing behind global leaders like the United States and China.
the China far exceeds Europe’s, driving higher productivity growth, start-up rates, and new business activity. While EU labor productivity matched the US between 1950 and 1995, it stagnated thereafter, growing only on par with US productivity but at a lower overall level.
The Mid-Tech Trap
Europe’s relative decline in competitiveness has been masked by what commentators describe as “economic somnolence.” Three key factors explain this stagnation:
- Automotive industry Decline: Europe’s automotive sector, once a powerhouse of high-quality, technologically refined goods, has lost momentum. New opportunities in green and digital transformation have primarily benefited foreign competitors, thanks to regulatory frameworks favoring external players.
- Energy Dependency: Europe’s reliance on cheap Russian oil and gas sustained its energy-intensive industries, such as chemicals.This access allowed incremental CO2 reductions under the EU’s emissions Trading System, laden with exemptions and free allowances, delaying systemic transformation.
- Peace Dividend: The “peace dividend” redirected funds into social welfare systems, as European treaties prohibited EU funding for military purposes. This restriction stifled the progress of a competitive European defense industry and limited technological breakthroughs due to a lack of scaling and procurement opportunities.
Bold Reforms Needed
The INITIATE project. The time for action is now.EU R&D Funding Fragmentation: Calls for Radical Reform and Increased Investment
The European Union’s public research and development (R&D) spending is facing a critical challenge: fragmentation. According to the Draghi report,“Public R&D spending in the EU is highly fragmented across Member States,not consistently directed towards EU-wide priorities,and frequently enough difficult to access.” This issue has sparked calls for a radical overhaul of the EU’s R&D governance and funding structure.
Unlike the United States, where the vast majority of public R&D spending comes from the federal budget, the EU’s funding is largely sourced from the budgets of its 27 member States, complemented by a smaller amount of EU-level resources. At the EU level, R&D spending primarily comes from Horizon Europe, the EU’s Framework Program for Research and Innovation (R&I).Additional resources are drawn from the structural and cohesion funds and the European Defense Fund. However,all EU-level funding accounts for only around one-tenth of the overall public spending on R&D in the Union.
This fragmentation has lead to inefficiencies and misalignment with EU-wide priorities. To address this, the Draghi report recommends an allocation of 200 billion euros over seven years. Similarly, the more recent Heitor report on the next Framework Programme advocates for “increased, better focused and ring-fenced funding across the full spectrum of R&D&I,” proposing a budget of 220 billion euros.
However, even if these funding increases where realised, they would not address the core issue of fragmentation. Translating these proposals into the context of Figure 6 from the Draghi report, EU public funding for R&D would rise to approximately 30 billion euros annually—a total comparable to US federal funding. Yet, this would do little to solve the underlying governance challenges identified by both Draghi and Heitor.
A more radical proposal is required. Revisiting ideas proposed at the Lisbon Summit in 2000 offers a pathway forward. Simplifying the multi-level governance of R&I could begin with making essential research the primary responsibility of the European Commission. This could involve integrating Member States’ funding for national research councils into the European research Council (ERC) and expanding its scope to ensure a more unified approach.
Key Challenges and Proposed Solutions
| Challenge | Proposed solution |
| Fragmentation of R&D spending across Member States | Centralize fundamental research under the European Commission |
| Misalignment with EU-wide priorities | Integrate national research councils into the ERC |
| Insufficient EU-level funding | Increase funding to 200-220 billion euros over seven years |
The implications of these reforms are meaningful. By centralizing R&D governance and increasing funding,the EU could better address its innovation gap,exacerbated by higher energy prices and vulnerabilities in its open trade and investment model.As Draghi highlights, a “new industrial strategy” centred on closing these gaps is essential for Europe’s competitiveness and security.
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The path forward is clear: radical reform and increased investment are necessary to unify and strengthen the EU’s R&D efforts. Without addressing the fragmentation issue, even considerable funding increases will fall short of achieving the EU’s aspiring research and innovation goals.Europe’s innovation Gap: A Call for Bold Reforms in R&D and Security Investments
The European Union is at a crossroads. As the innovation gap between the US and Europe continues to widen, experts are urging a fundamental overhaul of the EU’s research and innovation (R&I) policies.The Draghi report and recent proposals by Commissioner Busquin highlight the need for greater risk-taking, entrepreneurship, and venture capital availability to spur economic growth.
