Introduction
One year ago, Mario Draghi delivered a landmark analysis of the European Union’s declining competitiveness in what has come to be known as the Draghi Report. Unfortunately, since then the sense of urgency has been amplified in an increasingly fractured geopolitical world. The stakes for the EU have never been higher, especially in view of the tectonic shifts set in motion by the second Trump administration. Day by day the EU appears to be progressively squeezed by its long-standing ally, the US, and an assertive bloc of authoritarian states spearheaded by China. History is the teacher of life, and according to the Greek historian Polybius, the demise of Greek city-states came against the backdrop of the Roman Empire’s rise. The primary reason for their decline was not to be found in a lack of resources, but primarily in outdated political systems, internal divisions, and complacency. There is a striking similarity with the situation in contemporary Europe.
Draghi’s diagnosis was straightforward and pointed to several key obstacles facing the EU, such as a fragmented and incomplete Single Market, a large investment gap, a sputtering innovation engine, insufficient provision of European public goods, crushing energy prices, and a fundamental unpreparedness for a world of great power competition. However, there is a looming risk that the Draghi Report will follow in the footsteps of similar high-profile strategic documents from the EU’s recent past and end up tucked away in desks, without being paired with sufficient political capital for implementation. Unfortunately, one year after the report was presented to the world, the prescription for change has been largely unfulfilled and new challenges, primarily in the form of fraying transatlantic trade and security ties, have emerged.
The contributions in this issue cannot answer the fundamental question of whether the EU can summon the collective will to transform Draghi’s plea into an actionable strategy, especially as we are still at the beginning of the new political cycle in Brussels. Furthermore, national elections and their outcomes always add a dash of uncertainty.
Nevertheless, this issue of the Future Europe Journal brings a wealth of cutting-edge insights and new empirical facts that do not merely reiterate and rephrase the Draghi Report but go beyond it. Therefore, the ten contributions in this issue, featuring authors from eight Member States and including the perspectives of both developed and less-developed EU Member States, offers an inspiring take on key challenges facing the EU for motivated policy entrepreneurs who seek to overcome the current political stasis.
In the opening article, Velimir Šonje addresses the question of how to reinvent productivity in the EU. He identifies the need to make the labour market more flexible, reduce direct taxes, and increase investment as crucial pillars of the EU’s long-term productivity. He also advocates a counter-cyclical fiscal policy, which was largely missing during recent economic shocks to the EU economy, and whose absence explains a large portion of the productivity gap between the EU and the US. However, this policy course is not viable without a laser-like focus on improving productivity in the public sector to create the necessary fiscal space, which is too often absent from public debate.
Christian Năsulea, in the second article, exposes the current regulatory monitoring in the EU in the form of the European Semester and RRF monitoring as ineffective, focusing on administrative compliance as opposed to measuring real-world competitiveness. This approach has had an adverse impact on small businesses. Instead, he proposes decentralised, industry-led reporting, containing outcome-focused indicators such as innovation rates or SME expansion. The central claim of the article is that smarter, trust-enabled monitoring can render accountability a force for change – rather than a hindrance to competitiveness. Finally, the article offers and explains innovative concepts such as regulatory sandboxes and innovation deals with the aim of establishing a feedback loop from practice back to policy.
In the third article, Carl-Vincent Reimers states that the EU’s progress on competitiveness is stalled by a paralysing ideological divide between Northern European market liberals and Southern European state interventionists (dirigistes). The author argues that these philosophies can be reconciled and proposes five key reforms. These reforms include creating a 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 R&D agency modelled on 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.
Constantinos Saravakos and Christos Loukas, in the fourth article of this issue, attribute the EU’s sluggish competitiveness to excessive and fragmented regulation. The authors identify key barriers such as a failing Capital Markets Union that limits venture capital, contradictory digital regulations such as the DSA that create legal uncertainty, and rigid competition policies that prevent firms from achieving necessary scale. Instead of complete deregulation, the authors propose a targeted liberalisation agenda to foster entrepreneurial freedom, with post-merger reviews requiring verifiable evidence of innovation performance in the post-merger period. They identify this as a way to balance the goal of reaching economies of scale and preventing dangerous levels of concentration of economic and political power.
