Europe’s Competitiveness crisis: A Call for Urgent Action
Discussions of competitiveness are front and center in Europe right now. The European Commission’s new Competitiveness Compass, its answer to the Draghi report, calls for the EU to build its own artificial intelligence infrastructure, double down on industrial policy, and finish the work of integrating the single market. All good goals, but as an American arriving at Brussels airport last week, all I could think was “why is the passport control line three hours long?”
This isn’t just the anecdotal musing of an outsider. I lived and worked in Europe for 10 years, just when the single currency was introduced. It was an optimistic time.But since then,Europe has lagged the US on pretty much every economic metric,from growth and per capita income to the size of capital markets and the number of high-value technology companies.The news isn’t all bad. Inflation is coming down now, it’s true, and in Germany and the UK, stock markets have benefited somewhat from Donald Trump’s election, as investors look for ways to diversify.But when the continent is so painfully stuck between America’s tariff threats and China’s electric vehicle dumping, it’s worth looking closely at what — if anything — Europe can do to fundamentally change its economic trajectory.
I can tell you that Wall Street is desperate to find a reason to invest in Europe. US markets have become far too concentrated, and vulnerable to shocks like the one we saw last week, when tech stocks plunged. America is also overdue a recession, which President Trump could easily trigger with his erratic actions. But investors wont growth. And eurozone GDP numbers released last week showed regional growth flatlining, led by contractions in both Germany and France.
Investors aren’t the only ones who want to diversify. Europe, for its part, knows it needs more independence from US tech titans — and for reasons both economic and political. At a competitiveness conference I attended last week in Brussels, economist Benoît Cœuré, head of the French competition authority, mused that the weakening of Britain’s CMA, now headed by a former Amazon executive, is “a cautionary tale” about how political influence can thwart national sovereignty.
Trump has let it be known that he views European efforts to regulate large US tech companies as an unfair tax on American innovation. The obvious answer to such bullying is for Europe to jump-start its own technology industry.the Compass report proposes “AI Gigafactories” to increase computer capacity, as well as new efforts to bolster biotech, robotics, quantum, and space technologies. MEPs and chief executives at the competition conference were arguing that the EU should harmonise regulation and build its own digital infrastructure lest it become a technological “colony”.
Again, these are excellent aims. But they also reminded me of the conversation Europe has been having for two decades about capital market integration, deepening cross-border ties in the services industries, and creating a true fiscal union. So far,so 2005.
But ther is no time left. After the financial crisis, Europe made a critical mistake in shifting away from its efforts to create more domestic, inter-regional demand, opting to bolster exports instead. Since both China and the US are doubling down on their own manufacturing sectors, Europe is now left in the lurch. Even the most competitive export sectors are beginning to face their own “China shock”.
Production in Germany has been in decline for five years,as noted in a new report by Sander Tordoir,the chief economist of the Centre for European Reform,and American economist Brad Setser. Unfair chinese industrial practices (including access to below-market loans, raw materials, and artificially cheap labour) are creating a growth and labour shock like the one Detroit suffered decades ago. Europe is now a prime location for dumping,and given that manufacturing in Germany represents 20 per cent of the economy and 5.5mn jobs, that’s both an economically and politically unsustainable place to be.
What to do? the continent needs more market integration and regulatory harmonisation, but also a fundamentally new trade and growth playbook. It must invest in its own AI infrastructure, but also work with the US and other countries hurt by cheap Chinese exports, like Brazil and Turkey. There are some things, like the problem of Chinese dumping, that everyone should agree on.
There’s low-hanging fruit to be had elsewhere. Such as, europeans should stop using their green subsidy money for things like heat pumps or EVs that are made in China. The EU needs some “Buy Europe” provisions.Those could be organised centrally, which could be the start of a shared approach to industrial strategy.
Germany would stand to benefit most. But in exchange for those subsidies, Germany would have to rethink its own approach to growth and trade. It might, as Setzer and Tordoir advise, back IMF scrutiny of countries with persistent and overly large trade surpluses.
All of this represents a big change to Europe’s status quo. But it no longer has a choice. Greater competitiveness is now part of survival.
| Key Challenges | Proposed Solutions |
|———————————-|——————————————-|
| Lagging behind US economically | Build AI Gigafactories |
| Dependence on US tech giants | Harmonise regulation, build digital infrastructure |
| Chinese dumping | Implement “Buy Europe” provisions |
| Declining German manufacturing | Rethink growth and trade strategies |
Europe’s path to competitiveness is fraught with challenges, but the time for action is now. The continent must embrace innovation, strengthen its industrial base, and forge new alliances to secure its economic future.
Call for Urgent Action: Europe’s Path to Competitiveness
Editor: Europe’s economic competitiveness has been a hot topic recently,especially with the European Commission’s Competitiveness Compass report. What are the key challenges Europe faces in this regard?
guest: Europe is lagging behind the US on multiple economic metrics, including growth, per capita income, and the size of its capital markets. The continent is also heavily dependent on US tech giants, wich undermines its economic sovereignty.Additionally,Europe is grappling with challenges like Chinese dumping of products such as electric vehicles,which is harming domestic industries like manufacturing in Germany.
editor: The Competitiveness Compass proposes solutions like building AI Gigafactories and harmonizing regulations. Do you think these measures are sufficient?
Guest: While these are excellent proposals, they echo the longstanding discussions Europe has had for decades about capital market integration and creating a true fiscal union. The challenge isn’t just proposing ideas but implementing them effectively. As an example, the EU needs to harmonize its digital infrastructure and strengthen its own technology industry to reduce dependency on US tech titans.
Editor: The article mentions the issue of Chinese dumping. How can Europe address this problem?
Guest: Europe needs to implement “Buy Europe” provisions to ensure that green subsidy money is spent on domestically produced goods like heat pumps and electric vehicles, rather than those made in China. This could be part of a broader industrial strategy that fosters domestic production and reduces reliance on unfair Chinese practices, such as access to below-market loans and artificially cheap labor.
Editor: Germany’s manufacturing sector has been in decline for five years. What steps should Germany take to reverse this trend?
Guest: Germany needs to rethink its growth and trade strategies. as an example, it could support IMF scrutiny of countries with persistent and overly large trade surpluses. Additionally, Germany should focus on fostering inter-regional demand and investing in advanced technologies like biotech, robotics, and quantum computing to remain competitive globally.
Editor: The article highlights the need for Europe to forge new alliances. How can this help?
Guest: Europe should collaborate with countries like the US, Brazil, and Turkey, which are also affected by cheap Chinese exports. by working together, these nations can address shared challenges like dumping and create a more balanced global trade environment. Such alliances can also provide Europe with the economic support it needs to navigate its current challenges.
Editor: What is the key takeaway from all this?
Guest: Europe’s path to competitiveness is fraught with challenges, but the time for action is now. The continent must embrace innovation, strengthen its industrial base, and forge new alliances to secure its economic future. Without bold and coordinated efforts,Europe risks falling further behind in the global economic race.