One key proposal is to exempt national plans and investments in public R&D from the semester assessments of Member States’ fiscal deficits. This would effectively shield them from the three percent deficit criterion under the Maastricht fiscal rules. As Commissioner Busquin argued at the Lisbon Summit, budget proposals that foresee reductions in public R&D should not count toward fulfilling fiscal deficit criteria. While dismissed at the time due to concerns about the Euro’s stability, this approach is now seen as timely and necessary in the context of multi-crisis budgetary pressures and the need for increased public investment in sustainability and security.the Innovation Gap: Structural Issues and Missed Opportunities
The Draghi report underscores the rapid widening of the innovation gap between the US and Europe over the past decade. Experts attribute this to structural issues within the European innovation system, particularly regarding risk-taking, entrepreneurship, and the availability of venture capital. As Jacques Pelkmans observes, “It’s about greater risk-taking in the EU rather than risk-avoidance. It’s about ways to become more innovative, to help innovators become true investors that will spur EU economic growth and generate real benefits for the entire EU market.”
Europe’s missed opportunities in digitalisation are also highlighted. the dominance of US platform firms that have optimally exploited the harmonisation of the European single market raises questions about earlier European industrial policies, particularly in microelectronics and ICT. While the EU initially led in emerging mobile telephony markets, it later failed to capitalise on digitalisation.however, the EU’s current lag in digital services provision does not preclude it from taking the lead in the next wave of digitalisation, particularly in areas such as AI.
AI Development: A new Frontier for Europe
AI development could be anchored in local technological expertise and driven by demand for GovTech within the EU’s multi-governance framework. Regulatory frameworks, frequently enough seen as barriers to growth, could rather create opportunities for innovation.As an example, Europe’s multilingual environment could stimulate AI solutions in media, education, and communication, while cross-border regulatory differences in healthcare, education, energy, and taxation could become opportunities for efficiency and innovation with the help of AI. The next phase of digitalisation offers a unique prospect for the EU to overcome inefficiencies and transform competitiveness in traditionally non-tradable sectors, boosting regional and national economic performance.
Security Investments: A New dimension of European Challenges
Both the Letta and Draghi reports introduce security as a new dimension of European challenges considering rising geopolitical tensions. As Rainer Kattel and I argue, the EU must develop a coherent approach to security investments that aligns with its green and digital agendas. Addressing this requires fundamental shifts in the EU’s main funding programmes: the Framework Programmes for R&I and the cohesion funds.
In R&I policy, the current shared parallel competence structure allows Member states to conduct national research policies independently of the EU.This governance framework could be expanded to explicitly include defence-focused research, creating a European Defence Research and Innovation Area (EDRIA). Meanwhile, cohesion policy, described by Rainer Kattel and myself as Europe’s “secret weapon,” could integrate security considerations into regional development strategies. Given the geographical overlap between military facilities and cohesion regions,such an approach could express European solidarity while addressing regional imbalances.
Key Proposals for EU Reform
| Proposal | Impact |
| Exempt public R&D from fiscal deficit criteria | Shields investments from Maastricht rules, fostering long-term innovation |
| Expand R&I governance to include defence research | Creates a european defence Research and Innovation Area (EDRIA) |
| Integrate security into cohesion policy | Addresses regional imbalances while advancing security goals |
while the EU has lagged behind the US and China in reaping the benefits of R&I, the challenges for the new European Commission are clear: fundamentally reform R&I funding, dismantle barriers to innovation, and prioritise security investments as a cornerstone of European citizens’ well-being.
Call to Action
Europe must act now. By embracing bold reforms in R&D, digitalisation, and security investments, the EU can bridge the innovation gap and secure its future in a rapidly changing geopolitical landscape. Let’s champion a new era of European innovation and solidarity.Luc Soete, an emeritus professor at Maastricht University and a distinguished member of the Royal Dutch Academy of Arts and Sciences, has carved an illustrious career in academia and research. With an economics degree from Ghent University and a PhD from the University of Sussex,Soete’s academic journey is a testament to his dedication to the field of economics and innovation.
In 1988, Soete founded the Maastricht Economic Research Institute on Innovation and Technology (MERIT), a pioneering institution that has substantially contributed to the understanding of economic innovation. He led MERIT until 2012, during which time the institute became a hub for cutting-edge research. Following his tenure at MERIT, Soete served as the Rector Magnificus of Maastricht University from 2012 to 2016,overseeing the university’s strategic direction and academic excellence.
Soete’s leadership extended beyond Maastricht. From 2019 to 2023, he was the Dean of the Brussels School of Governance, where he played a pivotal role in shaping the institution’s governance and policy studies. His multifaceted career reflects a deep commitment to fostering innovation and academic leadership across Europe.
Below is a summary of Luc Soete’s key roles and contributions:
| Role | Institution | Years |
|———-|—————–|———-|
| Founder & Director | maastricht Economic Research Institute on Innovation and Technology (MERIT) | 1988–2012 |
| Rector Magnificus | Maastricht University | 2012–2016 |
| Dean | Brussels School of Governance | 2019–2023 |
Luc Soete’s career is a blend of academic rigor and leadership, making him a pivotal figure in the European academic landscape. His contributions to economic research and innovation continue to inspire new generations of scholars and policymakers.
