Europe has strengths it can build on

1 February 2025

Authors: Christine Lagarde, President of the European Central Bank, and Ursula von der Leyen, President of the European Commission

Remaining competitive is fundamental for Europe’s future. We need faster economic growth and higher productivity to protect the quality of life for Europeans — from their jobs and incomes to their security and welfare.?

Europe must act. Our competitiveness is at risk. While a global revolution in artificial intelligence unfolds, the EU could find itself on the sidelines. Our traditional manufacturing champions are losing global market share. Geopolitical shifts are turning dependencies into vulnerabilities and burdening our companies with high energy prices.

Europe must and will find its place in this new world. The prospects for our continent are better than they might seem. The EU has strengths on which it can build – and it has a plan to fix its weaknesses.

Europe has strong economic fundamentals. We have institutions governed by the rule of law, and an independent central bank committed to price stability. Inflation is returning to the ECB’s 2% target, allowing borrowing costs to fall. Public debts and deficits are lower than in other major economies.

Europe also has the necessary ingredients to catch up in the technological race. The EU turns out almost as many STEM graduates per million inhabitants as the United States. That talent produces a lot of ideas: Europe’s share in global patent grants is close to that of the United States. And we have the money to finance them, with households saving around €1.3?trillion every year.

We have an opportunity to bring down energy prices in a lasting way. The shift to secure, low-cost clean energy sources is on track: by 2030, over 40% of our energy consumption will come from renewables. And we are well placed to become a global hub for clean tech innovation, especially as some countries strike out in a different direction.

While others must cut their dependencies by building up domestic capacity, the EU can choose from a broader set of options owing to its unique position in global trade. We are the top trading partner for over 70 nations and we continue to strike new agreements, most recently with 400 million Latin Americans. And in a deal with the EU, what you see is what you get.

But these strengths are meaningless if Europe is hamstrung by its weaknesses. We need profound change on three fronts.

First, we need to make the EU an easier place for innovative companies to grow. Only one-third of university patents in Europe are commercialised, while companies that try to scale up in our Single Market face many internal barriers. Despite our savings, entrepreneurs lack access to risk capital, because capital markets are still too fragmented.

Second, we need to make Europe a better place to invest. Two out of three EU companies say that regulation is a key obstacle to investment, while just 14% of them are using AI. Firms still face long permitting procedures, onerous reporting requirements and diverging enforcement of digital rules.

Third, we need to make doing business in Europe cheaper, especially in terms of energy costs. While the shift to renewables creates good jobs and strengthens energy security and independence, it also comes with greater intermittency and greater energy losses through curtailment. For the benefits of decarbonisation to show up in companies’ bills, we need massive investment in grids and storage and smarter market design.

Europe has got the message. This week, the European Commission presented its Competitiveness Compass which sets out ambitious proposals to address these shortcomings.?From now on, the EU will strive not only to lower the barriers facing companies, but also to ensure that they have the resources they need to thrive here – be it finance, compute, energy or skills.

For example, the Commission will propose a so-called “28th regime” for innovative companies, allowing them to benefit from a single legal framework across the EU for aspects of corporate law, insolvency, labour law and taxation. It will launch a plan for a Savings and Investments Union, which will ensure that innovative companies can find the financial backing they need.

The EU will also give companies access to our world-leading network of supercomputers. This will help develop new advanced technologies and spread AI faster among established champions. The ECB will play its part too by keeping Europe at the forefront of digital payment technologies, including through the digital euro project.

In parallel, the regulatory burden will be lightened by an unprecedented simplification effort, starting next month. This will include a far-reaching simplification of legislation on sustainable finance reporting and due diligence. And energy prices will be brought down through a range of measures to integrate markets, increase contracted energy and reduce taxes.

This is only a snapshot of what lies ahead. Companies and households want to see action – and a wave of actions are coming. We can no longer squander our strengths with self-imposed handicaps. There is too much at stake. We are ready to do whatever is necessary to bring Europe back on track.