Børge Brende is President and CEO of the World Economic Forum, having formerly served as Norwegian Minister of Foreign Affairs, the Environment, and Trade and Industry. You may follow him on X @borgebrende.

Europe’s history has often been punctuated by periods of dramatic disruptions that have had profound consequences on the political, economic and security contours of the continent. Many of these seismic events have been the result of long-simmering socio-economic or geopolitical forces that bubbled to the surface and exploded in military contestations, effecting deep, long-lasting change. Russia’s 2022 invasion of Ukraine is the most recent, and devastating, example. Other recent disruptions have lacked a military component but have still been immensely consequential.

Today, economic forces are converging within Europe and at its doorstep. Though they may be less pronounced than in Eastern Europe—having not yet triggered a seismic shift in the form of a military conflict—they will be no less consequential to the future of the European project. Europe is facing a combination of external geo-economic stress points and a complex web of internal challenges. Having to contend with its two major trading partners—the United States and China—Europe struggles to restore robust growth, facing instead an uncertain trajectory ahead.

The author delivers a speech during the closing ceremony of the 2024 World Economic Forum in Davos | Source: Guliver Image

In this context, it would be a mistake for European leaders to confront the multifarious economic challenges the continent faces by focusing solely on navigating immediate geostrategic tensions. Instead, Brussels and capitals of EU member states across the continent should also seek internal, systemic course corrections that would enable Europe to respond to unfolding economic, environmental, and technological developments. For if Europe’s leaders move forward in a way that not only enables the continent to weather the turbulence of the existing geo-economic environment but also enables it to bolster its capabilities, Europe will be well positioned for long-term security and growth.

 

The Path Out of Europe’s Geo-economic Box

The beginning of 2025 brought about an uncertain picture for Europe’s economic prospects. Growth in EU economic output stood below 1 percent in 2024—stable but underwhelming—while public debt remained high, with debt servicing becoming a major concern. At the same time, as the war in Ukraine was reaching its three-year mark, the price tag of bolstering Europe’s defense kept growing. To meet the newly agreed-upon NATO target of spending 5 percent of GDP on the military, allies would need to allocate approximately $2.7 trillion by 2035. At the same time, the continent faced pressures from its two largest goods trading partners, the United States and China.

In the face of a changing transatlantic relationship, the reflexive reaction among many European leaders in the first half of 2025 was focused on whether to continue pursuing the path of interdependence with Washington or forge one of greater strategic autonomy, with most voices advocating the latter. Indeed, in March, European Commission President Ursula von der Leyen issued a letter to European leaders saying the continent had to “meet the moment” and “unleash our industrial and productive power and direct it to the goal of security.” That same month, the European Council passed an unprecedented defense package, dubbed the ReArm Europe Plan (also known as Readiness 2030), and said that Europe was ready to “massively” boost its defense spending “with the speed and the ambition that is needed.”

The first half of 2025 revealed a fundamental truth: Europe cannot get out of its geo-economic box by turning to its west or its east. Instead, the only way to reduce geo-economic pressure is to chart a middle pathway—neither continuing down a path of overreliance on the world’s two economic superpowers nor breaking away. The continent should adopt a posture that the World Economic Forum (WEF) and European Council on Foreign Relations have already dubbed “strategic interdependence”—organizing its relationships to avoid imbalances and positioning itself as a competitive force across a number of critical domains.

The early months of 2025 also showed an EU with strong political capital. According to the Eurobarometer, a survey of Europeans across the EU conducted over the past five decades, EU institutions garnered the highest level of trust among Europeans in the last 18 years. This convergence of not just the need, but the ability, to chart a new course forward, presents an opportunity for Europe to take the reins and boost its own capabilities and competitiveness.

 

The “3 Cs” of Continental Competitiveness

As Europe contends with geopolitical pressures, it faces a fast-changing continental and global economic picture—one defined by a multitude of societal, economic, and environmental forces. At the end of 2024, European Central Bank President Christine Lagarde offered an assessment of these developments, warning that the changing economic context means that “our European way is now under pressure from significant shifts that are taking place.”

The multidimensional nature of the current geo-economic landscape—a composite of technological, environmental, and economic forces—suggests that leaders will need to take an attendant approach to “meet the moment.” Europe will need to widen its economic aperture to focus on boosting competitiveness across three areas: clean energy, capital markets, and twenty-first-century computing capabilities. If Europe can put in place a competitive agenda successfully, it will be in a better position to not only navigate, and at times weather, its relationship with Washington and Beijing, but to better position itself for long-term resilience and growth.

 

Computing Competitiveness

The foundations of today’s trillion-dollar global economies are nanometers in size—namely, the semiconductor chips that power AI and other frontier technologies. This is why several European leaders have been pushing for a Chips Act 2.0 to build on the 2023 European Chips Act by increasing resources for the research and production of semiconductors. But if the foundations of digital economies are small but physical, the networks delivering cutting-edge innovation are vast and ethereal. Building European computing competitiveness, particularly when it comes to frontier technologies, will mean looking beyond the production of frontier hardware to seeding the ecosystems needed to foster innovation.

The case for doubling down on investment in frontier technologies is compelling. According to Goldman Sachs, generative AI could add as much as 7 percent (almost $7 trillion) to global GDP and lift productivity growth by 1.5 percentage points over 10 years. Some studies suggest that at its peak, AI could help boost the EU’s GDP by 8 percent or €1.4 trillion. This is the precise reason why von der Leyen said in February 2025 that “We want Europe to be one of the leading AI continents.” Yet, according to a recent WEF and McKinsey analysis, Europe lags behind the United States and China in terms of competitiveness in frontier technologies, and is currently assessed as competitive in only four out of 14 key indicators. This creates strategic dependencies for Europe, weakens its competitiveness, and translates into trillions of lost output per year.

