In a declaration issued after their summit in Brussels on Thursday, April 18th, European Union leaders agreed to a new “European Competitiveness Deal,” designed to help the 27-member bloc to catch up with China and the United States.
The European Council, which gathers leaders of member state governments, in its special meeting sought to confront what it called ”a new geopolitical reality and increasingly complex challenges” by “acting decisively to ensure (EU) long-term competitiveness, prosperity and leadership on the global stage.”
However, the organisation is now working with a definition of competitiveness into which such concepts as sustainability and Net Zero have been incorporated. By “pursuing energy sovereignty and climate neutrality”, Eurocrats are developing an industrial policy which will throw up barriers to industry itself. In practice, enterprises are already experiencing “an effective industrial policy that decarbonizes industries in a competitive manner” as a slate of regulatory burdens making them uncompetitive—all with few tangible environmental benefits.
China, the U.S. and the European Union are the three largest economies in the world, but the EU’s relative share of the world economy has diminished over the past decades. While the EU accounted for 26% of global GDP in 1980, its share is now only 14%, with China at 19% and the United States at 15.5%, according to the International Monetary Fund.
Predictably, the European Union is lagging behind its main competitors due in part to the overburdening of the European economy with needless regulation. While the EU is losing out to the U.S. on artificial intelligence, and to China on electric vehicles, there is one field where it leads the world: regulation, as The Wall Street Journal aptly put it in a recent article.
Before Thursday’s Brussels summit, the former president of the European Central Bank, Mario Draghi, said Europe is “lacking a strategy for how to shield our traditional industries from an unlevel global playing field caused by asymmetries in regulations, subsidies and trade policies.” He complained that the EU was investing less in digital and advanced technologies than the U.S. and China, including for defence, and that there are only four global European tech players among the top 50 worldwide. Draghi will deliver a report on EU competitiveness later this year.
In a separate report, former Italian Prime Minister Enrico Letta, tasked by leaders with assessing the shortfalls of the EU single market, writes that the rise of geopolitical tensions and protectionism threaten EU economic security and undermine its push into new technologies, from artificial intelligence to clean tech. The EU also faces new challenges from massive U.S. subsidies drawing in investment and China’s domination of new tech supply chains, on which it is dependent, Reuters reports. Letta calls for the single market, which for decades has allowed the unhindered movement of goods, services, capital and people, to be enlarged to cover energy, telecommunications and finance.
To address the problem, EU leaders have called for a new competitiveness deal. This is little more than a declared intention for now, scheduled to be looked at more rigorously after the European elections in June. The sustainable growth made explicit in the policy might not get through the predicted populist insurgency in the elections unscathed, as voters rally in defence of jobs and living standards.
Even on the less fraught issue of financial regulation, there are multiple disagreements on how to proceed. For instance, differences of opinion simmer between leaders over proposals to harmonise corporate tax rules—and a plan to integrate the capital markets of EU countries—because EU members do not want to relinquish control of national financial rules. France and Germany are pushing hard for a capital markets union that would include joint financial supervision—for which several smaller states such as Luxembourg, Malta and Ireland lack any real enthusiasm.
Notably, the final meeting concluded by removing a reference to harmonising corporate tax law. The summit’s low-key ending did little to conceal the very real divisions over EU economic policy.
