The following is a press release kindly provided to us by MCC Brussels.
The European Union is not facing a temporary ‘competitiveness gap’. It is facing a three-decade structural productivity collapse—and Brussels is prescribing the wrong cure. In its hard-hitting new report, Delusions of competitiveness: Why even Super Mario (Draghi) can’t rescue the EU economy, MCC Brussels warns that the EU’s flagship economic agenda—from the Draghi Report to the Commission’s ‘Competitiveness Compass’—fundamentally misdiagnoses the crisis and risks locking Europe into long-term decline.
Read the full report by Alexander Horn here.
The Reality: Productivity Has Flatlined
The data is stark.
In the early 1970s, Western European economies recorded annual productivity growth of over 5 per cent. Today, productivity growth across the EU-27 has fallen below 0.5 per cent. Between 2000 and 2023, productivity per hour worked stagnated entirely in Italy. Since 2020, productivity in France has declined outright.
Productivity—the engine of rising wages and living standards—has stalled. Without it, there can be no sustainable prosperity. Yet instead of confronting this structural failure, EU institutions continue to frame the issue as a ‘competitiveness problem’ solvable through subsidy programmes, industrial policy, and marginal bureaucratic simplification.
According to MCC Brussels, this is a fatal delusion.
The False Cure: Central Planning and Subsidies
The report is sharply critical of the Draghi-inspired industrial strategy now dominating Brussels. Rather than enabling genuine economic renewal, Draghi proposes a centrally planned €800 billion investment bonanza, including enormous subsidies mostly under the guise of a ‘clean-tech’ transition.
To mobilize private capital, governments would need to artificially cut the cost of capital by 2.5 per cent through taxpayer-backed incentives.
‘This is not reform,’ the report argues. ‘It is a vast public effort to compensate for the failure to undertake real economic change.’ Instead of encouraging creative destruction—the process by which weak firms exit, and innovative firms rise—Europe is doubling down on protecting incumbents, shielding underperforming companies, and expanding centralized industrial planning.
The Real Causes of Europe’s Paralysis
MCC Brussels identifies four structural drivers behind Europe’s productivity collapse:
- An investment drought.
Net corporate investment has fallen dramatically since the post-war boom and has stagnated at just two to 3 per cent of GDP since the 2008 financial crisis. Firms have relied on cheap labour and incremental digitalization rather than transformative automation and capital deepening. - The deindustrializing Green Deal.
Europe’s energy transition has resulted in industrial electricity prices two to three times higher than in the United States. High energy costs actively discourage the adoption of energy-intensive productivity-enhancing technologies such as AI and advanced manufacturing. - The precautionary stranglehold.
A deeply entrenched risk-averse regulatory culture—embodied in measures such as the AI Act and restrictive biotech rules—suppresses disruptive innovation and protects established players from competition. - The migration fallacy.
Dependence on low-wage migration has reduced incentives for automation and productivity-enhancing investment. Cheap labour has substituted for technological transformation.
The result is what the report describes as the ‘zombification’ of the European economy: weak firms kept alive by subsidies and cheap credit, while dynamic challengers face regulatory and energy barriers that stifle growth.
Cosmetic Simplification Will Not Save Europe
Brussels’s much-publicized ‘simplification agenda’ is similarly criticized as marginal. The Commission’s projected €15 billion in annual administrative savings represents roughly 0.1 per cent of EU GDP—economically insignificant against a continent-wide productivity collapse.
At the same time, legislative output continues to expand, with more EU legislative acts adopted last year than at any time since 2010. Europe, the report argues, cannot regulate its way to innovation.
The Politically Difficult Solution
The solution, MCC Brussels argues, is conceptually simple—but politically explosive:
- End subsidies and protections for incumbent firms
- Break from cheap-money policies that sustain unproductive companies
- Abolish protectionist non-tariff trade barriers
- Reassess anti-growth climate and energy policies
- Move beyond “simplifying” regulation to abolishing it where it suppresses innovation
Above all, Europe must rediscover a culture of risk-taking, competition and creative destruction.
‘The EU cannot subsidize, regulate or centralize its way back to prosperity,’ the report concludes. ‘Unless Brussels is willing to unwind the anti-growth policies of the past three decades, the current competitiveness agenda will amount to nothing more than managing Europe’s relative decline.’
A Moment of Choice
As European leaders gather at summits and unveil new industrial strategies, MCC Brussels warns that time is running out.
Executive Director of MCC Brussels Frank Furedi said: ‘Europe must choose; to continue down the path of protection, subsidy, and centralization, or embrace the disruptive reforms necessary to restore productivity growth and rising living standards. Without that pivot, our report Delusions of Competitiveness sends a clear warning that economic irrelevance will not be a distant risk. It will be Europe’s future.’
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