Abstract
This article claims that the EU’s progress on competitiveness is stalled by a paralysing ideological divide between northern market liberals and southern state interventionists (dirigistes), arguing that these philosophies can be reconciled. Five key reforms are proposed, including creating a true Capital Markets Union to unlock private investment, establishing a harmonised European business code, reforming competition law to allow for market-led consolidation, creating a pan-EU research and development agency modelled according to the US DARPA blueprint, and finally, allowing for more legislative output in the form of Regulations instead of Directives, to avoid the gold-plating of rules at the national level and to foster legal certainty.
Introduction
It is hard to overestimate the impact of the Draghi Report in reinvigorating the European debate on competitiveness. ‘For some political positions, you have to swear an oath on the Bible. In the European Commission, I had to swear on the Draghi report’, stated Danish commissioner Dan Jørgensen at a press conference last February (European Commission, 2025).
But while agreement on the diagnosis of the problem has been almost unanimous in policy circles, it has been harder for European leaders to agree on the most effective treatment. Not even Draghi defines what ‘competitiveness’ really entails – this is a manifestation of an ideological cleavage among Member States, with its roots in economic and political theory.
On the one hand, we can observe a market-liberal understanding of competitiveness, with a strong focus on microeconomics and reducing red tape. This resonates well in the ordoliberal circles of Germany and the northern European countries. On the other hand is a macroeconomic perspective, highly influenced by geopolitical analysis, advocated most vocally by France. These two perspectives have been present in European debates for decades, but in recent years their opposition has been amplified through what political scientists refer to as the ‘fizzy bifurcation’ between globalisation and geopolitics (Balfour, 2024: 97). Politicians who, in the liberal 1990s, agreed on the convergence between geopolitical interest and economic liberalisation, now instead seem utterly divided. This divergence has not only created a fragmented debate about how to best achieve competitiveness on the European stage. It has also fuelled opposition among European policymakers to the point of paralysis of action. Yet our ability to reform Europe depends on our ability to see these two divergent traditions as complementary, rather than opposed.
This is the main theme of my report ‘Draghi’s Dilemma: Competitiveness, Great Power Competition and Europe’s Next Move’ (Reimers, 2025), which analyses five key reforms that can bridge the divide between northern European market liberals and continental technocrats.
Europe’s problem: More innovation than general productivity
If we want to overcome this political division, we must first try to establish facts around the central question: what, really, is Europe’s key problem? As Draghi shows in his report, Europe has a problem with lower productivity growth compared with the US. Up-to-date research suggests that, if we apply a long-term perspective, Europe has been catching up with the US on productivity. In 1995, the European GDP per hour worked (PPP) was about 73% of US productivity. In 2024, this number had reached 82% of US productivity. Europeans have thus become more productive compared with Americans, if we examine the entire period from 1994 to 2024 (Zsolt, 2023; Flam, 2024). In some of the more productive countries, such as Germany, this figure is just over 100% of US productivity. One can say that this is too low, but the positive trend is still evident.
However, it is still clear that Europe has a problem with a lack of productivity growth compared with the US in certain sectors of the economy. As Velimir Šonje shows in his contribution to this issue, Europe is lagging behind US productivity in the service sector, most likely due to faster adoption of new digital technologies. This can be explained in part by the close interaction and spillover effects from Silicon Valley’s tech cluster to the broader service sector. In manufacturing productivity, however, Europe has outperformed the US during the past decade.
We now know the manifestations of this problem all too well. In the past 50 years, no company in the European Union has reached a market capitalisation of more than €100 billion, while all six US companies that have reached such market capitalisation were launched during this period. None of the world’s ten largest large-scale innovation clusters is located in the EU, while several are found in the US and China (Conte, 2025; Draghi, 2024: 29). And none of the world’s leading quantum computing companies are European, while five are from the US and four are from China (Draghi, 2024: 29).
Draghi’s analysis shows that this innovation problem has root causes in both a market-liberal economic and a geopolitical analysis: a general lack of scale and capital concentration in the most innovative tech sectors, fragmentation of rules on the single market, out-of-date competition law that hinders consolidation, geopolitical weaknesses that hit Europe harder than other continents, and the lack of a common capital market with the associated lack of venture capital for productive investments. Therefore, instead of engaging in several more years of debates and political deadlock, northern European market liberals and continental dirigistes must recognise that each of their perspectives carries a part of the solution to address the competitiveness challenge.
