What it would take to reverse Europe’s global decline

What it would take to reverse Europe’s global decline

EU risk

Fecha: septiembre 2025

Wolfgang Münchau

SEFO, Spanish and International Economic & Financial Outlook, V. 14 N.º5 (September 2025)

Europe’s economic malaise is driven by structural weaknesses rather than short-term shocks. Germany’s reliance on traditional industries and Spain’s reliance on immigration-fuelled growth, albeit providing temporary relief, both highlight the EU’s failure to generate productivity. Overregulation, fragmented finance, and chronic underinvestment have left Europe lagging behind in high-tech sectors, while persistent trade surpluses have exposed the bloc to external shocks from Russia, China, and U.S. tariffs. Germany represents 24.5% of EU GDP, but its core industries are stagnating. Europe’s tech deficit is stark:
of the 50 largest global firms, only four are European. Trade dependency is 22.4% of EU GDP, nearly double the U.S. share of 12.7%, leaving the bloc highly vulnerable to Trump’s tariffs—15% across EU exports, 50% on steel and aluminium—which triggered EU commitments of €600 bn in U.S. investment (2025–2028), $750 bn in energy imports, and $40 bn for AI chips. At the same time, Chinese exports to the EU rose 8.3% year-on-year in April 2025, while European firms struggle to sell to China. Without reform, fiscal and monetary tools alone cannot compensate. Only a fiscal and capital markets union can provide the scale of investment needed. Otherwise, Europe - including Spain - risks sliding into managed decline.

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