The European Union does not lack economic weight. It lacks the political mechanisms through which that economic weight can be rapidly converted into strategic power. This is the central contradiction with which Europe enters the new international geopolitical architecture: it remains one of the world’s largest markets, a major normative actor and a trading bloc with considerable negotiating capacity, but it operates in an environment in which the speed of decision-making, competitive energy, the defence industry, technology and strategic coherence matter more than they have in the past three decades.
For the European Union, the problem is not merely that the world has become harsher. The problem is that its instruments were built for an era in which globalisation seemed relatively stable, Russian energy was available, China was viewed primarily as a market and a factory, and the United States provided the ultimate strategic umbrella. In that framework, European slowness could be presented as prudence, consensus as maturity, and regulation as a superior form of influence.
That world has largely passed. Russia’s war against Ukraine, the Sino-American rivalry, the return of industrial policies, competition for critical technologies and pressure on supply chains have shifted the centre of gravity of international politics from rules to power. In this new context, the decisive question is whether a political system built on slow compromise, institutional balance and extensive regulation can compete with states capable of deciding quickly, subsidising massively, mobilising industrial resources and adjusting their foreign policy according to the balance of power.
The Union’s Strengths Should Not Be Underestimated
A fair analysis must begin by recognising what the European Union still represents. The internal market remains one of the largest areas of economic integration in the world. The euro is the world’s second reserve currency. Europe’s regulatory capacity produces standards adopted or imitated globally, from data protection to product safety. The EU remains a major recipient of foreign direct investment and a first-tier trading partner for most emerging economies.
Moreover, after Russia’s invasion of Ukraine, the Union managed to rapidly reduce its dependence on Russian gas without an economic collapse, mobilise substantial financial and military support for Kyiv, and adopt 20 successive sanctions packages against Moscow. These are not minor achievements. They show an adaptive capacity that, in the first months of the war, was often underestimated.
The EU remains competitive in high value-added segments, including industrial equipment, fine chemicals, pharmaceuticals, certain green technologies and products with demanding technical standards. Europe is neither an exhausted industrial space nor a power inevitably drifting toward irrelevance. The question is not whether the EU is still relevant. It is. The question is whether its current instruments allow it to remain a genuine strategic pole in a world in which dominant actors transform economic resources into political, military and technological influence at a much faster pace.
Europe Is Not Weak, But It Is Slow
The Union’s central limitation is structural. The common foreign and security policy remains dependent on the unanimous agreement of the member states, while the European Parliament notes that discussions on moving to qualified majority voting in certain areas are linked precisely to the need for the EU to respond more effectively to global geopolitical challenges.
This architecture produces legitimacy, but it consumes time. A state with a centralised executive can quickly change strategic direction after elections, recalibrate relations with Washington, Beijing, Moscow or Ankara, and use foreign policy as an executive instrument. The European Union must negotiate among 27 governments, each with its own economic interests, strategic histories, national industries, energy dependencies and electoral sensitivities.
The European model is not inferior in itself. In many areas, it was precisely the capacity for compromise that produced stability and prevented the domination of one capital over the others. But in today’s geopolitics, decision-making slowness becomes a strategic cost. When the United States, China, India, Turkey or the Gulf states make rapid decisions on investment, energy, defence or technology, the EU risks arriving at a common position after the ground has already been occupied by others.
Here lies one of the great weaknesses of contemporary Europe: it has economic mass, but not always political speed. It has rules, but not always the capacity to convert them into power. It has institutions, but its institutions were designed for managing interdependence, not for hard competition among geopolitical blocs.
The Economic Gap: The Draghi Diagnosis and the Productivity Crisis
The most honest picture of the EU’s economic condition was delivered by a figure at the very heart of the European establishment. The report “The Future of European Competitiveness”, presented by Mario Draghi in September 2024 at the request of the European Commission, describes a cycle of “low industrial dynamism, low innovation, low investment and low productivity growth” across the 27 member states. The diagnosis is accompanied by a figure that shows the scale of the problem: for the EU to regain ground vis-à-vis the United States and China, additional investment estimated at around €800 billion per year would be required, equivalent to almost 5% of the Union’s GDP.
This figure matters not only because of its size, but because of what it says about the European model. Europe cannot remain competitive through fiscal discipline, high standards and the internal market alone. It needs massive investment in energy, digitalisation, defence, infrastructure, semiconductors, artificial intelligence, critical raw materials and industrial capacity. In other words, it needs an economic policy commensurate with a world in which the economy has once again become an instrument of power.