Here, five concrete reform proposals from Draghi and Letta can help us see why.
Five reforms for increased competitiveness
Regulations vs Directives
The Single Market is generally characterised as something that can be described as ritual dishonesty. In the EU Council and in high-level meetings, EU leaders praise the Single Market as a source of pride. Yet the Single Market has not achieved the level of harmonisation reflected in our politicians’ bombastic statements. Not only does the EU have a much larger amount of regulation than the US, but the legislation is also more fragmented, especially in respect of services and the digital sector. Market liberals know that common rules create the basis for free competition, something that is distorted by national derogations.
However, they seem to disagree with dirigistes on the cure to the current disease. While the former argues for deregulation and even rolling back European rules to the national level, dirigistes seem to see the problem as too little harmonisation and few European laws that guide the market towards new technologies and investments. The truth is somewhere in between these two answers.
In his report, Enrico Letta shows that the Single Market is characterised by something that we can call false harmonisation (Letta, 2024: 125). This means the production of common European rules that, in the implementation phase, get broken down into 27 national rule books. Sadly, the EU knows too many cases of this kind.
For example, the Commission’s second report on the application of the GDPR shows that national fragmentation persists despite the ambition to create a single data protection framework (European Commission, 2024). This is partly due to voluntary specification clauses, which are openings for national rules. Above all, stakeholders have reported that national fragmentation exists because national data protection authorities interpret the GDPR’s provisions differently, creating legal uncertainty and hindering the free movement of data in the Single Market (European Commission, 2024). The US-based Future of Privacy Forum notes that some stakeholders cite cases wherein national authorities do not follow the European Data Protection Board (EDPB) guidelines or issue their own guidelines that directly conflict with those of the EDPB (Future of Privacy Forum, 2024).
But the list of rules for the Single Market is characterised by a series of exceptions, minimum requirements, and opportunities for ‘gold-plating’. In some Member States, the list of EU laws that are subject to gold-plating is long (Letta, 2024: 125; Fors, 2024).
To address this, Letta proposes gradually phasing out Directives and making Regulations the preferred type of law for establishing binding rules in the internal market. He notes that Regulations are best placed to achieve effective harmonisation of rules and, consequently, to achieve maximum harmonisation coupled with mutual recognition, otherwise known as the ‘Delors method’ (Letta, 2024: 125). This is a reasonable general principle which, when applied to specific legal requirements, has the potential to ameliorate the lack of coherence in legal requirements and significantly reduce opportunities for gold-plating and introducing nation-specific rules.
Market liberals might be concerned that this kind of principle would reduce the scope for countries to adopt better rules at the national level than the European rules. This highlights a key tension in EU policymaking circles between the common EU interest in harmonisation and the interest of individual Member States in establishing a particular type of regulation, similar to the prisoner’s dilemma. Overcoming this dilemma is an important task for pro-European liberals. Letta’s proposal is a step in that direction.
It can certainly be argued that Directives can help create better national rules and in turn serve as a source of institutional competition between Member States, benefiting the EU as a whole. However, we need to bear in mind what Draghi reveals in his analysis: that the lack of harmonisation itself is a key obstacle to competitiveness. Of course there is a trade-off between these two values. In short, from a market-liberal perspective, specific national rules that are better adapted to business conditions may be preferable to a fully harmonised but bureaucratic regulatory framework. This is precisely why EU institutions must match their ambition to increase harmonisation with a commitment to improve the quality of legislative proposals, for example by improving the EC’s impact assessments when analysing costs related to new legislative proposals.
This means addressing the inconsistencies between EU legal requirements for businesses. An analysis by the European trade association Business Europe, which Draghi quotes, examined 13 EU laws and found differences in requirements in 29% of cases. One-tenth of the rules in the laws also had outright contradictions (Draghi, 2024: 69). Thus, harmonisation without addressing the lack of quality will be a fruitless enterprise.
