How to Stay a Global Power: Competitiveness is the Keyword for the EU’s New Legislature

Global pressures – such as the rise of emerging markets, demographic challenges, increasing protectionism, and the shift towards deglobalisation – are putting the EU’s economic prospects under significant strain. In response, the EU has made boosting its competitiveness a central focus for the upcoming legislative period.

Competitiveness is more than just a buzzword. It is essential for sustaining economic power, which, in turn, underpins the bloc’s political influence on the global stage. To regain and strengthen its competitive edge, the upcoming EU legislature must tackle the political and economic gaps that have hindered progress for decades. A sound, future-fit economic strategy must incorporate three important actions:

1. Develop a coherent industrial and investment strategy at EU level.
2. Advance the completion of the EU Single Market.
3. Reinforce global partnerships and trade agreements.

Only by pursuing these key challenges can the EU ensure sustainable growth, resilience and continued leadership in a rapidly changing global landscape.

Point of departure: Europe under pressure

For a long time, the Western industrialised nations and Japan were the world’s largest economies. However, China’s share of global GDP has grown significantly in the last three decades. Looking at GDP in terms of US dollar purchasing power parity, China has been the world’s largest economy since 2017/2018.

A main indicator of a country’s future economic performance and competitiveness is its demographic development. The two factors at play here are population size and age structure.

• A large and growing population means that the economy has a large labour pool at its disposal. This allows for a high volume of economic production overall and, with it, a high GDP.
• Almost more important for a country’s economic development is its age structure, particularly the share of working age people in the total population.

In terms of how these demographic indicators are expected to develop until 2050, Europe ranks last compared to all other global regions. This fundamentally weakens its economic competitive outlook.

A third economic challenge for the EU is the rise of global protectionism. Since the 2008 financial and economic crisis, import tariffs have increased and more trade barriers have been erected. Europe faces a dual challenge from the trend toward deglobalisation, as it relies heavily on exports, while still grappling with limited access to essential raw materials.

• Protectionist measures outside the EU worsen the prospects for European companies seeking to sell goods to foreign markets.
• If countries outside the EU limit their supplies of raw materials and intermediate goods – such as chips and semiconductors – it can create significant production bottlenecks in the EU.

How can the EU improve its economic competitiveness despite these unfavourable future circumstances? We see three key levers.

1. Establishing a European industrial strategy

The US Inflation Reduction Act (USIRA) – which is the Biden administration’s largest industrial policy initiative – took the EU by surprise. In response, the EU hastily developed its own strategy, the Green Deal Industrial Plan (GDIP). The GDIP’s goals are clearly defined, the method behind them less so.

The USIRA cannot be replicated by the EU for political and institutional reasons. And it need not be, since the EU has its own strengths, which must be mobilised if it wants to create a coherent common industrial strategy. But achieving that goal means overcoming a number of obstacles.

European industrial programmes, such as the Important Project of Common European Interest (IPCEI), are worthwhile approaches. However, financial clout is missing. This is because too few resources have been allocated to close huge funding gaps. Until now, the Recovery and Resilience Facility (RRF) has provided the majority of European industrial policy funding, yet it will expire in 2026 and there are no plans for a successor instrument.

There’s a gap between Europe’s industrial ambitions and actual implementation, with industrial policy largely left to individual member states. For instance, during the energy crisis, competition regulations were relaxed, enabling wealthier countries, such as Germany and France, to dominate industrial policy spending.

This approach risks fragmenting the single market and creating economic inefficiencies. To stay competitive, the EU needs a common industrial strategy that strengthens regulatory power and funding at the European level, promoting all member states’ potential.

2. Advancing the single market

The EU faces significant economic challenges as it enters the 2024–2029 legislative period, with sluggish growth trailing behind global powers, such as the US. Protectionism and fragmented global trade are pressuring the EU’s export-dependent economy.

These issues have renewed efforts to enhance European integration and complete the single market to boost growth and competitiveness. This was highlighted by Enrico Letta’s March 2024 report, Much More Than A Market,  and Mario Draghi’s anticipated report on EU competitiveness is expected to reinforce this view.

