Is Europe on the brink of collapse?
Alex is a third-year Politics and Economics student. He interned at both Amazon and Schroders Cazenove this past summer and has held positions at other Financial Services companies and NGOs throughout his professional career. He was also Head of Events for the UCL Diplomacy Society for the academic year of 2023/2024, helping to organise panels and events throughout the year - most notably the 2024 London University Diplomatic Summit.
Introduction
The European project is running out of time.
Over nearly two decades, it has been beset by a steady stream of crises. Currently, a complex mix of political gridlock, external challenges, and economic stagnation is threatening to derail the EU's vision of itself as an independent global power. This strain is driving member states increasingly toward self-interest and national priorities, challenging the unity that has supposedly been at the heart of the European project.
Economic Stagnation and Competitive Decline
The region is confronting evidence that shows the inevitability of economic decline and loss of competitiveness. Over the years, a wide gap in GDP has emerged between the EU and the US, driven mainly by a slowdown in productivity growth in Europe [3]. On a per capita basis, real disposable income has grown approximately twice as much in the US comparative to the EU since 2000 (Ibid). Additionally, with the era of rapid world trade having passed, EU companies are facing increasing competition in the global sphere and are experiencing lower access to overseas markets as autarkic tendencies rise amongst world economies. This notion of losing competitiveness is exacerbated by Europe historically missing out on the latest technological advancements pervading the globe. Now, the EU seems to, again, be missing out on the latest innovations in the Artificial Intelligence (AI) industry and is generally weak in the emerging technologies that will drive future growth [6]. Indeed, only four of the world’s top 50 tech companies are European [3], which is explained primarily by low levels of investment from overseas due to overregulation in the region.
Macron said it correctly on a panel in Berlin last month: “We are over-regulating and underinvesting. If we continue with our usual agenda over the next 2 to 3 years, we will be out of the market. I have no doubt!” [6]. Macron accurately portrays the reality of Europe being neglected in the rapid development of AI. While it is important to regulate AI, it is even more important to balance regulation with the necessary support for growth and innovation within the region. Otherwise, Europe risks stifling innovation by creating burdens that drive companies and talent to less restrictive areas. This concern is echoed by several US tech companies, including Meta and Apple, which have recently withheld some of their AI products from the European market. These companies cite Europe’s “unpredictable” regulatory environment as a key obstacle, with Meta describing it as potentially limiting the development of AI technology [1]. High-profile products like Meta’s Llama model and Apple’s AI suite haven’t launched in Europe due to EU data protection laws and the Digital Markets Act, which restrict data use and prioritise privacy (Ibid). This reflects a growing divide in tech approaches, with Europe focused on bias protection and data misuse prevention, while US companies stress flexibility to drive innovation and progress.
A core issue raised by Macron and others is managing AI biases, as “bias in, bias out” remains a significant risk. Transparency - using open-source models like Meta’s Llama - can help address this by allowing scrutiny for biases, yet Europe’s strict data regulations make this difficult. This regulatory approach, while protecting privacy, often results in companies halting product launches in Europe to avoid compliance hurdles, limiting local AI resources and disadvantaging EU startups compared to the US. Access to data is also critical. Countries with fewer restrictions, such as the US and China, amass larger datasets, producing more effective AI models. One of the main arguments raised by Macron is that Europe’s data protection measures, while ethically sound, may hinder competitive growth unless coupled with supportive investment [6]. The “Brussels effect,” where Europe’s strict regulations set global standards, is increasingly viewed as slowing EU economic growth and creating fragmented versions of digital services. This divide has spurred calls for a locally-driven AI ecosystem to lessen dependence on US tech, but Europe’s AI industry still lags in development and funding. Unless Europe achieves the balance between transparency and targeted, feasible regulations to foster innovation, the EU will find that maintaining a competitive AI and Technology market will become out of reach. To put this into context, from 2013 to 2023, Europe’s share of global tech revenues dropped from 22% to 18%, while the US share rose from 30% to 38% [3]. These figures effectively portray the urgent need for Europe to speed up innovation to sustain its manufacturing leadership and foster breakthrough technologies. In turn, increased innovation can boost productivity, driving higher household incomes and stronger domestic demand – something the economies of Europe are in desperate need of. With the rise of AI catalysing a global digital revolution, Europe now has a critical chance to correct its lag in innovation and productivity and revitalise its manufacturing sector.
