Europe’s economic decline did not happen overnight. War, demographics, energy shocks and technological change all played a role. But a pattern has emerged: Europe has repeatedly added costs, restrictions and complexity to doing business while its major competitors concentrated on investment, scale, technology and energy.
Even the OECD now says that reducing regulatory burdens and Single Market barriers is important for restoring European productivity and business dynamism.
So how did Europe get here?
- Overregulation — compliance requirements accumulated across virtually every major economic sector.
- Expensive energy — European energy prices have damaged the competitiveness of chemicals, steel, aluminium and other energy-intensive industries.
- Decarbonisation costs — ambitious climate objectives required companies to invest and adapt rapidly, sometimes before competitive alternatives were available at scale.
- Deindustrialisation — important parts of Europe’s energy-intensive industrial base have contracted or moved investment elsewhere.
- Endless permitting — factories, mines, electricity grids and infrastructure can take years to approve.
- A fragmented Single Market — Europe created common rules but still maintains numerous national barriers preventing companies from operating at continental scale.
- Fragmented capital markets — European savings are not efficiently channelled towards young and rapidly growing European companies.
- Failure to scale companies — European businesses have considerably greater difficulty growing into global giants than their American counterparts. The IMF estimates European labour productivity at roughly 20% below the US level.
- Technology caution — Europe has often moved faster on regulating emerging technologies than on creating globally dominant companies around them.
- Digital weakness — Europe has relatively few global leaders in cloud computing, digital platforms, artificial intelligence and advanced semiconductors.
- Automotive disruption — one of Europe’s flagship industries must simultaneously manage technological transformation, Chinese competition and an increasingly complex regulatory environment.
- Chemical-industry pressure — environmental compliance arrives on top of already high European energy and production costs.
- Agricultural bureaucracy — farmers increasingly face environmental, administrative and reporting requirements alongside global price competition.
- Circular-economy complexity — political recycling ambitions have sometimes moved faster than the economics and technological maturity of recycling itself.
- Import dependence — reducing domestic production does not necessarily eliminate consumption; sometimes it simply transfers production and emissions abroad.
- Strategic dependencies — Europe remains dependent on foreign suppliers for significant amounts of energy, critical raw materials, electronics, batteries and other strategic goods.
- Tax and labour complexity — a supposedly Single Market still operates through 27 different national tax, labour and administrative systems.
- Subsidising the consequences — governments increasingly respond to declining competitiveness with subsidies, creating another layer of state intervention.
- Weak productivity growth — Europe’s productivity gap with the United States has widened substantially since 2000.
- Institutional risk aversion — Europe’s regulatory philosophy frequently places precaution and risk prevention ahead of experimentation and speed.
- Advantages for incumbents — complex regulation can unintentionally favour large corporations capable of maintaining compliance departments over smaller challengers.
- Competitiveness came too late — for years, environmental, regulatory and social ambitions expanded while energy costs, productivity and industrial competitiveness received less attention.
EU regulation has become the enemy of European competitiveness. Europe has turned itself into a nanny state, while the European Commission continues to produce rules without seriously measuring their cumulative economic consequences.
Brussels seems to believe that prosperity can simply be regulated into existence.
But at some point, somebody still has to build the factory, develop the technology, produce the chemicals, generate the energy, take the risk and make the investment.
The European dream project has come to a fucking end — at least, if you ask the European middle class.