Productivity data confirm the seriousness of the situation. The European Central Bank, through Christine Lagarde, observed in May 2026 a broader pattern of industrial competition: where Chinese producer prices fell or rose more slowly than those in the euro area, China gained export market share relative to the euro area, a phenomenon also linked to relative changes in energy prices and with persistent effects on the competitiveness of Europe’s energy-intensive industries. IESE Business School summarised the key figure from the Draghi report: the GDP gap between the United States and the EU increased by 12% in 2023, and 72% of that difference is explained by productivity.
Productivity is the technical term for a harsher political reality: Europe produces too little new value relative to the size of its economy, its level of education and its global ambitions. And when low productivity is combined with expensive energy, dense regulation and political fragmentation, the result is an economy that can remain wealthy, but becomes increasingly defensive.
Expensive Energy: The Open Wound of European Industry
The energy crisis triggered after Russia’s invasion of Ukraine exposed a deeper problem. The European industrial model was built on a combination of relatively accessible energy, global trade integration and the externalisation of certain strategic costs. Once the energy relationship with Russia was severed, Europe avoided collapse, but it did not restore energy competitiveness.
Data from the International Energy Agency for 2025 show that electricity prices for energy-intensive industries in the EU remained, on average, more than twice as high as levels in the United States and almost 50% above those in China. BusinessEurope, the federation of European employers’ organisations, indicates 2024 industrial prices of €0.199 per kWh in the EU, compared with €0.082 in China and €0.075 in the United States. The OECD notes, in turn, in OECD Economic Surveys: European Union and Euro Area 2025 that wholesale gas prices in the EU were almost five times higher than in the United States in 2024.
For industries such as chemicals, metallurgy, glass, paper, cement, fertilisers or automotive components, these differences are not mere market fluctuations. They affect the decision to produce in Europe or elsewhere. In a global economy in which capital moves rapidly, expensive energy becomes a structural tax on competitiveness.
The consequences in Germany, the Union’s industrial engine, are the most visible. The Federal Statistical Office (Destatis) announced on 2 January 2026 that, in 2025, employment in industry, excluding construction, fell sharply by 143,000 people, or -1.8%, to 7.9 million. The Federal Employment Agency confirms the trend: the number of employees in Germany’s manufacturing sector fell by around 120,000 over 12 months, reaching 6.67 million in January 2025, while the decline has continued month after month since August 2023. Reuters reported, based on an EY study, that German industry had lost almost 250,000 jobs compared with 2019, with the steepest declines in the automotive sector.
The green transition remains a legitimate strategic objective. Europe needs decarbonisation, clean technologies and energy security. But if this transition is implemented without competitive energy, infrastructure, industrial flexibility and sufficient capital, it risks amplifying pressure on European industry instead of producing industrial renewal. The transition itself is not the problem, but rather a transition that asks industry to compete globally with higher structural costs than its main rivals.
Competition with China: Competitive Advantage Lost in Strategic Sectors
China did not surpass Europe through a single instrument, nor in a single sector. It gained competitive advantage in strategic areas where Europe either was, or wanted to be, a leader, through a combination of industrial strategy, scale, subsidies, control over supply chains, competitive costs, logistics infrastructure and speed of execution. Europe long relied on technological advantage, quality and the premium market. China relied on volume, vertical integration and the state’s ability to support industries deemed strategic.
In the photovoltaic industry, the report by the International Energy Agency shows that China’s share across all stages of solar panel production — polysilicon, ingots, wafers, cells and modules — exceeds 80%, and that, based on manufacturing capacity under construction, China’s share in polysilicon, ingots and wafers will soon reach almost 95%. Eurostat data indicate that the EU imported photovoltaic panels worth €19.7 billion from China in 2023.
This is one of the greatest strategic ironies of Europe’s green transition: in order to meet its climate objectives, Europe has become dependent on green technologies produced overwhelmingly by China. In geopolitical terms, the risk is obvious. Reduced dependence on Russian fossil fuels must not be replaced by industrial dependence on technology chains controlled by Beijing.
In the field of electric vehicles, the European Commission concluded that the value chain of electric vehicles produced in China benefits from unfair government subsidies that create a threat of economic injury to European producers. The EU imposed definitive countervailing duties on imports of battery electric vehicles from China, applicable from 30 October 2024, with differentiated levels for BYD, Geely, SAIC, Tesla Shanghai and other manufacturers.
Tariffs can correct certain distortions, but they cannot substitute for a comprehensive industrial strategy. If Europe taxes Chinese imports but does not reduce energy costs, simplify regulation, accelerate investment and create scalable industrial champions, it will treat the symptoms, not the cause. Europe’s advantage persists in certain technological and industrial niches, where quality, engineering precision and standardisation remain strong assets. But niches are not sufficient to sustain the ambition of a continental power.
