Germany and Italy, the European Union’s leading industrial powers, have warned that the bloc risks falling behind the United States and China unless EU leaders agree on bold reforms to revive competitiveness. The warning comes ahead of the Leaders’ Retreat in Alden Biesen, Belgium on February 12, where German Chancellor Friedrich Merz and Italian Prime Minister Giorgia Meloni plan to push for a coordinated EU strategy to support businesses and attract investment. The paper emphasizes that the EU’s global influence and economic standing are at stake if decisive action is not taken.
Key Recommendations
The policy paper advocates a comprehensive approach to improving Europe’s economic performance. It calls for cutting bureaucratic red tape, accelerating permit approvals, and enhancing the single market across key sectors such as services, energy, capital markets, and digital industries. Germany and Italy propose structural measures including the creation of a pan-European stock exchange and revised merger rules to strengthen the global competitiveness of European firms. The paper also urges the EU to fast-track free trade negotiations with partners such as India, Australia, the UAE, and ASEAN, while maintaining the option to deploy defensive trade tools to protect European industries if necessary.
Rationale
The paper draws attention to the significant barriers that continue to hinder EU internal trade. According to IMF data cited, internal barriers are equivalent to 44% tariffs for goods and more than 110% for services, demonstrating that Europe’s single market remains fragmented. The joint statement stresses that maintaining the status quo could threaten European living standards, undermine sovereignty, and allow emerging global competitors to surpass the EU in innovation and economic influence. Germany and Italy frame reform as urgent, warning that Europe must act now to prevent further erosion of its competitiveness.
Analysis
The joint initiative reflects a strategic perspective that links economic strength directly to political influence. By advocating structural reforms, deeper integration, and accelerated trade liberalization, Germany and Italy signal that European competitiveness is not merely an economic priority but a geopolitical necessity. Their call for defensive trade measures shows an understanding that global interdependence can create vulnerabilities if Europe remains overly reliant on external powers for key sectors. If implemented, the proposed reforms could reduce regulatory bottlenecks, strengthen investment and innovation, and enhance Europe’s position in global trade negotiations. However, achieving consensus will be challenging, given the diverse interests and regulatory cultures of the EU’s 27 member states.
With information from Reuters.
