The competitiveness gap: why Europe must move from words to action
For two decades, European leaders have repeated the same diagnosis at every major summit: Europe is falling behind in productivity, innovation and strategic technologies. The Lisbon Strategy of 2000 promised that the EU would become the world’s most competitive knowledge economy by 2010. The Europe 2020 Strategy promised the same with different language. The 2024 Draghi report on European competitiveness, commissioned by the European Commission and authored by former ECB President Mario Draghi, restated the diagnosis with renewed force. The question now is whether Europe will translate this familiar diagnosis into a credible response.
The gap is real and growing
The numbers are stark. US productivity has grown more than twice as fast as European productivity over the past two decades. The valuations of US technology companies dwarf those of their European counterparts. China dominates entire strategic sectors, from solar panels to electric vehicles to advanced batteries. European companies that once led globally in pharmaceuticals, automotives or chemicals are losing ground in their home markets. The Draghi report estimated that closing the gap would require additional investment of 750 to 800 billion euros per year. That figure reframed the debate, showing that incremental adjustments to existing budgets and programmes will not deliver competitiveness gains commensurate with the challenge.
What stands in the way
Three obstacles consistently block credible action. First, the EU budget remains small relative to the scale of the challenge, and proposals for new own resources or joint borrowing face resistance from net contributor states. Second, regulatory burdens accumulate over time without being systematically reviewed for their cumulative impact. Third, the single market remains incomplete in critical areas including capital markets, energy and services, fragmenting the scale advantages European firms need to compete globally. Each obstacle has its defenders. Each requires political costs to overcome. None of them will resolve themselves through statements of intent.
What credible action would look like
The 2028-2034 long-term budget negotiations now under way provide a concrete test. The Parliament has positioned a competitiveness fund as a red line, and the Cyprus summit produced the One Europe One Market roadmap with measurable timelines. These are necessary but not sufficient. Credible action would also require a commitment to genuinely simplify the regulatory acquis, completing the capital markets union with real political muscle behind it, and accepting that the single market in services involves trade-offs that will disadvantage some local incumbents in the short term to deliver continental competitiveness in the longer term. Without willingness to bear these costs, the next decade will see another report restating the diagnosis, with a different cover and the same conclusion.