Letta asks in his report where these inconsistencies come from, concluding that the problem lies in the EU’s unique legislative process. Because the EU institutions’ legislative process is based on a search for compromise between three institutions – the so-called trilogue between the European Parliament, the European Commission, and the EU Council – under time pressure, the result is often legislation that reflects the balance of power between the divergent interests of these institutions, rather than the purpose of the law itself. Such legislation lacks coherence and comprehensibility, creating difficulties for businesses that want to comply with the law and ultimately undermining the Single Market.
This raises questions as to whether full harmonisation is even possible without European authorities having interpretative primacy over national authorities, in a somewhat more federal structure. However, while problems of interpretation of Regulations by national authorities remain a basis for fragmentation, the proposal to make Regulation the main rule could at least address part of the problem. Letta’s principle should therefore be widely embraced by both Member States and EU institutions, in combination with increased political awareness of the importance of removing opportunities for gold-plating in EU legislation. Here, Member States must keep in mind that the long-term gain from harmonisation outperforms short-term gains for an individual state.
Towards a fully harmonised European business code
If common rules constitute the basis for free competition, it is impossible to ignore the very poor track record of the EU in harmonising company law. But here market liberals disagree with dirigistes on the diagnosis.
While dirigistes (especially the French) argue for a European codification of company law,[1] market liberals have long argued that competition between different contract law and company law regimes constitutes a form of institutional competition, which is beneficial to the internal market. As we have seen, this argument can be applied to the competition between countries to offer the most advantageous conditions possible. In this way, market liberals justify the positive effects of fragmentation. The question is whether this institutional competition positively outweighs the negative effects of fragmentation, not least for the more innovative sectors.
To illustrate this, we can compare the EU with the US, which has a universal company law, the Uniform Commercial Code (UCC), drafted as early as 1952. Work on the UCC began in 1945, and it was one of the largest codification projects in American legal history, run by two private legal organisations. Consequently, the UCC itself was only a recommendation, which has since been adopted by almost every state (with the exception of Louisiana) through legislation.
Although the UCC partly reflects the somewhat different American legal tradition, it serves as an illustration of how private actors can contribute to the harmonisation of actual legislation, a modus operandi which should encourage European market liberals to do the same. In the EU, by contrast, national company law forms a patchwork quilt, which means that the harmonisation of the internal market cannot be compared to that of the US. In a comparison with the US, harmonising company law on the EU level therefore appears as a fundamental stepping stone for completing the Single Market.
Both Draghi and Letta support the view that a common European company law framework is necessary, an opinion that is also shared by European entrepreneurs. In a 2024 market survey conducted by Eurochambres – a European umbrella organisation of European chambers of commerce – 68% of respondents cited differences in contract law or legal practices in the Single Market as a ‘significant’ barrier to trade (Letta, 2024: 108). Letta argues that these barriers hit small and medium-sized enterprises (SMEs) hardest, as they lack the legal and technical expertise of large companies to deal with national differences in company law (Letta, 2024: 108). Both Draghi and Letta see the solution in creating a fully harmonised European company law through a so-called 28th regime, that is, a set of rules that companies can choose as an alternative to the internal market’s patchwork of different national regulations.
Draghi calls this regime ‘Innovative European Company’, and Letta ‘Simplified European Company’. However, both aim to create a fully harmonised and simplified set of rules on insolvency, labour law, and tax law – to be used by companies that want to rely on a common set of rules and avoid the patchwork of national company law. The feasibility of the proposal can be enhanced by avoiding contradictions between a common European regulatory framework and national regulatory frameworks. It offers businesses a choice regarding which regulatory framework they want to adhere to, while providing a pathway for SMEs to reduce requirements for legal and bureaucratic expertise. In this way, both Draghi’s and Letta’s chosen methods are profoundly liberal.
For visionary European liberals, a 28th regime is only the first step on the road to achieving a fully harmonised European business code. Such a project will undoubtedly face significant challenges in reconciling the contract law tradition of northern Europe with that of continental Europe, and a fully harmonised code cannot be the reflection of a single country’s legal tradition if it is to be widely accepted. But the goal of eventually creating a single legal framework for all company law should be pursued. A bold but by no means unattainable goal should be establishing a fully harmonised company law inspired by the American UCC.