The central claim of the fifth article by Nicolas Marques and Cécile Philippe is that a massive and underestimated long-term capital deficit is the key reason for the EU lagging behind the US in terms of innovation. They have calculated that there is a nearly €20 trillion shortfall in both retirement savings and stock market capitalisation compared with the US, which has a deep pool of pension capital to fund new technologies. The authors argue that merely unifying capital markets or reallocating existing savings such as life insurance is insufficient, as these are not substitutes for the long-term, equity-focused investments that pension funds provide. Therefore, the only effective solution is the more ambitions introduction of defined-contribution pension funds across Europe and rules that enable more risk taking by those financial entities to mobilise the necessary capital to finance innovation and regain competitiveness.
The insights presented above are complemented in the sixth article by Silvia Nadjivan and Lukas Sustala. They claim that Europe is at a critical juncture: it is facing geopolitical threats from Russia and the US while experiencing a steep decline in its share of global GDP. The authors argue that to regain competitiveness, Europe must act decisively across four main areas: finances, regulation, R&D, and security. They propose a ‘360-degree competitiveness compact’ that includes future-proofing the EU budget to fund public goods, drastically simplifying regulations to cut business costs, and creating a Savings and Investment Union to unlock trillions in private capital for innovation.
The seventh article by Christian Sandström offers a critical case study on the potential fallacies of EU Green Deal industrial policies, exemplified by the massive bankruptcy of Swedish battery producer Northvolt. The article argues that extensive government support and political connections enabled the company to attract huge funding and expand rapidly despite its lacking the necessary technical expertise and ability to compete with China. This fostered a culture of rent-seeking and moral hazard, where political skill was valued over creating a commercially viable product. The author concludes that instead of ‘picking winners’, this approach ‘creates losers’, and that Europe should invert its strategy to focus on removing barriers such as overregulation and high taxes.
The EU’s lagging innovation performance in the digital economy is the subject of the eighth article, by Diana Năsulea, who offers a fresh and comprehensive analysis of the effects of the EU’s ambitious digital regulations, such as the DSA and DMA, which have created a complex and fragmented system that unintentionally stifles innovation and undermines European competitiveness. The article proposes a strategic shift towards ‘smarter regulation’ through a comprehensive ‘Omnibus Digital Competitiveness Package’. This framework would streamline the digital rulebook with a principles-based foundation, mandatory competitiveness tests for new laws, and simplified compliance for SMEs. The ultimate goal is to reduce fragmentation and transform the ‘Brussels effect’ from a model of overregulation into a competitive, innovation-friendly standard, making the EU a leader in digital innovation, not just regulation.
Otto Brøns-Petersen and Line Andersen cover the interconnectedness of climate policy and competitiveness in the ninth article of this issue. They argue that the EU’s climate policy, while aiming for decarbonisation, is inefficient and harms competitiveness due to a patchwork of overlapping and costly regulations. The authors posit that the EU’s most efficient tool is the Emissions Trading System (ETS), and that all other measures – including command and control standards, state aid, and redundant reporting such as the CSRD – should be abolished. For a cost-efficient green transition, the EU must consolidate its separate ETS frameworks into a single system covering all sectors with a uniform carbon price. This streamlined approach would minimise economic costs, enhance market orientation, and ultimately strengthen the EU’s competitiveness without sacrificing climate goals.
The analysis and ideas conveyed in the final article by Carlo Stagnaro permeate all the previous contributions as energy forms the core of all economic activities. The author challenges the Draghi Report’s diagnosis that structurally flawed energy markets are the cause of Europe’s high prices and declining competitiveness. In contrast to the prevailing narrative, Stagnaro argues that the markets are not fundamentally broken. On the contrary, prices are high due to the cumulative effect of distorting policy interventions, especially climate policies that choose specific technologies instead of setting neutral climate goals. Draghi’s proposed solutions, such as joint gas procurement and decoupling electricity from gas prices, are criticised as further misguided interventions that are unlikely to lower prices. The article concludes that the reasons for crushing energy prices are to be found in governmental failure, not market failure, and that a better approach would be to remove policy barriers and allow market mechanisms to find the most efficient solutions.
We hope readers will enjoy reading and digesting key takeaways from all contributions in this issue. Additionally, we hope that some of them will have an opportunity to transform those takeaways into actionable strategic documents delivering tangible results for a large majority of EU citizens.