Overregulation: When Normative Advantage Becomes Economic Cost
The European Union has built much of its global influence through regulation. The so-called “Brussels effect” worked precisely because the European market was large enough that global companies often preferred to adopt EU standards internationally. This capacity remains important. But normative advantage becomes a vulnerability when the volume of rules, reporting requirements and administrative obligations slows investment and affects small and medium-sized enterprises in particular.
The European Commission itself acknowledged, through the simplification agenda launched in 2025, that the volume of regulation had become an obstacle to competitiveness. The Council of the EU explicitly presents the need for legislative simplification and sets targets to reduce administrative costs and reporting obligations by at least 25% for all companies and 35% for SMEs by 2030, with estimated savings of €37.5 billion.
Beginning in February 2025, the Commission presented ten “Omnibus” packages designed to simplify existing legislation on sustainability, investment, agriculture, digitalisation, defence, chemicals, the automotive sector and other areas. The European Commission states that these proposals aim to reduce recurring administrative costs by €11.9 billion. According to the European Commission, the Omnibus simplification package also targets corporate sustainability reporting, corporate due diligence, the EU Taxonomy and the Carbon Border Adjustment Mechanism.
For large companies, bureaucracy can be absorbed through legal departments and consultancy. For SMEs, the administrative burden can be decisive, because it directly affects time to market, compliance costs and the capacity to scale. For industries competing with China or the United States, regulation affects the speed of investment, not only its accounting cost.
The problem is not the existence of rules. An advanced economy needs standards. The problem arises when the Union regulates faster than it invests and asks its companies to comply with the highest standards in the world without providing them with competitive energy, sufficient capital and an integrated capital market capable of financing rapid scaling.
The Decision-Making Trap: When Unanimity Blocks Strategic Reaction
While states with centralised executives can recalibrate foreign policy within a very short timeframe, the EU remains captive to its own constitutional architecture. The common foreign and security policy, sanctions, enlargement and taxation still operate, in important areas, under the unanimity rule. This mechanism, designed to protect member states and prevent the will of larger states from being imposed on smaller ones, can become an instrument of political blockage and coercive negotiation among capitals.
The most documented case of recent years was Hungary under Viktor Orbán’s government. Throughout 2025 and early 2026, Budapest systematically used the veto to delay successive sanctions packages, conditioning their adoption on guarantees regarding the resumption of oil flows through the Druzhba pipeline. The change of government in Budapest — the victory of the Tisza party led by Péter Magyar in the parliamentary elections of 12 April 2026 and the installation of a pro-European executive on 9 May 2026, after 16 years of Fidesz rule — ended that specific chapter. But it did not close the structural problem.
Slovakia immediately assumed the role of blocking state on the sanctions file. The Council of the EU adopted the 20th sanctions package against Russia on 23 April 2026, after months of blockage, with the package including measures concerning Russian energy revenues, the shadow fleet, sanctions circumvention and crypto services. The 21st package is being prepared for the end of June or the beginning of July 2026.
This structural fragility has generated a real legal debate. Max-Planck-Gesellschaft notes that legal experts from the Max Planck Institute in Heidelberg have been developing, since 2025, legal options for overcoming such blockages, arguing that, in cases of serious and systematic breaches of the principle of solidarity enshrined in the EU treaties, a member state’s veto could be deemed legally irrelevant. The Commission has already resorted to circumvention mechanisms on energy files: through the REpowerEU roadmap presented in May 2025, legislation aimed at reducing imports of Russian oil and gas by 2027 was designed for adoption by qualified majority, thereby avoiding the veto of Hungary and Slovakia.
The fact that the EU is looking for solutions to bypass its own rule says much about the extent to which its decision-making architecture has become incompatible with the pace of global events. A rule created to protect unity can, in moments of crisis, end up fragmenting the common response.
European Defence: More Money, But Power Still Fragmented
The war in Ukraine radically changed the discussion on defence. The Council of the EU, based on data from the European Defence Agency, shows that member-state defence expenditure reached €343 billion in 2024, rising for the tenth consecutive year, while the estimate for 2025 is €381 billion, equivalent to 2.1% of GDP. Defence investments increased by 42% in 2024 compared with 2023, reaching a record level of €106 billion, and are projected at almost €130 billion for 2025.
