“Competitiveness” is Europe’s new buzzword. The European and American economies generated about the same GDP in 2008. Today, Europe’s is only 65% of the US size. Few big tech companies are European. Wedged between China and the US, Europe fears it can either rise to the challenge of becoming a continental-sized economy or be left behind.
The European Commission has turned to two former Italian prime ministers, Enrico Letta and Mario Draghi, for ideas about how to repair the damage. The Letta Report was published this month. The Draghi report is due just after the upcoming June European elections.
Their diagnosis looks clearcut: Europe’s much-ballyhooed single continent-wide market must be completed. While researching his report, Letta traveled around the continent. He wanted to take high-speed trains. But these run on domestic routes and do not, for the most part, cross borders. So, he was forced to go by airplane. “If we don’t integrate, we will decline” Letta warned in an interview ahead of the paper’s release.
Fragmentation along national lines is worst for financial, energy, and telecommunications. European countries compete with each other, rather than unify and take on the globe.
On financial services, the Letta report paints a damning assessment, especially as it pertains to Europe’s global competitiveness. No continent-wide capital market exists. Each member state deploys different tax and accounting systems. Frankfurt, Paris, and Brussels each have national stock markets. None reach the scale to compete against New York or London.
The fragmented financial services market limits lending across borders. Startups and SMEs suffer. They struggle to obtain enough cash and often end up turning to the US for funding – moving across the Atlantic.
Energy represents another challenge. While Letta commends how the continent withstood gas and oil shortages following Russia’s invasion of Ukraine, he warns against losing momentum. To combat climate change, the continent needs to allow cross-border auctions for renewables. This would reduce costs (which remain higher in Europe than in the US or China) and secure energy supplies.
A similar tale is true for telecommunications, a favorite topic of conversation in Brussels for those working on digital policy. Letta highlights how Europe’s market is fragmented, with more than 100 telco operators. While strong competition brings clear benefits to consumers, in the form of low prices, Letta warns about the danger to the continent’s telecom champions, which suffer from weak profitability. Their tight margins mean a lack of investment and lagging infrastructure. Deployment of 5G networks in Europe remains patchy.
By contrast, the US and China each only have a handful of telco providers. In the US, an average operator services around 107 million consumers. In China, the average is more than 400 million. Of course, this means consumers pay high prices. It also means big providers have cash to invest in new state-of-the-art infrastructure. Both the US and China are leading in 5G deployment.
Draghi seems set to make similar points in his report. If a recent speech is anything to go by, he too will make a damning assessment of Europe’s Single Market. He accuses Europe of turning inward and “seeing our competition as ourselves” Draghi also targets the telecommunications market.
Solutions will prove hard to implement. Both former Italian prime ministers support market consolidation, creating a few large providers with a pan-European reach. While this consolidation will translate into high prices for consumers (which considering you can get a phone plan for around €7 in Italy shouldn’t be that catastrophic), the resulting boost in profitability will make the telecommunications sector attractive for investment.
But such suggestions confront Europe’s prevailing political direction. In a press conference after Letta published his report, competition Commissioner Margarethe Vestager came out against telecom consolidation, arguing it would lead to a “fragmented Single Market” rather than a unified one.
Another obstacle to reinforcing the Single Market is the recent relaxation of state aid rules. Rather than tightening the public fund spigot, the continent is moving in the opposite direction, allowing governments to increase public funding of critical sectors in response to US and Chinese industrial policy. Large member states such as Germany and France can pour more money to support their domestic industries than small countries.
Will Europe listen to the Italian Prime Ministers? Back in 2010, Brussel enlisted another former Italian prime minister Mario Monti to solve its economic troubles. (Why Italy is always chosen for this task remains a mystery.) Monti too talked about the need to integrate financial services, energy markets, and telecommunication networks. The EU published his recommendations to strengthen the Single Market. But few were implemented.
This time could be different. Europe’s economic situation in 2010 was less dire than in 2024. The continent’s challenges no longer can be brushed off. The appetizing but difficult-to-execute Single Market recipe looks like the best hope for improving the continent’s competitiveness.
Clara Riedenstein is a researcher at CEPA’s Digital Innovation Initiative and a graduate of Oxford University.
Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions expressed on Bandwidth are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
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