The renaissance of Europe: Navigating Global Rebalancing in the 21st century

Europe at a Crossroads

Europe will not be made all at once, or according to a single plan. It will be built through concrete achievements which first create a de facto solidarity.(Robert Schuman) 

The continent that once dominated global trade and innovation now faces an era of profound geopolitical rebalancing that presents both unprecedented challenges and remarkable opportunities. The traditional pillars of European prosperity — cheap Russian energy, unfettered access to Chinese markets and American security guarantees — have fundamentally shifted. This new reality demands what can only be described as a European renaissance: a comprehensive transformation of the continent's economic model to reclaim its position as a global leader.  The sooner Europeans realise it, the better it is.

The Scale of the Challenge

Never let a good crisis go to waste. (Winston Churchill)

The statistics paint a stark picture of Europe's competitive decline. European productivity has materially lagged the US, widening the economic gap between the two regions. In 2023, the European Union's R&D expenditure stood at 2.2% of GDP¹, well below the 3% target set by EU leaders over two decades ago, with 3 of the 4 biggest EU countries sitting comfortably below the EU average level.  In the US, Alphabet puts €40 billion into R&D, in the EU the biggest budget comes from Volkswagen at €22 billion.  A tech company vs. a carmaker².

Mario Draghi's comprehensive report on European competitiveness starkly warns that without radical transformation, the EU faces "slow agony". The diagnosis is clear, the challenge gigantic: Europe needs investment of €750-800 billion annually to remain competitive. 

Yet this moment of reckoning also represents Europe's greatest opportunity in decades. The current global rebalancing is forcing European leaders to embrace reforms with an urgency unseen since the fall of the Berlin Wall in 1989, opening the possibility of a European Renaissance.

Financial Integration and Investment

Europe is not short of capital. It is short of capital mobilisation (Enrico Letta)

The completion of the Capital Markets Union is crucial for mobilising the massive investment required. Europe's savings must be channelled towards productive investments rather than flowing to international markets, and many initiatives can be put in place.  The list starts with fundamental reforms to banking regulations and institutional investor frameworks, needed to facilitate risk capital formation, and can continue with the creation of a deep EU common debt market, able to attract some of the FX reserve flows currently heading to the USA.

If Europe wants to reduce its gap with the US, it must put its companies in the same conditions as their US peers, able to find capital across all 50 states almost without internal frictions, while new frameworks for long-term private investments could be provided with the support of adequate tax advantages.  Solutions like these within a true Capital Union would represent a huge advantage for Europe.

Innovation and Technological Sovereignty

AI is probably the most important thing humanity has ever worked on (Sundar Pichai, CEO of Alphabet and Google)

Europe's innovation gap with its competitors requires immediate attention. The continent must close the technology deficit, particularly in high-tech sectors where the US maintains significant advantages and China is likely hiding its true high-tech achievements.  In the USA, a public agency like DARPA (Defense Advanced Research Projects Agency) takes care of innovative and promising projects in their early stage, leaving them to find private capital once certain standards of technological readiness are reached, confirming once more the need for a more structured Capital Union.  On this front, the common legal framework set by the “28th regime” is an important tool for innovation once implemented.  Again, the sooner the better.

On the top of this, defenceis heavily interconnected with technology like never before, and Europe cannot depend on foreign countries for its needs.  We are learning how the concept of “sovereignty” also involves the supply lines, thus implying technological and industrial autonomy across critical sectors and requiring resident skills, knowledge and investments.

The Path Forward

The conclusion is straightforward. If we do not act together now, we will become irrelevant. (Joseph Borrel, former vice president of the European Commission)

Europe's renaissance needs three fundamental shifts. First, embracing coordinated investment at an unprecedented scale to increase its competitiveness, potentially including common borrowing mechanisms. Second, completing the single market through digital integration, regulatory harmonisation and the elimination of remaining barriers. Third, developing a coherent strategy balancing trading openness with strategic autonomy, with a strong focus on technology.

Conclusion: A New European Dawn

Continue, continue, there is no future for the people of Europe other than in union (Jean Monnet)

Europe's renaissance is not inevitable, but it is achievable. The current global rebalancing, while threatening established patterns of prosperity, also offers the external pressure necessary to overcome internal frictions. We can see the opportunity of a stronger Europe in the enthusiasm of its entrepreneurs, in the available wealth and in the room for manoeuvre created by shifting geonomics. Europe must be faster and bolder in creating the technological, financial and institutional infrastructure necessary to face the challenges of the 21st century.

Innovation, investment and integration will define Europe's trajectory for generations to come. The renaissance is beginning: its success depends on European willingness to embrace the scale of transformation that this historic moment demands.