The single market, central to the EU’s growth model, has increased EU growth by 9 percent since its creation in 1993 by enabling free movement of goods, services, capital and labour. However, integration has stalled because of legal and political hurdles, preventing a seamless economic area. Achieving political consensus for greater integration will be a major challenge in the new legislative period.

While public funds are essential for successful industrial policy, the EU must tap into private capital to meet its massive investment needs. Experts estimate that by 2030, almost €400 billion will be required each year to achieve the current climate targets, an amount the public sector alone cannot provide.

To unlock this private capital, the Europeanisation of financial and capital markets is necessary. However, a fragmented financial and banking landscape, with 27 different regulatory regimes, stands in the way, with many member states reluctant to relinquish their own systems.

Additionally, the single market ensures an almost unrestricted flow of goods. But this means the potential for further integration gains in goods trade is almost nil. Conversely, trade in services is growing rapidly in the single market – much faster than trade in goods – and trade integration in the services sector still offers considerable potential for more integration.

For example, the reduction of various regulatory barriers will help achieve this goal. Yet the EU is already a service-oriented economy, with services now accounting for  70 percent of value added in the EU. Reducing existing trade barriers could therefore unleash greater productivity and innovation.

However, dismantling trade barriers affects regional disparities in the EU, as not all areas benefit equally from the single market. The EU’s Cohesion Policy aims to reduce these inequalities by improving infrastructure and education in poorer regions, ensuring their participation.

Without such support, economic and political divergences could threaten the union’s stability, fostering populism and anti-European sentiment. The EU’s success hinges on balancing economic growth with reducing these gaps.

3. Strengthening international economic cooperation

The EU’s economic development depends, via numerous channels, on well-functioning foreign trade relations. This is true, for example, of European companies and their employees, whose sales opportunities and income are driven by exports. And it’s true for the EU’s citizens, who depend on imports of energy and other raw materials, as well as inexpensive consumer goods.

Three economic policy measures are especially relevant if, despite increasing geopolitical tensions, the EU is to enjoy stable, workable foreign trade relations it can leverage in the future.

• Diversifying value and supply chains through strategic partnerships

Strategic raw material partnerships are one way to reduce import dependencies. Since June 2021, the EU Commission has created such partnerships with several countries to secure trade and investments in raw material value chains.

Another example is the Minerals Security Partnership, a collaboration of 14 countries and the EU that was established in summer 2022. This partnership is about securing access to critical raw materials, such as cobalt, lithium and nickel, which are required for developing important technologies.

• International partnerships as a long-term investment

Whether or not international partnerships can actually be established between the EU and other regions depends largely on the willingness of all parties involved to collaborate. To increase this willingness, the EU could make financial and technical resources available, but this strategy should be contingent on certain conditions – above all, that the recipient countries enter into closer economic and political ties with the EU.

In this context, the EU’s flagship development initiative, Global Gateway strategy, plays a pivotal role. Launched as a €300 billion investment initiative, the Global Gateway is designed to rival China’s Belt and Road Initiative by fostering global infrastructure projects that promote sustainable and democratic development. This strategy aligns well with the EU’s goal of securing access to critical resources and building long-term partnerships through infrastructure development, particularly in less developed economies.

• Conclusion of new free trade agreements

New free trade agreements could be negotiated to counteract foreign trade relations that are weakening owing to increasing protectionism. Ideally, such agreements would be struck with countries that share the EU’s political values, above all market-based democracies.

This form of economic partnership can be referred to as friend-shoring, a term coined in a 2022 speech by US Treasury Secretary, Janet Yellen. However, friend-shoring has its limits. This applies above all to the geographical distribution of the raw materials available worldwide. In this area, there will be no way around China in the future.

This text is an abridged version of our article Competitiveness Is the Keyword on the EU’s Agenda in the Bertelsmann Stiftung’s background paper on the Salzburg Trilogue 2024 (LINK: will be provided later). More information on the Salzburg Trilogue can be found here: Trilogue Salzburg (bertelsmann-stiftung.de)