When Mario Draghi presented his report on European competitiveness in September 2024, the underlying diagnosis was already familiar. Productivity growth had weakened, energy costs were undermining industrial competitiveness, private capital was failing to reach innovative firms, and the European Union remained dependent on external suppliers for technologies and materials essential to its security. The importance of the report came from the way it connected these problems. Europe’s industrial difficulties, fragmented capital markets, technological dependence and limited geopolitical influence were parts of the same structural failure.
Almost two years later, the European debate has changed considerably. Competitiveness now occupies the centre of the Commission’s programme. Industrial policy, economic security, defence production, energy costs and regulatory simplification have entered mainstream European policymaking. Measures that would previously have been dismissed as protectionist, interventionist or incompatible with the Union’s traditional regulatory approach are now discussed as necessary instruments of economic security.
This change in language matters. It has also produced a meaningful amount of legislation and policy activity. Institut Montaigne’s detailed examination of 567 recommendations from the Draghi report calculates a legal implementation rate of approximately 30 percent as of May 2026. A large share of the remaining legislative recommendations has entered formal negotiation, and the study estimates that implementation could reach 60 percent by the end of 2027 under current trajectories.
These figures provide a useful correction to the claim that Brussels ignored Draghi. The Commission has absorbed much of his analysis and translated it into a broad programme covering industrial policy, energy, defence, company law, investment and the single market. Yet the implementation rate creates an overly reassuring picture when separated from the political and economic substance of the measures adopted.
Europe has become more active without resolving the constraints that produced its decline. Most completed measures fall within areas where the Commission can act through communications, strategies, frameworks, delegated instruments or legislative proposals. Progress declines sharply when reform requires governments to surrender national discretion, pool fiscal resources, harmonise taxation, integrate financial supervision or accept common control over strategic investment. According to the Institut Montaigne assessment, Commission-led action accounts for roughly two-thirds of the legal progress achieved so far, while only around 3 percent of the more substantial recommendations have been fully implemented. Governance reforms involving veto powers, common borrowing or a redistribution of authority between national and European institutions remain essentially untouched.
The central obstacle has therefore become clearer. The European Union can produce a competitiveness programme. It has yet to construct the political machinery required to execute one at the scale imposed by the international environment.
Legal activity is an inadequate measure of strategic recovery
A recommendation may be legally implemented without producing the industrial capacity, investment volume or technological capability that originally justified it. A fund can be created with insufficient resources. A strategy can be published without binding obligations. A regulatory framework can be adopted while companies continue to face fragmented taxation, supervision and enforcement. Procurement rules can favour European production even where European suppliers lack the capacity to deliver at the required volume or price.
The Institut Montaigne methodology openly recognises this limitation. Its measurement concerns legal implementation rather than the economic impact of adopted policies. A recommendation to establish a fund may therefore be counted as implemented once the legal instrument exists, regardless of the amount allocated or the investments ultimately made. This distinction should govern any serious interpretation of the 30 percent figure.
The relevant benchmark is the rate at which Europe is closing its structural gaps. On that measure, the evidence remains weak. Labour productivity per hour increased by 1.4 percent in the European Union in 2025, following growth of only 0.2 percent in 2024. The improvement is welcome, particularly in manufacturing and information and communication activities. Eurostat’s longer-term figures nevertheless show that average productivity growth continued to weaken across successive periods after 2008. Capital deepening also lost momentum, with net fixed assets per worker and per hour worked broadly stagnating after 2013.
One year of stronger productivity does not reverse a decade of insufficient investment, limited firm growth and slow technological diffusion. Europe’s demographic outlook increases the importance of productivity because future growth cannot depend on a continuously expanding workforce. The Union needs more output from each worker, more commercially valuable innovation from each unit of research spending and more productive investment from its large stock of savings.
A legal implementation index should therefore be accompanied by an economic-capability index. Such an index would track industrial electricity prices, investment in digital and physical infrastructure, the number of European firms reaching global scale, private research and development expenditure, venture-capital depth, cross-border financing, defence production volumes and the Union’s share of strategic technology supply chains. Without these measures, Europe risks confusing institutional activity with economic transformation.
The Commission has moved faster than the Member States
The uneven pattern of implementation reflects the distribution of power inside the Union. The Commission controls legislative initiative and can issue strategies, adjust competition frameworks, propose regulations and coordinate existing instruments. National governments retain decisive authority over taxation, fiscal capacity, pension systems, energy choices, defence procurement and many of the legal conditions governing investment.
The Commission has used the powers available to it. The Competitiveness Compass, the Clean Industrial Deal, simplification packages, the Savings and Investments Union, the Industrial Accelerator Act, the EU Inc. proposal and the defence-readiness agenda all reflect parts of Draghi’s programme. In April 2026, the Parliament, Council and Commission signed the “One Europe, One Market” roadmap, setting the end of 2027 as a deadline for agreement on a series of measures involving simplification, market integration, capital markets, digital infrastructure and strategic dependencies.