On 19 March 2025, the Commission proposed the White Paper for European Defence and the ReArm Europe / Readiness 2030 Plan, targeting up to €800 billion in additional defence spending by 2030, according to the Council of the EU. The SAFE instrument, adopted by the Council in May 2025, mobilises up to €150 billion in loans for joint defence procurement, according to the Council of the EU. At the 2025 NATO summit in The Hague, allies agreed on a new defence investment pledge of 5% of GDP by 2035, of which at least 3.5% would be dedicated to core requirements and up to 1.5% to the protection of critical infrastructure, resilience and the defence industry, according to the European Parliamentary Research Service.
These figures show that Europe has understood the change in the strategic environment. But money does not automatically translate into military power. The problem is not only the level of expenditure, but fragmentation. Bruegel demonstrates that the European defence market remains weakened by the preference for national procurement, the small number of orders and technological gaps — problems that reflect the combination of historical dependence on the United States and the national governance of European defence. Integrated markets and procurement at scale could significantly reduce unit costs, according to Bruegel’s estimates.
According to the European Defence Industrial Strategy (EDIS), analysed by Bruegel, between February 2022 and June 2023, 78% of member states’ military equipment procurement was carried out from non-EU suppliers, while the objective for 2030 is for at least 50% of member states’ procurement to come from the European defence technological and industrial base. The European Parliament confirms that, although the European Defence Agency set a benchmark of 35% for collaborative procurement as early as 2007, cooperation among member states remains limited: in 2022, only 18% of defence investment was carried out in collaborative formats.
Fragmentation does not only increase unit costs. It complicates interoperability, maintenance, operational readiness and the ability to sustain a prolonged conflict. A Europe that spends more but buys in a fragmented manner does not automatically obtain military power proportionate to the money invested. It may obtain only a more expensive version of its old dependence.
Strategic Positioning: Declared Unity, Divergent National Interests
One of the great illusions of European discourse is that the EU always has a single strategic position. In reality, the Union has common positions where the interests of the member states can be aligned. When interests diverge, Brussels produces diplomatic formulations, but not always strategy.
In the relationship with China, Germany has industrial and commercial interests different from those of France, Lithuania, Poland or Italy. In the relationship with the United States, some states prefer rapid accommodation to protect exports, while others call for a firmer position. With regard to Russia, the Baltic states and Poland have a far more severe strategic perception than states in southern Europe. In the Mediterranean, France, Italy, Greece and Spain see priorities that do not mechanically coincide with those of Central and Eastern Europe.
The change in Budapest — the arrival of a pro-European executive after 16 years of Fidesz — changes the political equation, but not the fundamental logic of divergent interests among capitals. The Union’s problem is not one government or another. The problem is that European foreign policy must transform 27 different political geographies into one common position.
This reality should not be moralised. It is normal for states to defend their interests. The problem arises when the EU projects outward the image of a unitary geopolitical power, while internally it often functions as a permanent negotiation among national priorities. In a world in which great powers use energy, infrastructure, technology, markets and sanctions as instruments of influence, European ambiguity becomes a vulnerability.
Mercosur: Commercial Success Advanced Under Contested Political Conditions
The EU-Mercosur agreement is a clear example of Europe’s strategic ambiguity. The Council of the EU states that, on 6 December 2024, the EU reached a political agreement with Mercosur on a comprehensive partnership agreement, structured around two pillars — political cooperation and trade-investment. On 3 September 2025, the Commission proposed Council decisions on the signature and conclusion of two parallel but legally distinct instruments: the EU-Mercosur Partnership Agreement and the Interim Trade Agreement. On 9 January 2026, the Council approved the signature of both agreements, with the signing ceremony taking place in Paraguay on 17 January 2026.
From a geopolitical perspective, the logic is evident. The EU needs trade diversification, access to markets, stronger relations with Latin America and alternatives in a world in which dependence on China is becoming problematic. The agreement creates the world’s largest free-trade area, covering a market of more than 700 million people. In a world of economic blocs and competition for influence, closer ties with Mercosur make strategic sense.
But the way in which the agreement was pushed forward reveals the political limits of the EU. The Interim Trade Agreement was approved in the Council despite the opposition of five member states — France, Poland, Ireland, Austria and Hungary — and Belgium’s abstention. On 21 January 2026, the European Parliament adopted a resolution requesting an opinion from the Court of Justice of the EU on the compatibility of the EU-Mercosur Partnership Agreement and the Interim Trade Agreement with Union law, suspending the consent procedure pending the opinion.
