When Mario Draghi delivered his report on European competitiveness last year, he did not mince words: either Europe reforms radically, or it drifts into decline (see EUROPE 13478/1). Twelve months later, the question is unavoidable: have we changed course or are we sleepwalking into decline?
To be fair, the picture is not all bleak. Since taking office, the new Commission has rightly made prosperity and competitiveness its overarching priority, with nearly half of its 2025 work programme falling under this heading. The Competitiveness Compass sets a five-year roadmap based on Draghi’s core diagnosis—closing the innovation gap, financing decarbonisation, and reducing dependencies. Ambitious initiatives are emerging—the Clean Industrial Deal, a European Competitiveness Fund, and InvestAI.
Even in the area of regulation—long a source of business frustration—six “omnibus packages” have already been tabled to simplify legislation in areas from sustainability reporting to defence.
These initiatives show that the Union has woken up to the sound of the alarm bell. But not enough to change the trajectory. These first steps remain incremental when Draghi called for a real transformation.
The central pillars of his blueprint remain untouched. The capital markets union is still a promise rather than a reality; savings continue to leak abroad, while European start-ups struggle to scale. There is no ARPA-style innovation engine to take high-risk technologies from research to market. And perhaps most importantly, there has been no governance reform to make Europe more agile and decisive. Draghi was clear: without stronger common decision-making, Europe would continue to lag. One year on, governance reform remains politely ignored.
Meanwhile, the global context is harsher. Global trade rules are being rewritten by power politics. The United States has shifted decisively toward protectionism, weaponising tariffs and subsidies alike. China is doubling down on state-led industrial strategy. Wars and geopolitical rivalries are redrawing alliances and supply chains.
Europe is caught in the crosscurrents. Dependent on US support for Ukraine, yet facing tariff skirmishes with Washington. Committed to open markets, yet facing rivals who see trade less as a rulebook and more as a battlefield. Draghi was right that size alone no longer translates into power. Europe risks becoming a large but powerless bloc: wealthy in aggregate, but unable to translate its weight into influence.
Employers see the consequences every day. Start-ups with world-class ideas relocate to the United States for faster and deeper financing. SMEs remain trapped in national silos, deterred from scaling by fragmented rules and complex procedures. Larger companies hesitate to invest, asking whether Europe’s costs, regulation, and finance can match what is offered elsewhere. This is how decline unfolds—not by collapse, but through steady leakage of capital, talent, and opportunity.
If Europe continues on this path, it will not be external shocks that topple its economic base, but its own inability to act with urgency.
What must change? Next year must mark a turning point—from plans to delivery, from incrementalism to acceleration. Four priorities stand out.
First, competitiveness must become the organising principle of EU policymaking. Europe should embrace a “do no net harm to competitiveness” principle.
Second, Europe’s savings must be turned into productive equity.
Third, the Single Market must finally be completed by eliminating the most distortive barriers.
Fourth, Europe needs a genuine skills revolution.
President von der Leyen in her State of the Union address has a unique chance to set the tone for the years ahead. Employers and entrepreneurs across Europe will be listening for urgency—and will judge success by outcomes. Are administrative costs falling? Are SMEs scaling more easily? Is capital flowing into productive investment? Are entrepreneurs staying and growing in Europe?
If the answer is no, strategies alone will not convince investors, innovators, or citizens that Europe is serious about competitiveness. Europe cannot afford another year of hesitation. It must choose acceleration—now.
Stefano Mallia, President of the Employers' Group in the European Economic and Social Committee