This concentration of initiatives also exposes the limits of the Commission-led approach. The Commission can propose a European capital market, but national governments continue to defend domestic supervisory structures, tax arrangements and financial institutions. It can propose common industrial criteria, but governments retain strong incentives to direct subsidies toward national firms. It can encourage joint defence procurement, while national ministries continue to protect domestic producers and established procurement relationships. It can design an optional European company form, while labour law, taxation, stock-option treatment and insolvency procedures remain partly national.
The Member States broadly support European scale as an objective. They become considerably less supportive when European scale requires national instruments to be placed under common rules. This contradiction has shaped the response to Draghi more than legislative delay. Governments favour a stronger European industrial base while competing to capture its factories. They endorse deeper capital markets while protecting national supervisory prerogatives. They call for strategic autonomy while purchasing critical equipment through nationally organised programmes. They demand faster European action while adding control procedures that preserve their influence over implementation.
The June 2026 Council position on the proposed European Competitiveness Fund illustrates this tendency. The fund would consolidate fourteen existing instruments and support clean industry, digital technologies, health, defence and space. The Council simultaneously strengthened the formal role of national governments in its governance, including their control over implementing acts and award decisions. The fund’s total budget also remains unresolved because it depends on negotiations over the 2028–2034 Multiannual Financial Framework.
The result may be a more coherent funding architecture accompanied by the same bargaining practices that fragmented previous programmes. European instruments cannot create European scale when their governance encourages twenty-seven governments to negotiate national shares of every strategic initiative.
Simplification has become a convenient substitute for integration
The regulatory burden on European companies is real. Reporting requirements have accumulated across environmental, financial, digital and corporate legislation. Smaller firms often lack the personnel required to interpret overlapping obligations. Differences in national implementation add uncertainty and compliance costs. Faster permitting, more stable rules and proportionate reporting requirements are necessary elements of a serious competitiveness programme.
The political emphasis placed on simplification has nevertheless become excessive. It offers governments and institutions a relatively inexpensive response to a problem whose principal causes include energy costs, underinvestment, fragmented markets, insufficient risk capital and weak demand for European technology. Reducing administrative costs may improve operating conditions. It will not finance a semiconductor fabrication plant, construct an integrated electricity grid, create a continental cloud provider or supply the equity required by a technology firm expanding across several markets.
Regulatory reform can also become indiscriminate. Europe should remove duplication and poor design while preserving rules that support common market standards and prevent regulatory competition among Member States. A broad campaign against “red tape” may weaken the uniformity required for cross-border investment. The Union’s economic problem frequently comes from twenty-seven versions of a rule rather than from the existence of the rule itself.
The correct objective is regulatory integration. Companies operating across the Union should encounter a predictable European framework with common definitions, reporting formats, approval processes and enforcement standards. A fragmented light-regulation environment may still impose higher costs than a coherent European framework with demanding but uniform obligations.
Industrial policy remains divided between strategic ambition and fiscal reality
The Industrial Accelerator Act proposed in March 2026 marks an important evolution in European economic policy. It would introduce European-content and low-carbon criteria into public procurement and public support schemes in sectors including steel, cement, aluminium, automotive manufacturing and net-zero technologies. It also seeks to ensure that foreign investment generates economic value inside the Union.
European preference has a legitimate strategic purpose. Public spending should contribute to the development of supply chains that remain available during crises. Procurement can provide predictable demand for emerging technologies, reduce the commercial risk of industrial investment and prevent European subsidies from strengthening production capacity in jurisdictions that restrict European firms.
Preference rules will have limited effect without sufficient European supply, long-term purchasing commitments and financing for capacity expansion. Where supply is scarce, local-content requirements can raise costs without generating new production. Where national budgets finance the procurement, richer states can offer larger contracts and attract a disproportionate share of industrial investment. This deepens the internal divergence that European industrial policy is supposed to prevent.
The relaxation of state-aid rules since the energy crisis demonstrated this risk. National subsidies can preserve strategically important facilities, but they also favour governments with greater fiscal room. A European industrial strategy financed mainly through national budgets becomes an organised subsidy competition inside the single market.
Common industrial objectives require common financial capacity. Strategic projects should be assessed according to their contribution to European supply security, technological capability and cross-border value chains. Funding should then be allocated at European level, with clear conditions concerning production, research, intellectual property, procurement and access for firms from across the Union. National co-financing may remain appropriate, but it should operate within a European structure rather than determine which countries are able to participate.