Political paralysis
The economies of the Eurozone are facing economic stagnation [7]. Germany’s economy is set to contract for a second year in a row by 0.2%, as reported by Germany’s Economy Minister Robert Habeck, making it the only G7 nation to do so this year. With both Germany and France continuing to struggle with inflation, energy costs, and low productivity, these challenges have led to deep political paralysis within national governments and the EU, stalling cohesive economic reform and fuelling public frustration. This environment has provided fertile ground for far-right populist movements, as citizens increasingly seek alternatives to traditional leadership, reflecting a broader European discontent that threatens regional stability. This was strongly reflected in the recent European parliamentary elections held in June 2024. Parties of the populist or far-right came in first in five countries: France, Italy, Hungary, Austria, and Slovakia [5]. In Germany, Poland, and the Netherlands, such parties placed second (Ibid). The highly unsettling effects of these elections were particularly felt in France and Germany, with Macron calling snap national parliamentary elections at the end of that month to directly combat Marine Le Pen’s party. “The overall trend is unmistakable: The far right is gaining ground” writes Matthijs Rooduijn, a politics professor at the University of Amsterdam.
Donald Trump’s recent win in the U.S presidential election poses further threat to the European project and European Democracy. Trump finds across the Atlantic a “hotbed of political parties that share his rightward mix of authoritarianism, populism and extreme hostility toward immigration” [9]. Trump's populist rhetoric and policies have previously emboldened similar factions in Europe, and his return to power is likely to further galvanise these groups. This development coincides with notable far-right successes in Europe, such as the Freedom Party's (FPÖ) recent victory in Austria's parliamentary elections, marking their first national win (Ibid). These political developments reflect a broader trend of nationalist and populist parties gaining traction, which could undermine the EU's foundational principles of unity and democratic governance. While Europe is already struggling with political paralysis, characterised by internal divisions and a lack of cohesive decision-making, the rise of far-right parties further exacerbates this paralysis. This is due to their nationalist agendas often conflicting with the EU's collective goals, leading to further fragmentation, thus posing an overall risk to the European project. The re-election of Donald Trump introduces further complexities to the European Union's global standing, particularly concerning transatlantic relations and internal cohesion. During his previous term, Trump's policies, including imposing tariffs on EU exports and questioning NATO commitments, strained the transatlantic alliance [1]. His return to office raises concerns about potential shifts in U.S. foreign policy that could impact Europe's security and economic interests. European leaders are also apprehensive about possible changes in U.S. support for Ukraine amid its ongoing conflict with Russia. Trump's past statements have suggested a desire to reduce U.S. involvement in foreign conflicts, which could lead to decreased support for Ukraine (Ibid). This scenario would place additional pressure on the EU to fill the void. The combination of external pressures from a potentially less supportive U.S. administration and internal divisions therefore poses a significant risk to the EU's global influence and its ability to uphold democratic values.
Climate breakdown
Europe faces escalating and immediate dangers from climate change. As the fastest-warming continent, Europe has already seen the repercussions of global warming, with 2023 recorded as the hottest year globally, and temperatures averaging 1.5°C above pre-industrial levels between February 2023 and January 2024 [4]. This rapid increase has led to extreme weather events across Europe, from catastrophic floods in Poland to prolonged droughts in southern regions– these climate risks are no longer distant threats but present realities.
The financial impact of these events is staggering. Without decisive action, economic losses from events like coastal flooding alone could surpass €1 trillion per year by the end of the century (Ibid). Furthermore, hundreds of thousands of lives are at risk from intensified heatwaves, and agricultural sectors across Europe are struggling as unpredictable weather patterns disrupt crop yields and water availability (Ibid). In Poland, for instance, recent floods have shown how fragile existing infrastructure is against these events, underscoring the need for comprehensive, future-proof strategies.
