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The writer is the former head of the European Central Bank and was the Prime Minister of Italy. He supervised a report on the future of European competitiveness

The last weeks have provided a flagrant reminder of the hypocrites of Europe. The euro area barely grown at the end of last year, confirming the fragility of local recovery. The United States has begun to impose a tariff on its main trading partners, with the next European Union in its eyes. This possibility casts more uncertainty about European growth given the economy’s dependence on foreign demand.

Two years have pushed Europe to this dilemma – but they can also lead it again if they are ready for radical change.

The first is the European Union’s long inability to address its restrictions in the show, especially high internal barriers and organizational obstacles. These are more harmful to growth than any tariff that the United States may impose – and its harmful effects increase over time.

the International Monetary Fund It is estimated that the internal barriers in Europe are equivalent to a tariff of 45 percent for manufacturing and 110 percent for services. This effectively shrinks the market in which European companies operate: trade throughout the European Union countries is less than half of the trade level in all American states. With the transformation of the activity more towards services, its traction is generally worse.

At the same time, the European Union allowed to track the most innovative part of services – digital – hindering the growth of European technology companies and preventing the economy from opening large productivity gains. The costs of compliance with GDP, for example, are estimated To reduce profits for small European technology companies by up to 12 percent.

Combating, Europe was effectively raising definitions within its borders and increasing its organization on a sector of about 70 percent of the European Union GDP.

This failure also contributed to reducing internal barriers to open up to trade in Europe. Since 1999, trade has increased as a share of GDP from 31 percent to 55 percent in the euro area, while in China increased from 34 percent to 37 percent and in the United States from 23 percent to 25 percent. This openness was one of the origins in the world of globalization. But now it is weak.

The irony is that although the internal barriers remained high, the external barriers decreased with the acceleration of globalization. European Union companies looked abroad to replace local growth and imports became relatively more attractive.

For example, since the mid -nineties, the costs of trade in services estimated It decreased by 11 percent within the European Union, but by 16 percent for imports other than the European Union. This helps to clarify the reason for trade in services inside and outside the European Union almost today, such as the share of GDP – it cannot be perceived in a completely integrated economy.

The second factor that hinders Europe is its tolerance with poor demand constantly, at least since the 2008 global financial crisis. This has exacerbated all issues caused by the supply restrictions. Even the crisis, the domestic demand was as a share of GDP in the euro area near the middle of the advanced economies. After that, she fell to the bottom and stayed there. The United States remained at the top all the time.

This fallen demand gap helped convert openness to high trade into high trade surpluses: The current account in the euro area has turned from a widely balanced scale until 2008 into continuous surpluses after that.

The weak demand has been nourished by the total productivity of productivity exceptionally after the recession, an unprecedented pattern in the United States. This can be partially explained by the effect of demand for the innovation cycle. research It finds that policy -based demand shocks have a significant impact on research and development investment, especially for sabotage technologies.

While the demand gap has various drivers, the most important of which was the relative position of financial policies. From 2009 to 2024, it was measured in 2024 euros, the United States government injected more than five times the money into the economy through the basic deficit – 14 Tri euros for 2.5 euros in the euro area.

Each of these palaces – supply and demand – is largely the making of Europe. So they are within the limits of its authority to change. The inexhaustible motivation to remove the supply restrictions will help the innovative sectors to grow, and by redirecting the demand again to the local market, and reducing commercial openness without raising commercial barriers. The new competitive compass for the European Commission provides a road map to achieve this.

At the same time, the most active use of financial policy – in the form of a higher fruitful investment – would help reduce commercial surpluses and send a strong signal to companies to invest more in research and development.

But this path calls for a fundamental change in the mentality. So far, Europe has focused on individual or national goals without calculating its collective cost. Maintaining public funds supported the goal of debt sustainability. The spread of the organization is designed to protect citizens from the risks of new technology. Interior barriers are a legacy in which the nation -state was the natural framework for work.

But it is now clear that the disposal of this way has not provided the well -being of the Europeans, nor the health financial resources, not even the national autonomy, which threatens to pressure from abroad. This is why radically changed.