The Commission moved ahead with the provisional application of the trade component without waiting for the CJEU opinion. According to the European Commission (DG TAXUD), on 1 May 2026 the EU-Mercosur Interim Trade Agreement entered into provisional application, opening a combined market of more than 700 million consumers. CEPS describes the moment as a decisive step — even if legally incomplete — in one of the longest trade negotiations in modern economic diplomacy. The CJEU opinion is expected no earlier than the end of 2027.
Mercosur can be read simultaneously as a success and as a partial failure. It is a success if the objective is trade diversification and the expansion of European influence in Latin America. It is a partial failure if the objective is to demonstrate a unitary European strategy that is politically accepted and synchronised with the agricultural, industrial, climate and electoral interests of the member states. The optimistic tone with which the Commission presented the agreement contrasts with the political reality: an agreement provisionally applied through contested procedures, reviewed at CJEU level at the request of the European Parliament, opposed by five capitals and used as a pretext for domestic political mobilisation.
If major trade agreements are perceived as imposed from above, they do not automatically strengthen European power. They can become fuel for Euroscepticism and evidence that Brussels has greater external negotiating capacity than internal consensus-building capacity.
What the European Union Should Do to Perform
The first condition is the recognition of reality. The EU cannot compete in the new global order through regulation alone. Normative power remains important, but it must be complemented by industrial, energy, technological and military power. European standards matter if Europe continues to produce, innovate and export at global scale.
The second condition is competitive energy. Europe must accelerate energy infrastructure, interconnections, storage capacity, nuclear production where member states accept it, efficiently integrated renewables and long-term contracts for industry. The green transition must be calibrated so that it reduces strategic dependence, rather than transferring industrial production to countries with cheaper energy and weaker standards.
The third condition is genuine regulatory simplification. Not cosmetic adjustments, not only Omnibus packages, but a change of philosophy. Every rule must be tested against its impact on investment, SMEs, industry and global competitiveness. If the EU asks European companies to comply with the strictest standards in the world, it must ensure that those companies can remain competitive.
The fourth condition is a more coherent European industrial policy. Europe cannot fully copy China or the United States, but nor can it remain in a purely liberal model in a world of subsidies, tariffs, technological restrictions and aggressive industrial policies. Critical sectors — defence, energy, batteries, semiconductors, artificial intelligence, digital infrastructure, pharmaceuticals, critical raw materials — need capital, coordination and intelligent protection. Draghi’s call for common financing instruments encountered the reservations of Germany and of states concerned about debt mutualisation. As long as the fiscally most capable states refuse significant common mechanisms, ambitious plans remain difficult to transform into real economic capacity.
The fifth condition is defence integration. It is not realistic for the EU to become a single military power quickly. But it is realistic for it to reduce procurement fragmentation, consolidate the defence industry, increase ammunition production, standardise platforms and create long-term financing mechanisms. Without a defence industrial base, strategic autonomy remains rhetoric.
The sixth condition is decision-making reform in foreign policy. Unanimity offers protection to member states, but it can block strategic reaction. A realistic solution would not be the complete elimination of unanimity, but the gradual extension of qualified majority voting in areas where the common interest is evident: sanctions, human rights, certain external positions and economic instruments of foreign policy. The change of government in Budapest does not solve the structural problem. Future governments, in any capital, can reactivate the logic of the veto at any time — as Slovakia demonstrates.
The seventh condition is strategic honesty. The EU must accept that member states have different interests and build mechanisms that reduce differences, not cover them with diplomatic language. Romania, Poland and the Baltic states will not view Russia in the same way as Portugal or Spain. France will not view strategic autonomy in the same way as states dependent on the American guarantee. Germany will not easily break its economic relations with China. These differences can be managed, but not denied.
The Real Stake: Europe as a Market or Europe as a Power
The future of the European Union depends on the answer to a simple question. Does it want to remain primarily a regulated market, or does it want to become a strategic power? The two are not incompatible, but the latter cannot exist without reform.
If the EU continues to decide slowly, regulate faster than it invests, tax more easily than it produces, proclaim autonomy without sufficient military capacity and negotiate trade agreements without solid internal consensus, it will remain relevant, but defensive. It will be a wealthy, attractive market, but vulnerable to pressure from faster actors.
If, however, it corrects its energy costs, reduces the administrative burden, rebuilds its industrial base, integrates defence more effectively and adapts its decision-making mechanisms, the EU can remain one of the important poles of the 21st century. Not as an empire, not as a superstate, but as an actor capable of transforming economic size into strategic influence.
Europe is not condemned to decline. But if it does not learn to transform the market into power, it risks becoming the wealthiest defensive space in a world led by actors that are faster, tougher and less constrained by their own procedures.
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