As the shadow of Donald Trump’s impending return to the White House looms large, European Union leaders are gathering in Budapest for a crucial informal summit to address the bloc’s faltering economic competitiveness. The threat of protectionist “America first” trade policies under a second Trump administration has injected new urgency into Europe’s quest to boost growth and assert its economic might on the global stage.
Draghi Report Proposes Radical Reforms
The summit’s agenda is centered around a groundbreaking report by former Italian Prime Minister and European Central Bank chief Mario Draghi, which warns that the EU faces a “slow and agonizing decline” without swift and decisive action to reverse years of economic stagnation. Draghi’s proposals, outlined in the report published in September, call for a massive €800 billion annual investment in the bloc’s economy—a sum equivalent to roughly 5% of the EU’s yearly economic output.
Don’t ask what the US can do for you, ask what Europe should do for itself. Europe must find a balance. We know what we have to do.
Giorgia Meloni, Italian Prime Minister
Funding Hurdles and Political Challenges
However, the path to implementing Draghi’s bold vision is fraught with obstacles. The 170 main recommendations in his report, which chart a course for the EU to stimulate growth while transitioning to a greener, more digitally competitive economy, include politically sensitive measures like expanded common borrowing—a prospect that has traditionally been met with fierce resistance from the bloc’s more fiscally conservative members like Germany and the Netherlands.
Further complicating matters are the domestic political crises gripping the EU’s two largest economies. Germany’s coalition government collapsed on Wednesday, while French President Emmanuel Macron is grappling with a divided parliament that has left him without a stable majority. These internal upheavals have weakened the bloc’s ability to present a united front in addressing its economic woes and responding to the challenges posed by Trump’s re-election.
Calls for Urgent Action and Consensus
Despite these hurdles, many EU leaders are emphasizing the critical importance of finding common ground and forging ahead with the necessary reforms. European Parliament President Roberta Metsola stressed that competitiveness is “not just a buzzword,” noting that if Europe had matched the United States’ growth since 2000, the bloc would have 11 million more jobs today.
We have postponed too many important decisions in order to find consensus [among EU member states]. That consensus did not come, and as a result we have suffered lower economic growth, and now stagnation.
Mario Draghi, former Italian Prime Minister and ECB chief
Draghi himself, who is scheduled to present his report in detail to the 27 EU heads of state and government at the summit, emphasized that the bloc can no longer afford to delay critical decisions. He argued that common borrowing, first undertaken by the EU to finance its pandemic recovery funds, would be indispensable going forward. However, he stressed that the top priority must be the creation of a genuine single capital market to facilitate the flow of investment and savings across all member states.
Navigating Political Transitions and Seeking Unity
As the summit unfolds against the backdrop of Germany’s ongoing government crisis, triggered by Chancellor Olaf Scholz’s firing of his liberal finance minister Christian Lindner, diplomats and analysts are weighing the potential implications for Europe’s economic agenda. Some are cautiously optimistic that Lindner’s departure could pave the way for a more constructive approach to topics like common borrowing and increasing defense financing at the EU level.
Others express hope that Germany’s next government, once formed, will be more coherent and capable of taking clearer stances on key European initiatives. However, with Germany’s political landscape likely to remain in flux for several months, expectations for concrete steps to bolster Europe’s economy in the near term are muted.
The Road Ahead for Europe’s Competitiveness
As EU leaders grapple with the weighty challenges of reviving the bloc’s competitiveness, the specter of Trump’s return and the potential economic fallout loom large. The Budapest summit is expected to yield a “new European competitiveness deal” that acknowledges the broad conclusions of Draghi’s report and outlines a path forward, with a focus on cutting red tape, bolstering key sectors, ensuring a level playing field in trade, and exploring innovative financing options.
However, translating these aspirations into concrete, transformative action will require unprecedented levels of unity, political will, and strategic vision from EU member states. As Europe stands at a critical juncture, the decisions made in the coming months and years will shape not only the bloc’s economic trajectory but also its ability to assert its interests and values in an increasingly complex and competitive global landscape.
