Europe Faces Growing Challenges Amid Struggles to Find Solutions

Europe is grappling with a growing array of political and economic challenges as it navigates its role in the global order and struggles to maintain business competitiveness, according to leaders speaking at the Ambrosetti Forum. Experts likened Europe’s situation to health problems accumulating silently, or to a “rabbit in the headlight,” reflecting the continent’s difficulty responding to the breakdown of the long-established rules-based international system. Political advisor Markus Kerber described the global landscape as a “pentarchy,” dominated by the U.S., China, India, the EU, and Russia, leaving Europe ill-equipped to manage multilateral threats and opportunities.

A key issue is declining economic competitiveness. Europe has been criticized for failing to implement reforms needed to strengthen its position relative to trade rivals in the U.S. and Asia. Challenges such as slow growth, heavy regulatory burdens, high energy costs, and a fragmented single market have contributed to a widening productivity gap. Reports compiled in 2024 by former Italian Prime Ministers Mario Draghi and Enrico Letta highlighted these difficulties, noting that Europe’s GDP growth lagged behind the U.S., resulting in a decline in real disposable income per capita. Households across the continent have borne the cost of stagnating living standards, while IMF data shows the EU’s share of world GDP falling from 27.5% in 1980 to 14.1% in 2025.

Compounding the situation, geopolitical factors such as the U.S.-China trade tensions and the war in Ukraine have reduced Europe’s ability to focus on domestic economic reforms. While these external pressures constrained proactive measures, policymakers acknowledge the urgent need for action to revitalize competitiveness.

EU Commissioner for Economy and Productivity Valdis Dombrovskis emphasized initiatives such as the “Competitiveness Compass,” which draws on the Draghi and Letta reports. This program aims to address innovation gaps, leverage the full potential of the EU single market, and reduce bureaucracy while simplifying regulatory frameworks. The European Commission is actively implementing these measures, but officials stress that success requires sustained effort across multiple fronts.

Spain’s Minister of Economy, Trade, and Business, Carlos Cuerpo, stressed the importance of avoiding delays and frustrations in enacting reforms. He urged a more optimistic approach toward what Europe can achieve, highlighting the need to translate strategic recommendations into concrete, day-to-day actions. According to Cuerpo, competitiveness is inherently a medium-term effort requiring consistent focus, implementation, and follow-through, rather than relying solely on planning or policy declarations.

Overall, Europe faces structural, regulatory, and geopolitical challenges that threaten its economic growth and global influence. Leaders recognize that past advantages, such as low defense spending and high consumer confidence under the old rules-based system, are no longer guaranteed. To remain competitive, the continent must confront productivity lags, regulatory inefficiencies, energy cost pressures, and fragmented markets. At the same time, it must adapt to a multipolar world dominated by major powers like the U.S., China, India, and Russia, where decision-making and influence are increasingly contested.

Europe’s path forward hinges on decisive policy reforms, effective implementation of competitiveness initiatives, and a renewed strategic vision to navigate both domestic economic pressures and international challenges. Without sustained effort, the continent risks further decline relative to global peers, but with focused action, it has the potential to strengthen innovation, economic resilience, and long-term prosperity.

In sum, while Europe confronts complex political and economic pressures, targeted reforms, coordinated implementation, and a forward-looking approach to competitiveness are critical to ensuring the continent’s continued relevance and stability in the global order.