The European Union is experiencing an integration crisis and is losing its competitive advantages in the global economy

The European integration model was traditionally based on cheap imported energy, trade globalization with open access to China’s market, strategic protection from the United States, and the West’s technological leadership. Now, however, in the view of European Commission President Ursula von der Leyen, these advantages—on which the European Union’s economic model had long been built—no longer exist. Particular attention in von der Leyen’s report at the annual conference of French entrepreneurs held on August 17 was devoted to the worsening of problems in relations with China, including the deepening of imbalances in mutual trade.

In the period from 2021 to 2025, EU imports from China increased by 45%. The trade deficit with China amounts to about €1 billion per day, while the EU’s dependence on Chinese supplies of critical materials is increasing to more than 80% overall, and for certain rare-earth metals—to 90%. The loss of competitiveness of the European economy leads to the forced relocation of part of production outside the European Union to the United States and other countries.

Christine Lagarde, President of the European Central Bank, stated in her speech on August 19 at the International Business Council of the World Economic Forum in Geneva that Europe’s growth model is being destroyed and that the security system based on a close alliance with the United States is being lost.

The growing problems of competitiveness in the European Union were discussed two years earlier in a report by Mario Draghi, former President of the ECB and former Prime Minister of Italy, published on September 9, 2024, warning that the old growth model had in fact run its course. The report notes the crisis state of the European economy, which is confirmed by the fact that politicians for too long viewed the widening gap between the EU and the United States merely as an “annoying inconvenience,” rather than the “catastrophe” that it is. On a per capita basis, real disposable income in the European Union has been growing since 2000 at half the pace compared to the period before the European EMU began functioning. The United States has significantly outpaced the European Union in advanced technologies: only 4 of the world’s 50 largest technology companies are European.

During 2021–2024, nearly one million jobs in manufacturing were lost in the EU. As one of the most acute problems, the report notes the high degree of the European Union’s geopolitical and strategic dependence in the area of security, in particular on imports from third countries, primarily from China, at around 40% for certain types of critical mineral raw materials and technologies. In Draghi’s view, the new realities pose an existential challenge for the European Union and require a choice of priorities, since Europe cannot simultaneously be a leader in new technologies, a beacon of the climate transition, and an independent player on the world stage. As a priority, Draghi proposes a new industrial strategy for the European Union, the priority of which is close interaction among countries in pursuing industrial, competition, and trade policy.

To address the problem of an acute investment deficit in the economy, von der Leyen proposes mobilizing €10 trillion in household savings held in bank accounts through the mechanism of a “Savings and Investment Union.” The plan assumes the release of up to €470 billion in additional investment into the European economy. Also announced in the new EU budget is a competitiveness fund of more than €450 billion. It is also proposed, in the field of energy policy, to reduce electricity costs for business, accelerate the implementation of renewable energy and electricity grid projects, complete the implementation of the action plan on electrification, and modernize the European carbon market[1].

The reports of former and current leaders of the European Union note that structural and sectoral problems of the integration bloc have remained unresolved throughout the entire period of the functioning of the European EMU. National interests remain a priority compared to supranational ones. The constant statements by the EU’s political elite about the vagueness and incompleteness of the institutional design and the radical restructuring of the euro area model go unheard by the countries, and proposals to create a полноценный regional capital market and a single supranational budgetary, tax, and investment policy remain unimplemented.

Author: Professor, Doctor of Economics, Professor of the Department of World Economy and World Finance, Financial University under the Government of the Russian Federation Viktor Yakovlevich Pishchik.