[1] See for example the ambitious 13-volume draft proposal for a European company law code, put forward by the French law association Henri Capitant in 2017 (https://www.henricapitant.org/actions/draft-european-business-code/).
Innovation cluster in defence: Liberal lessons from America’s Defense Advanced Research Projects Agency (DARPA)
If removing over-regulation and harmonisation is akin to easing up on the brakes, better research systems would be equivalent to hitting the accelerator in innovation policy. Here, we see outright opposition between market liberals and dirigistes. While the latter argue for more ambitious public spending to boost research and development (R&D), including joint debt, the former are hostile to that approach. Instead, market liberals favour improving tax incentives for private funding of new technologies. So, who is right?
Draghi’s report suggests doubling the budget for the EU’s Horizon programme, but this is a dubious proposal. The EU’s total public funding for research, including the budgets of EU institutions and Member States, represents a higher share of GDP than in the US. The difference is that the US has a higher share of private company turnover going into R&D and, therefore, can concentrate its public resources in an industry-focused innovation system for cutting-edge research. In this way, the US has established an innovation system in which public resources complement and leverage the R&D already funded by private resources (Tirole et al., 2024). In contrast, as Draghi shows, Horizon is characterised by a dispersion of resources across too many projects in a system that lacks focus and is overly bureaucratic. Member States can do a lot to incentivise the private sector to boost innovation financing by providing tax breaks linked to innovation and capital (see proposals on capital markets). However, much of this falls outside EU decision-making competence.
The lowest hanging fruits are, however, to spend the EU’s public research funds better. The EU should be cautious about establishing research systems that compete with the private sector in applied research on new technologies. However, there is an area where public funding has always been a central and natural component of technological innovation: the defence sector.
In this context, the EU should seize the opportunity of turning its massive ongoing rearmament into an accelerator of innovation and competitiveness. Better than doubling the Horizon budget, therefore, is another of Draghi’s proposals – to create a European DARPA based on the US model. This could be achieved by transforming the EU institution responsible for funding low-maturity breakthrough technologies – the European Innovation Council (EIC) – and providing it with a budget similar to that of its US counterpart (around $6 billion).
DARPA has been a common reference point for pro-European politicians for several years, not least in French policy circles. This has generated a great deal of scepticism and well-founded objections from northern European liberals. Establishing a European DARPA could result in the kind of ineffective industrial policy that we know from historical experience will have negative economic consequences. This is mirrored in the academic debate, where the Italian-American economist Mariana Mazzucato,[1] who argues for a state-governed mission economy that aligns the capitalist model around central state-planned goals, has received harsh criticism from market-liberal economists.[2] However, national-security and military innovation seems to be partly governed by different rules of the game than other civil sectors of innovation; as such, innovation is driven by geopolitical logic and strategic competition between states. Research on the links between technology, states, and war shows that even in the most capitalist economies states are central actors in financing defence innovation, accelerating creative destruction, and investing in new technologies (Chin, 2019). There are also good examples of commercially driven enterprises in civil technologies in Europe. Here, Airbus has been highlighted as a potential blueprint for a similar European enterprise in artificial intelligence (Coyle, 2025). If it is to be successful, a European DARPA must therefore emulate US success and avoid replicating extant inefficient research systems. It should also avoid becoming a frontrunner of a harmful ‘entrepreneurial state’. Firstly, a European DARPA should focus on a small number of innovation programmes where it can complement private funding, similar to the US system, namely breakthrough technologies and innovation in the defence sector. The EIC currently lacks such a focus, and in 2023, it spent €159 million on 43 new projects across five domains (Frølund & Murray, 2024).
Secondly, a European DARPA must build on the positive aspects of the US industry-led model – that is, programmes should be managed by experts with a high degree of autonomy and not by EU officials. In the US, this autonomy has enabled DARPA programme managers to identify so-called technology white spots where funding is lacking and prioritise them. This can be contrasted with the EIC, which is based on an institutionalised process of peer review, with strong political consideration of the research programmes’ diverse objectives. According to the Danish tech expert Lars Frølund, an EIC board member, this slows down the creative innovation process and could lead to the exclusion of the most innovative technologies or ideas (Frølund & Murray, 2024).
