Stay updated with our latest news and updates
Sign up for our newsletter, the EU economy myFT Digest, to receive the latest updates directly to your inbox.
The authors serve as the president of the European Central Bank and the president of the European Commission
Ensuring Europe’s competitiveness is crucial for its future. We need to enhance economic growth and productivity to safeguard the well-being of Europeans — encompassing their jobs, incomes, security, and welfare.
Europe is facing challenges to its competitiveness. As the global artificial intelligence revolution unfolds, the EU risks falling behind. Our traditional manufacturing leaders are losing market share on a global scale. Geopolitical changes are transforming dependencies into vulnerabilities and imposing high energy costs on our companies.
Europe must assert itself in this evolving landscape. Despite challenges, the continent has inherent strengths to leverage and a comprehensive strategy to address its weaknesses.
Europe boasts strong economic fundamentals, including institutions governed by the rule of law and an independent central bank focused on price stability. Inflation is approaching the ECB’s target of 2%, leading to lower borrowing costs. Public debt and deficits are more manageable compared to other major economies.
Furthermore, Europe possesses the necessary resources to compete in the technological race. The EU produces a significant number of Stem graduates per million inhabitants, leading to a substantial number of global patent grants. With substantial household savings amounting to around €1.3tn annually, there is ample funding to support innovation.
There is an opportunity to reduce energy costs sustainably by transitioning to secure, low-cost renewable energy sources. By 2030, over 40% of energy consumption in Europe will come from renewables. The continent is well-positioned to become a global hub for clean tech innovation.
While other regions are enhancing domestic capacity to reduce dependencies, the EU has a wider array of options due to its prominent position in global trade. The EU is the top trading partner for over 70 nations and continues to forge new agreements, including recent accords with 400 million Latin Americans.
However, these strengths are undermined by existing weaknesses in Europe. Significant changes are required on three key fronts.
Firstly, the EU must create a conducive environment for innovative companies to thrive. Currently, only a third of university patents in Europe are commercialized, and scaling up within the single market is hindered by internal barriers. Entrepreneurs struggle to access risk capital due to fragmented capital markets.
Secondly, Europe should enhance its attractiveness for investments. Two-thirds of EU companies cite regulations as a major obstacle to investment, with only 14% utilizing AI. Lengthy permitting processes, burdensome reporting requirements, and varying enforcement of digital regulations hamper business operations.
Thirdly, reducing the cost of doing business in Europe, particularly in terms of energy, is imperative. The transition to renewables, while beneficial, poses challenges such as intermittency and energy losses. Significant investments in grids, storage, and market design are essential to realize the benefits of decarbonization.
The European Commission recently unveiled its Competitiveness Compass, outlining ambitious proposals to address these shortcomings. The EU aims to not only lower barriers for companies but also provide necessary resources for their growth, such as finance, technology, energy, and skills.
For instance, the commission plans to introduce a “28th regime” for innovative companies, offering a unified legal framework across the EU for corporate, insolvency, labor, and tax laws. A Savings and Investments Union will be established to facilitate financial support for innovative ventures.
Moreover, companies will gain access to the EU’s advanced supercomputing network to foster technological advancements and accelerate AI adoption. The ECB will contribute by advancing digital payment technologies, including the digital euro project.
In parallel, regulatory simplification efforts will commence next month, including streamlining sustainable finance reporting and due diligence. Measures to integrate energy markets, boost contracted energy, and reduce taxes are planned to lower energy prices.
This marks the beginning of a comprehensive transformation. Stakeholders are eager for action, and a series of initiatives are in the pipeline. Europe is committed to overcoming its challenges and leveraging its strengths to steer the continent back on the path to prosperity.