To move forward, Europe should continue to pursue investment policies in hardware capabilities but also pursue strengthening its tech ecosystem. This must be a priority because currently, the time to scale for startups in Europe is exceedingly slow. European software start-ups that reach €100 million in annual recurring revenue take on average five more years to do so than their counterparts in the United States.

Ultimately, competitive innovation is determined by a multitude of factors, such as an efficient business environment, skilled and productive workforce, and a robust innovation ecosystem. Here, the EU has started to advance an ambitious agenda to propel the continent forward when it comes to innovation. In May, the European Commission launched its “Choose Europe to Start and Scale” strategy that builds on the “Choose Europe” initiative of promoting a unified European approach to attract and retain talent. The strategy supports startups and scaleups throughout their lifecycle in the EU by addressing key needs—such as fostering an innovation-friendly environment, improving access to financing, supporting market expansion, attracting top talent, and facilitating access to infrastructure.

 

Clean Energy Competitiveness

Europe’s energy system is in need of upgrading, having long relied too heavily on fossil-fuel imports, primarily low-cost Russian gas. At the same time, the fragmented nature of the internal energy market, particularly electricity, has created an inefficient grid across the continent. The result has been that European gas prices, as measured by the TTF benchmark, are currently around €47 per megawatt hour—well below the 2022 crisis peak but still about twice pre-crisis levels. With EU gas storage levels sitting at 36 percent less than in 2024, meeting storage targets before next winter will require increased imports, further tightening global gas markets despite some growth in LNG supply.

The International Monetary Fund estimates that the energy price shocks that have been unfolding since 2021 could reduce as much as one percentage point of the Eurozone’s potential output by 2027, which translates to an annual loss of nearly €200 billion. In contrast, shifting more decisively to renewables and integrating the continent’s energy market could save €40 billion annually by 2030.

The fast-changing technological and geopolitical landscapes indicate there is an urgent need to transform Europe’s industrial base towards cleaner, more efficient, and climate-resilient systems. The International Energy Agency projects that electricity demand linked to data centers is on a path to doubling by 2030. To be competitive in frontier technologies, therefore, Europe must also be competitive when it comes to stable, clean energy systems.

The good news is that Europe is well-positioned to double down on delivering clean energy. According to the WEF’s annual Energy Transition Index, which tracks national energy systems and energy transition progress, EU member states score highly, with over 40 percent of them ranking among the world’s top 20 countries (Sweden was the top-ranked country globally). However, differences in economic development and transition preparedness can lead to uneven progress among member countries, and in a fast-changing geopolitical and technological landscape, agility is needed for energy transition to progress. By integrating energy markets, strategically deploying critical renewable energy, clean fuel infrastructure, and energy efficiency measures, and reforming regulatory and investment frameworks, Europe can achieve its economic and strategic objectives while securing a competitive industry well-equipped for the race towards achieving net zero.

 

Capital Market Competitiveness

Europe has well-functioning capital markets as a result of common rules, transparent regulation, and stable institutions. However, about 70 percent of household savings in the EU—amounting to €10 trillion—are held as bank deposits rather than being invested in capital markets. As Ravi Balakrishnan and Mahmood Pradhan put it succinctly in a 2025 essay for the IMF: “Europe has ample savings but not enough investment.”

To meet the goals of financing a clean-energy transition and investing in frontier technologies, Europe will need to create greater opportunities for capital investment. However, according to the European Central Bank, “The EU faces a large gap in funding for these investment needs, which must be seen in the context of limited fiscal space, raising the question of how private capital can be best mobilized to bridge the gap.” The 2024 reports by two former Italian Prime Ministers Mario Draghi and Enrico Letta called for a deeper single market, including the development of a savings and investment Union and a European push to address investment needs.

The European Commission has outlined a dual-track strategy to advance European financial and capital markets integration through its Capital Markets and Banking Unions. A key prerequisite to integration, however, is capital mobilization, which can largely be achieved by harnessing pensions and engaging retail investors.

While there is often broad support and the political will to advance the Savings and Investment Union, technical hurdles at the member state level have proven significant headwinds and stunted progress. Regulatory complexity and single market fragmentation continue to impede growth, particularly for small- to mid-sized companies. Ultimately, there will need to be regulatory simplification across the 27 EU member states, including the harmonization of financial system regulation, in order to mend market fragmentation and reduce the complexities that are sometimes keeping investors away.

 

The Win-Win Nature of Competitiveness

If Europe focuses on improving its competitive position on green energy, frontier technology, and capital markets, it will be poised to weather current geo-economic turbulence and chart a path toward long-term growth.

The argument for a more competitive Europe should not be mistaken for one of European primacy. To be sure, companies, countries, and economies succeed when they strengthen their means of production—the resources, capital, and innovation that expand output. And Europe would see economic and strategic reward in improving its own capabilities. Over the long term, however, an economically competitive Europe benefits the world by promoting global trade, technological innovation, and sustainable development, while also fostering a more stable and prosperous international environment.

More so, a more competitive Europe can serve as an anchor in a turbulent geo-economic context, offering new opportunities for global capital investment and business expansion. In the WEF’s July 2025 inaugural meeting of Leaders for European Growth and Competitiveness in Brussels, von der Leyen made this point by saying that “Europe can provide a pole of stability in a more fragile world.” Now, for the sake of European and global prosperity, leaders across the continent need to align priorities, paving the way for a competitiveness agenda.

 

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