Thirdly, a European DARPA must build on the approach of its US counterpart in terms of establishing strict investment requirements. US DARPA managers have full autonomy to cut off funding to projects that, over time, prove to lack potential. This rather heavy-handed approach is in sharp contrast to the EU funding approach, which, in principle, never suspends funding even if a programme fails to achieve the desired results (Frølund & Murray, 2024).
A European DARPA model based on these market-liberal premises would require a much higher degree of trust from both Member States and EU institutions in the independent decision-making powers of programme managers. This means putting innovative excellence firmly at the centre and moving away from considerations based on geographical balance or political micromanagement.
[1] Major works by Mazzucato include The Entrepreneurial State (2011) and Mission Economy (2021).
[2] See, for example, Questioning the Entrepreneurial State (2022) by the economists Karl Wennberg and Christian Sandström, a well-argued response to Mariana Mazzucato’s statist and interventionist manifesto.
Let the market choose European Champions
The fourth major reform that highlights the division between market liberalism and geopolitics is reforming the EU’s outdated competition law. Here, dirigistes see reform as necessary to open the way for state-sponsored ‘European Champions’ that can compete with their Chinese or American competitors. Market liberals, in contrast, are most often opposed to such a reform, arguing that the state should not create champions, and that current rules prevent the emergence of harmful monopolies on the market, effectively lowering consumer prices.
One can argue that current competition rules ensure that large companies, or cartels, do not exploit a dominant position. These are all reasonable principles in a well-functioning market, of course, and they have enabled the EC to prevent mergers of companies that would have undermined competition in a European market, resulting in higher consumer prices. However, one can also argue (like Draghi) that the EC uses an overly narrow, national context when assessing competition (Draghi, 2024: 35), and that this has become an Achilles’ heel for the EU in geopolitical competition with China and the US. This is the case in the telecoms market, which has locked the EU into a fragmented patchwork of 34 mobile network operators, often in structures where formerly state-owned companies have cemented a leading position. The result is inefficient corporate structures that make it impossible to mobilise the necessary private resources for European investment in 5G networks (Draghi, 2024: 31). In this way, competition rules are in fact hindering organic consolidation in the market.
Such an environment could create a European market where Chinese and US companies exploit their market leadership, potentially resulting in high economic and political costs for the EU. In the field of technological dependencies, this could result in the use of these dependencies for geopolitical gains. Some Chinese examples of this kind of economic warfare have already been cited. To this, one can add the unofficial ban on exports to Sweden of a special type of graphite used in electric vehicles in 2020 (Sveriges Radio, 2024), or China’s economic coercion against Lithuania in 2021 following an upgrade in the country’s diplomatic relations with Taiwan, which damaged Lithuania’s high-tech laser industry (Cutler & Wester, 2024). Over the last year, this strategy has also been increasingly adopted by the US political leadership, particularly by entrepreneur Elon Musk, a close associate of Donald Trump. Musk’s threat to cut off Starlink’s satellite connection to Ukrainian units and his aggressive rhetoric against the Polish government, to intimidate these countries and rally support for the Trump administration’s foreign policy, are examples (BBC, 2025).
But one can also argue for reforming competition law from a market-liberal standpoint. The Austrian economist Joseph Schumpeter worried that too much competition would reduce the opportunities for companies to make a profit and thus finance R&D.[1] This is partly confirmed by empirical studies, provided that companies are in fact exposed to a preventive threat of ‘creative destruction’ (Nicholas, 2003: 1054–1055). A prerequisite for maintaining such a ‘preventive threat’ is, in turn, a functioning market with low thresholds where the states or the EU do not design regulations to favour individual companies. However, what is the most favourable balance between firm consolidation and firm competition remains an open question in the academic debate.
A reasonable path forward is Draghi’s proposal to update EC merger guidelines that the Directorate-General for Competition (DG COMP) follows in its decisions. This means allowing mergers in key sectors only if they can present valid reasons for why this would strengthen innovation capacity. Such rules should also consider geopolitical risks and economic security, for example, to eliminate potential costs resulting from geopolitical blackmail, such as the kind we have seen from China instrategic sectors such as raw materials, digital infrastructure, or microchip manufacturing.
