Europe must radically change to compete with US, China

According to an opinion piece in the Financial Times, Europe must brace for significant changes over the next five years to avoid being outpaced by the US and China.

Although the recent European elections in France did not drastically shift the European Parliament's center of gravity, the upcoming European executive must prepare for substantial transformations. Former ECB President Mario Draghi has emphasized the need for "radical change," focusing on three main areas: economic competitiveness, defense industry consolidation, and EU enlargement.

Firstly, boosting economic competitiveness is crucial. China's aggressive industrial policies, such as subsidies and exchange rate management, have given it a competitive edge, particularly in renewable energies and electric vehicles. The US has responded with the Inflation Reduction Act to protect clean technology production domestically. The EU must catch up by completing the single energy market, protecting its market without isolationism, and investing in infrastructure and R&D to support European companies.

Secondly, the European defense industry needs reorganization. Historically low defense investment has led to a fragmented industry, as seen in the EU's challenges in supporting Ukraine. The goal is not to create a common army but to enhance the production capacity of military equipment across European companies, enabling quicker and more coordinated responses to threats.

Lastly, reforms are essential for future EU enlargement. Integrating new member states requires changes to the EU budget and governance to maintain stability and efficiency. The single market must remain central, as demonstrated by the UK's post-Brexit struggles. Different groups of countries could collaborate on specific sectors, such as defense and quantum computing, to streamline efforts.

To support these ambitions, the EU budget needs expansion through private financing, public-private partnerships, and increased EU resources, including digital services taxes and customs duties. Europe's future hinges on addressing these challenges, with France's role being crucial in shaping this future .