Europe’s financing response remains far below the required scale
Draghi’s report placed investment at the centre of the competitiveness problem. More recent ECB analysis estimates that the European Union requires roughly €1.2 trillion in annual investment between 2025 and 2031 to meet its green, digital and defence objectives. The precise estimate varies depending on what is counted, yet every credible assessment points to a financing requirement far beyond the capacity of existing EU programmes.
Europe possesses substantial private savings. Its financial system remains poorly organised for turning those savings into long-term equity investment. Bank lending continues to play a dominant role, while innovative and rapidly expanding companies often require forms of financing that banks are structurally less able to provide. Capital markets remain divided by national supervision, taxation, insolvency regimes and market infrastructure. The ECB’s 2026 assessment found that this fragmentation continues to prevent the scale and liquidity required to attract investment and improve returns.
The Savings and Investments Union addresses part of this problem, but progress has concentrated on encouraging household participation and improving market products. These measures will remain modest until governments accept deeper integration of supervision, taxation and post-trade infrastructure. A collection of national capital markets connected by voluntary coordination will not provide the financing depth available in a unified continental market.
Public financing presents an equally serious problem. The proposed European Competitiveness Fund would begin under the next long-term budget in January 2028, assuming an agreement is reached on time. Its financial size remains subject to negotiation. Europe’s main competitiveness legislation is expected to enter decisive negotiations during 2026 and 2027, while the central new budgetary instrument is designed for the period beginning afterward. The timetable reflects the normal rhythm of EU budgeting rather than the strategic urgency described by European leaders.
Europe needs a financing bridge for the period before 2028 and a permanent mechanism for European public goods afterward. Energy grids, defence production, advanced computing, space infrastructure and some semiconductor investments generate benefits extending well beyond the country in which the physical asset is located. Funding them mainly through national budgets leads to chronic underinvestment and disputes over geographic distribution.
Common borrowing remains politically difficult. The investment requirement does not disappear because governments refuse to agree on the instrument. The practical alternatives are prolonged underinvestment, growing national subsidy competition or increased dependence on foreign technology and capital. Each alternative carries higher long-term costs than a carefully designed common financing mechanism.
EU Inc. is useful, although company law alone will not create European scale
The EU Inc. proposal presented in March 2026 would create an optional European corporate form with digital procedures, rapid registration and common rules across the Union. The Commission notes that businesses currently operate across twenty-seven national legal systems containing more than sixty company forms. Under the proposal, an EU Inc. company could be established within forty-eight hours, for less than €100 and without a minimum-capital requirement.
This is one of the most practical measures derived from the competitiveness debate. European start-ups should not have to reconstruct their legal organisation each time they enter another national market. A recognisable European corporate form could simplify investment documents, share transfers, corporate governance and cross-border operations.
Its impact will depend on the surrounding legal framework. A common company form cannot eliminate differences in employee stock-option taxation, payroll rules, insolvency proceedings, pension systems, securities supervision and the taxation of investment gains. Firms will continue to confront national barriers after registration unless the 28th regime expands into these areas.
The danger is that EU Inc. becomes a well-designed entry portal into a still-fragmented economic system. Its implementation should therefore be connected to a wider programme covering taxation of equity compensation, cross-border employment, insolvency, listing requirements and access to institutional investors. The objective should be a complete operating environment for innovative companies, rather than a common incorporation certificate.
Defence demonstrates both Europe’s capacity and its continuing fragmentation
Defence is the sector where geopolitical pressure has produced the greatest movement. The SAFE instrument, adopted in May 2025, provides up to €150 billion in loans to support defence investment through common procurement. The wider Readiness 2030 agenda has encouraged increased spending, greater attention to production capacity and a stronger role for European procurement criteria.
This progress confirms that the Union can change direction when national governments perceive an immediate threat. Competition rules, fiscal constraints and procurement practices that once appeared fixed became negotiable as the security environment deteriorated.
The financing structure also reveals persistent weaknesses. SAFE relies on loans to Member States, leaving procurement decisions and repayment responsibilities largely national. Countries with different debt levels, industrial bases and threat perceptions will use the instrument unevenly. National fiscal escape clauses can increase aggregate defence expenditure while widening economic divergence inside the Union. Joint procurement may also remain a collection of coordinated national orders unless specifications, production schedules, maintenance systems and export policies are genuinely integrated.
Europe requires a defence industrial market with predictable multi-year demand, common technical requirements and greater consolidation of production. Governments will have to accept dependence on suppliers located in other Member States. Every country cannot maintain a national producer in every capability. Strategic autonomy at European level therefore requires managed interdependence within Europe, supported by binding supply guarantees and common procurement.