It should be clear that such a reformation of EU competition law is not the same as loosening rules on state aid and creating publicly funded European Champions. On the contrary, opening the EU’s competition law for organic and market-based consolidation in certain sectors is the direct opposite of such state-funded endeavours. In other words, European liberals should welcome European Champions if they are the result of such a market-based consolidation. As Draghi argues in his report, today, the global context is increasingly the most relevant when applying competition and antitrust principles, not the intra-European one.
[1] Creative destruction was understood by Schumpeter as the organic and dynamic process of innovation in manufacturing, in which new technologies replace old ones, leading to increased productivity.
Conclusion
One year after the release of the Draghi Report, the EU is still struggling to attain competitiveness under efficient oversight without bureaucratic weight. A thinner model of accountability through decentralisation, outcome-based monitoring, and compliance via incentives, all means which would redirect focus away from procedural box-ticking towards actual economic advancement, is greatly needed yet still absent from the scene.
By engaging with industry directly, measuring actual outcomes such as innovation and growth in SMEs, and rewarding reformers with flexibility and trust, the EU can shift away from compliance towards performance enablement. New technologies such as blockchain and AI enable this vision, providing low-burden, real-time insights.
Rather than more rules, Europe needs smarter governance, tailored to produce results, not reports. If implemented, this approach would enhance trust, transparency, and innovation – making ‘accountability without overreach’ not just a principle, but a source of competitive advantage.
A fully European capital market
All proposals from the Draghi Report would be ineffective without the necessary funds. Here, market liberals often argue that the European capital markets must be boosted with lower capital taxes and fewer sustainability rules that constrain capital to certain sectors. Dirigistes, in contrast, argue that the private sector will not be enough and that the bulwark of the financing must come from public sources, including more joint European debt to finance investments, a claim that Draghi partially accepts.
Yet the real answer to financing necessary reforms lies in Europe’s fragmented capital markets, with 295 national trading venues and disparate regulatory regimes. The fragmentation inhibits cross-border investment, reduces liquidity, and stymies the scale-up of high-growth firms. Draghi’s call for a true Capital Markets Union with a single European regulatory body is therefore one of the most transformative proposals in his report, uniting the market-liberal focus on private funding with the scale in dirigiste reasoning.
Europeans save more than Americans, but these funds rarely reach capital markets. Less private capital available in the EU for productive investment has contributed to the innovation problem and to systematically lower investment in R&D compared with the US. Based on the European Central Bank’s (ECB) estimate of the potential capital that could be mobilised through smarter savings – €8 trillion (Lagarde, 2024) – we can assume that measures that change the savings behaviour of Europeans could have major long-term positive effects on competitiveness as well. In fact, €8 trillion is about ten times more than the amount Draghi says is needed, mainly from the public sector, to meet the investment needs. This demonstrates that it is the private sector, not the public, that has the largest potential to raise the necessary funds to finance Draghi’s proposals.
Draghi’s main reform to achieve this is to transform the European Securities and Markets Authority (ESMA) into the single regulator for European capital markets, with a role similar to that of the US Securities and Exchange Commission. He also proposes a model for ESMA that is inspired by the ECB’s Governing Council, which has enforced mechanisms to avoid political interference in governance.
Such a reform would have several favourable effects on capital markets. Firstly, a common regulatory framework would open EU capital markets to a higher degree of market competition, with the potential to increase the number of financial savings products available on the market. Even today, EU capital markets are characterised by national regulations, which reduce cross-border trade in capital. Secondly, a single common regulatory framework has the potential to reduce compliance costs for firms operating in multiple capital markets. This, in turn, is likely to make the EU a more attractive destination for foreign capital.
In this context, it is important to mention that some Member States have already achieved a modern, highly performing capital market.
Unlike the rest of the EU, Sweden has had a capital market with considerable participation from companies, small investors, and venture capitalists for several decades. Sweden holds the European record for the most initial public offerings (IPOs). Over the past ten years, more than 500 companies have been floated on its stock exchange, which is more than in France, Germany, the Netherlands, and Spain combined. The unique Swedish form of broad-based, popular capitalism began in the 1980s with the so-called Allemansfonderna and gained further momentum during the 1990s when share ownership became even more widespread.