The implications of climate change extend beyond environmental and economic damages, challenging the very foundations of the European project. Climate change acts as a "risk multiplier," exacerbating existing issues within Europe, from food and water insecurity to social cohesion (Ibid). The European Union and its Member States are making strides in climate policy awareness, yet the response has been insufficient relative to the accelerating risks. Many national climate risk assessments inform policy but fall short of translating into timely, effective actions. This lack of swift implementation reveals the limitations of the EU’s current approach to climate resilience, which often results in fragmented and delayed efforts rather than the unified, decisive action needed [2].
As the costs of climate change grow, they place additional strain on the EU’s resources and unity. Member states bear uneven burdens based on geography and existing vulnerabilities, creating friction and placing a high cost on the European project’s cohesion. If Europe continues on this path without implementing adaptive, integrated policy measures, it risks locking itself into maladaptive pathways - choices that may seem cost-effective now but will prove catastrophic as the climate crisis deepens. The cost of inaction threatens not only the EU’s economic stability but also its credibility as a unified, resilient force on the global stage in the fight against climate change.
Conclusion
It’s not just the Eurosceptics like Hungary’s Viktor Orban who view the EU with disdain, but officials in core European countries are increasingly seeing the EU less as a source of prosperity and protection and more as an obstacle to navigate around [8]. French officials are advocating for deeper integration with a smaller group of countries outside the EU framework due to Germany's persistent opposition (Ibid). Similarly, Polish officials support separate defence initiatives (Ibid). Meanwhile, Spain's prime minister, despite the country’s historically pro-EU stance, is undermining its EU trade policies to attract Chinese investment (Ibid). All these recent developments signal the growing sentiment within the bloc that officials are increasingly turning their backs on the wider project. In a recent interview, Greek Finance Minister Kostis Hatzidakis summed it up correctly: “It’s obvious that Europe is falling behind its main trading partners, the US and China. If it doesn’t take immediate action, the decline will eventually become non reversible” (Ibid).
Works Cited:
[1] Bergen, M. (2024). US Tech Is Holding Back Some AI Products From Europe. [online] Bloomberg.com. Available at: https://www.bloomberg.com/news/articles/2024-08-27/silicon-valley-protests-europe-s-tech-rules-by-delaying-ai-products?sref=SEajklum.
[2] Dudik, A. and Martewicz, M. (2024). Counting the Cost of Climate Change in Europe. [online] Bloomberg.com. Available at: https://www.bloomberg.com/news/newsletters/2024-09-20/counting-the-cost-of-climate-change-in-europe [Accessed 12 Nov. 2024].
[3] Draghi, M. (2024). The future of European competitiveness – A competitiveness strategy for Europe. commission.europa.eu, European Commission, pp.1–69.
[4] European Environment Agency (2024). European Climate Risk Assessment - Executive summary. [online] eee.europa.eu, European Environment Agency, pp.1–39. Available at: https://www.eea.europa.eu/publications/european-climate-risk-assessment.
[5] O’Neal, M. (2024). How much did the right really gain in Europe? [online] Responsible Statecraft. Available at: https://responsiblestatecraft.org/european-parliament/.
[6] Macron, E. (2024). Europe’s Role in a Multipolar Future. [TV] Berlin Global Dialogue. Available at: https://www.berlinglobaldialogue.org/events/bgd2024.
[7] Schnabel, I. (2024). Escaping stagnation: towards a stronger euro area. European Central Bank.
[8] Sills, B. (2024). Europe Is Almost Out of Time to Defend Its Place in a Brutal World. [online] Bloomberg.com.
[9] Smith, A. (2024). A surging far right cements its place in Europe. [online] NBC News. Available at: https://www.nbcnews.com/news/world/surging-far-right-europe-austria-anti-immigration-rcna173398.
[10] Spike, J. and Casert, R. (2024). European summit will focus on how to accommodate Trump during his second term as president. [online] AP News. Available at: https://apnews.com/article/eu-summit-us-elections-russia-ukraine-uk-315e9b04685807d419415662137b0fa2 [Accessed 12 Nov. 2024].
