Europe is falling behind in global productivity. Future-proofing the European economy requires progress along three interconnected pillar: a fully functioning Single Market, stronger competitiveness driven by innovation and cost efficiency, and open economic sovereignty
Europe is falling behind in global productivity. After decades of convergence, the gap with the United States has widened again. Since the COVID-19 crisis, productivity in the euro area has barely grown, while the US has continued to advance. Weak total factor productivity, the failure to scale innovative firms, and a shift towards low-productivity services are holding back incomes. At the same time, high energy and labour costs undermine industrial competitiveness, and Europe’s dependence on imported critical raw materials and key technologies creates geopolitical vulnerability.
Future-proofing the European economy requires progress along three interconnected pillars. First, Europe must complete the Single Market for goods, services, capital and digital activities to give firms the scale they need to grow. Second, it must restore cost competitiveness while pushing out its innovation frontier, particularly by lowering structural cost pressures and improving access to risk capital. Third, Europe must strengthen economic sovereignty in an open way: reducing critical dependencies without turning inwards. We show how remaining Single Market barriers, fragmented capital
markets and research systems, and an over-reliance on bank finance constrain firm growth and innovation.
Network industries – especially energy, grids and transport – and a high labour tax wedge have become structural drags on competitiveness. We also identify Europe’s main vulnerabilities in critical inputs and technologies and set out how to pursue open strategic autonomy without sliding into protectionism. The paper concludes with a focused policy agenda that combines horizontal reforms with carefully targeted interventions. The aim is to close the productivity gap, halt deindustrialisation, and secure Europe’s social model in a more contested global economy.
Prof. Dr. Monika Köppl-Turyna is Director of EcoAustria. Her research focuses on economic issues concerning public finance, distribution, and political economy. Köppl-Turyna received her doctorate in 2011 from the University of Vienna. From 2011 to 2015, she was Assistant Professor at the Lisbon University Institute, before being Senior Economist at Agenda Austria. Moreover, Monika Köppl-Turyna has been a lecturer at the Vienna University of Economics and Business, and Fellow at the Global Labour Organisation. She is a member of scientific board of the Rudolf-Sallinger Fonds and Klimarat der Bürgerinnen und Bürger. In 2020, she received her habilitation from the Johannes Kepler University in Linz. Since September 2023 she has been a professor at the Seeburg University in Seekirchen and from April 2024 she will teach as a professor at the University of Warsaw. In the 2021 ranking of the most influential economists in Austria, published by Presse/FAZ/NZZ, she holds rank 5. Moreover, Monika Köppl-Turyna holds a professorship at the Privatuniversität Schloss Seeburg.
Published by the European Liberal Forum. Co-funded by the European Parliament.