Over time, the model has evolved and improved, most recently with investment savings accounts (ISKs), which have made it even more attractive for broad sections of society to invest in the stock market owing to favourable taxation and virtually no administrative requirements. The ISK is exempt from tax up to around €15,000. Above this, the investor only pays a yearly flat-rate tax based on the total value of the account amounting to around 0.5–1% of the value of the savings account. In 2026, the ceiling for tax exemption will rise further to around €30,000.
The second part of the Swedish success story that Draghi highlights is its well-functioning pension system. While many European countries are still stuck in a pension system based solely on contributions – called ‘pay as you go’ – the Swedish system is based to a greater extent on funded savings, for example, the public pension system, wherein 2.5% of pensionable income is allocated to private fund management companies or the state-owned Seventh National Pension Fund in a system with a large degree of freedom for the individual to choose between funds. But more important is the occupational pension (second pillar), which is also to a large degree invested on the Swedish financial markets. This has made a large amount of Swedish pension contributions available to Swedish innovative companies and contributed to an environment conducive to such companies wanting to stay in Sweden and not move abroad. However, Sweden is an exception: in the EU, pension investments account for only 32% of GDP, while they account for 142% in the US and 100% in the UK, which is a remarkable and extreme difference (Draghi, 2024: 64).
With the Swedish example in mind, it is evident that a harmonised regulatory framework would likely spur further modernisation in those Member States that are lagging behind.
In March 2025, the EC took a first step by presenting a strategy for an Investment and Savings Union. It announced that in 2025 it will present a European blueprint based on the most successful models for savings and investment accounts, together with recommendations to Member States for the taxation of such accounts. Such a savings standard would draw lessons from the Swedish ISK model, with flat-rate taxation, zero reporting requirements, and user-friendly and digital trading platforms.
However, making such new savings products available to European savers must be done by banks and financial institutions, not by EU institutions. In this context, it is interesting to observe the new calls for pan-European banks as a way of accomplishing the Capital Markets Union (Edelmann, 2024). This is why the market-based integration of EU capital markets and common regulation through a single regulatory body should be a political priority.
Conclusion
The Draghi Report has undoubtedly injected a large dose of energy to the ongoing debate on European competitiveness. However, for the EU to move the rock of Sisyphus uphill and institute the necessary reforms, it must once and for all overcome the division between liberals to the north and dirigistes to the south of Brussels. In other words, we must focus both on the micro and the macro.
In this article, I have argued that this is possible through five key reform proposals from Draghi and Letta. Common to these proposals are that they show how market liberal and more dirigiste forms of policy in fact are not opposed but intertwined. Many of the macroeconomic goals favoured by the continental dirigistes to counteract the increase in geopolitical competition – such as establishing European Champions, the European DARPA, and the Capital Markets Union – can only be successfully achieved by applying market-liberal principles. In the case of European Champions, this would be accomplished by the organic, market-based consolidation process through competition law reform. In the case of a European DARPA, it would be by drawing on the market-oriented lessons from its less statist, and less bureaucratic, American model. And in the case of a European Capital Union, it would be by facilitating creative destruction through opening national capital markets to competition and spreading the modern savings products that are already there.
In the opposite camp, market liberals must overcome their ritual dishonesty and realise that the fragmentation of the Single Market can only be overcome through increased centralisation of market rules. The current regulatory model has failed and created a patchwork of national rules, ‘gold-plating’, and laws of poor quality. This been a giant blow, for example, to the European tech sector, crucial for European innovation, where opportunities for scaling up are paramount for succeeding globally. Draghi’s and Letta’s proposals for making regulation the norm on the Single Market and a 28th regime company law are therefore necessary for achieving a dynamic and resilient Single Market and increasing European competitiveness.
All these five policy proposals are not only coherent and mutually reinforcing but also grounded in a pragmatic vision of market liberalism adapted for today’s geopolitical realities. Europe does not lack talent, capital, or institutional capacity. What Europe lacks is the political will to overcome its north–south deadlock that hinders necessary reforms to harmonise, to integrate, and to scale up. If European policymakers do that, then we will have leaders who not only ‘swear on the Draghi report’ but also let it guide them in their concrete policy actions.
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