The governance problem can no longer be postponed
The weakest area of Draghi implementation concerns governance, which is also the area that determines whether the remaining agenda can be delivered. The Union’s current procedures were developed for an economic environment in which regulatory convergence and gradual market opening were expected to produce stability and growth. Strategic competition now requires investment decisions, industrial prioritisation and responses to external pressure at a speed those procedures rarely provide.
Treaty revision is unlikely in the near term. Waiting for comprehensive institutional reform would consume the period during which Europe’s remaining industrial advantages may erode. Governments should instead use existing legal instruments more aggressively. Enhanced cooperation, coalitions of participating states, common procurement vehicles and intergovernmental financing arrangements can move selected projects forward without requiring all twenty-seven governments to participate from the beginning.
Differentiated integration carries risks. It can create new divisions and weaken common institutions. Permanent paralysis presents a greater danger. A smaller group acting within an open European framework can establish standards and assets that other Member States later join. The euro, Schengen and several major industrial projects developed through forms of differentiated participation. Competitiveness policy may require a similar approach.
Decision-making also needs a clear hierarchy. The Draghi report contains hundreds of recommendations, while the Commission’s competitiveness programme contains an expanding number of strategies, acts, packages, roadmaps and reviews. Institutional breadth can conceal the absence of prioritisation. Europe should identify a limited set of measures whose implementation would alter its economic trajectory within three to five years.
These priorities should include integrated electricity grids and long-term energy contracts for industry; unified capital-market supervision and infrastructure; common financing for European public goods; large-scale computing and cloud capacity; defence procurement and production agreements; a complete operating regime for European growth companies; and faster approval of cross-border strategic projects.
Each priority requires a designated institution, a financing source, a legislative timetable and measurable capacity targets. Progress reports should record physical and financial outcomes rather than the number of communications and proposals adopted.
A strategy for the next phase
The implementation period between mid-2026 and the end of 2027 will determine whether the Draghi agenda becomes an institutional reform programme or another layer of European policy documentation. Five changes are necessary.
First, the Union should replace the current catalogue approach with a strategic execution plan covering approximately twenty to thirty measures. These measures should receive accelerated negotiation, central political supervision and quarterly reporting to the European Council. Lower-priority initiatives can continue through ordinary procedures.
Second, European financing should concentrate on projects that generate cross-border capability. Funding conditions should reward integrated supply chains, joint procurement, common standards and access for firms from several Member States. The purpose of European money should be to create assets that national programmes cannot efficiently provide.
Third, capital-market integration should move from coordination toward common authority. Supervisory convergence, harmonised insolvency rules, tax treatment of investment and consolidated market infrastructure are essential. Household investment products and financial-literacy campaigns will have little structural impact without these reforms.
Fourth, the Commission should use its enforcement powers more forcefully against single-market barriers. Member States should be required to justify national rules that restrict cross-border services, investment or business expansion. Persistent barriers should trigger infringement procedures and financial consequences. A single market cannot depend indefinitely on voluntary removal of measures that protect domestic interests.
Fifth, coalitions of willing Member States should proceed where unanimity is unavailable. Participation should remain open, projects should respect the treaties and their benefits should support the wider Union. This approach would allow progress in common financing, defence procurement, energy infrastructure and capital-market integration while preserving a path toward broader participation.
Europe is approaching the costliest stage of delay
The European response to the Draghi report has been more substantial than the prevailing narrative of complete inertia suggests. The Commission has changed its agenda, introduced major proposals and moved industrial competitiveness into the centre of European policy. The 30 percent legal implementation rate records this genuine shift.
The reforms completed so far have largely avoided the distributional conflicts at the core of the European problem. Governments have postponed decisions over common financing, supervisory authority, national vetoes, strategic procurement and the allocation of industrial investment. These questions determine who pays, who decides and where production is located. They are therefore harder than drafting new regulations, and they will decide the outcome of the Draghi agenda.
Europe’s external environment will not accommodate the pace of its internal bargaining. Energy markets, technological competition, military requirements and industrial investment decisions continue to evolve while European legislation moves through negotiation. Firms choose production locations according to conditions available now. Skilled workers and capital relocate when better opportunities emerge elsewhere. Lost industrial ecosystems are expensive to reconstruct, and technological dependence becomes more difficult to reverse as platforms and standards consolidate.
The Union has entered a period in which delay produces cumulative strategic costs. Legal implementation remains necessary, but implementation must now generate capital formation, production capacity, technological ownership and political leverage. Europe’s competitiveness agenda will succeed only when Member States treat shared economic power as a national interest rather than as a concession to Brussels.
The Draghi report provided the diagnosis and much of the programme. The remaining task belongs to Europe’s governments. They must decide whether the Union will possess the financial resources, integrated markets and decision-making authority required to operate as an economic power. The measures adopted during the next eighteen months will provide the answer.
