The outbreak of the coronavirus pandemic in 2020 determined the beginning of an era of great transformations in the world economy. The era has been dominated by the transition towards new models of economic growth and development based on green energy and the incorporation of the Digital and Artificial Intelligence Revolution.
However, the pace of these transformations is nowadays subordinated to the persistent geo-political tensions. These have induced the significant increase of the military spending in the world over the past years.
In this context, the allocation of financing flows to counter climate change remained lower than military spending in the world in 2023 (USD 1.8tn vs. USD 2.4tn).
In this global landscape, Europe is again on the losing end. EU economies continue to be confronted with long-lasting challenges, namely competitiveness and structural convergence.
For instance, the volume of exports of goods of Euroland (which contributes by 85% to the EU GDP) contracted by 3.1% annualized from January – May 2024. However, it increased by annual dynamics of 2.7% in USA and 5.2% in China, according to the figures of Netherlands Bureau for Economic Policy Analysis (CPB).
Consequently, the structural crisis across European industry intensified this year. The volume of the production declined by an average annual pace of 3.9% in Euroland during first five months of 2024, while it increased by an average annual dynamic of 6.1% in China, according to CPB.
Furthermore, the EU economies initiated a divergence path in total factor productivity in 2022 according to AMECO.
Last, but not least, living standards are declining in EU compared to USA and China, as confirmed by World Bank data.
In other words, one can say that, from the economic point of view, Europe is best characterized today by the 3s – stagnant, sick, and segmented.
A clear vision and strategy are needed more than ever in Europe in order to support the acceleration of investments and the sustainable transition towards a New Economy, focusing on quality and entrepreneurship. The vision and the strategy may give rise to a new 3s – stronger, smarter, and successful.
The vision encompasses the prioritization of the investments in R&D and the acceleration of the implementation of the Digital and Artificial Intelligence Revolution.
Europe needs to allocate more resources efficiently to generate talent. It also needs a strong, dynamic Innovation Hub in order to improve human capital, which is the most important factor for the evolution of international competitiveness in the medium term.
Furthermore, Europe has to cut the regulatory burden and financing costs to put savings to work more effectively.
Moving forward, Europe should accelerate the green transition and the circular economy (given dependence on energy imports) by implementing a carbon tax on finished goods. Further, it should integrate the energy, financial, digital, education, and health markets, considering the successful example of the Single Market.
Geopolitically, Europe should improve economic diplomacy to increase business with Asia, Africa, and Latin America. It should also reform the cohesion policy to prepare for the next enlargement and launch the Agenda for Horizon 2040.
Last, but not least, Europe should better develop the spirit of EU convergence. A focus on better communication of these structural transformations will also facilitate and promote greater participation of SMEs and citizens in the Single Market.
In this context, I propose a 1-10 Matrix for Europe to be implemented yearly through the end of the decade. This would include annual targets for several fundamental indicators, labor productivity, digital economy, R&D&I expenditure, capital markets development, CO2 emissions, regulatory burden, circular economy, promoting abroad, performance gaps among countries, and communication with stakeholders, as pointed out in the following table.
Table 1. The 1-10 Matrix for Europe
| Indicators that should be increased yearly | Indicators that should be decreased yearly |
| Labor productivity by 1% | CO2 emissions by 5% |
| Digital economy / GDP ratio by 2% | Regulatory burden by 6% |
| R&D&I Expenditure by 3% | Performance gaps among countries by 9% |
| New listed companies/new investors by 4% | |
| Circular economy by 7% | |
| Promoting Europe abroad by 8% | |
| Communication with stakeholders by 10% |
For instance, according to this mechanism, EU member states should increase labor productivity by an annual pace of at least 1%, improve the share of digital economy in GDP by an annual dynamic of 2 percentage points, increase the R&D&I expenditure annually by at least 3% (in real terms), increase the number of listed companies and of new investors by at least 4% every year, and cut the CO2 emissions by at least 5% annually.
Furthermore, there are needed changes in governance, implementation and accountability. The launch of a permanent 3S (Speed, Security, and Solidarity) EU Facility with a dimension of up to 3% of the GDP is necessary to counter future crises (up to 20%) and accelerate transition towards the New Economy.
By closing the gap between rhetoric and deeds, by replicating the positive examples (11 of the top 30 countries are from the EU according to IMD Competitiveness Index 2024), by improving the use of the intellectual unexploited brain (the chance for the future), and by rediscovering the unity of the member states, Europe can turn from the loser to the winner of the world race, can become a strong global player, and a moderator of the transition towards a new world order.
All views expressed by members are their own and not reflective of the views of the Bretton Woods Committee.