26 March, 2025 | Elvire Fabry and Sylvie Matelly

Reinforcing the EU’s resilience to economic risks

Europe is navigating a complex period marked by significant economic challenges, further exacerbated by successive crises such as the Covid-19 pandemic, the war in Ukraine, and rising geopolitical tensions. In the face of multiple risks, the European Union (EU) needs to strengthen its resilience to ensure long-term competitiveness and stability.

What are the key economic risks facing Europe?

As highlighted in the Draghi and Letta reports, Europe faces economic stagnation primarily mainly due to comparatively lower productivity levels. This issue is exacerbated by a significant technology gap in key areas such as artificial intelligence, green technologies, and cybersecurity, occurring at a time when an ageing population is already putting pressure on economic growth.

In addition, Europe’s energy dependence, which was exposed during the energy crisis triggered by the Ukraine conflict, leaves the continent vulnerable to external disruptions. The growing fragmentation of globalisation, exemplified by tensions between the United States and China and, more recently, the return of Donald Trump, further complicates Europe’s economic environment.

While it is difficult to identify all the risks currently facing the EU, they can be broadly grouped into five categories: geopolitical disruptions, globalisation dynamics, environmental pressures, social and human risks, and technological changes.

How can Europe strengthen its economic resilience?

Europe has several tools at its disposal to address these risks and enhance resilience. The single market plays a crucial role, where deeper integration—notably through a Savings and Investment Union—could channel European savings into local investment and boost innovation. Economic security instruments are equally important, enabling responses to aggressive external policies (such as trade wars or competition distortions) and promoting diversification to secure supply chains.

Europe is navigating a complex period marked by significant economic challenges, further exacerbated by successive crises such as the Covid-19 pandemic, the war in Ukraine, and rising geopolitical tensions. In the face of diverse risks, the European Union (EU) must strengthen its resilience to secure long-term competitiveness and stability.

Accelerating the energy transition is also essential—not only to reduce dependence on external sources, but also to stabilise energy prices, control production costs, and ultimately boost business competitiveness. However, this shift also increases Europe’s reliance on certain critical raw materials. To address this, the EU must prioritise resource efficiency through innovation and more sustainable consumption patterns, which in turn necessitates a rethinking of its international partnerships, especially with countries in the Global South.

Deeper integration of the single market must be treated as an absolute priority. Harmonising regulations in key sectors such as energy, communications, and financial services would stimulate investment and significantly enhance the competitiveness of European enterprises. Encouraging domestic savings and investment would further reinforce the EU’s economic autonomy.

To close the technology gap, Europe must invest heavily in emerging technologies and innovation. Focusing on strategically critical sectors will help reduce dependence on global powers like the United States and China, while also supporting the economic and military revitalisation of EU member states. Achieving this requires better coordination of industrial policy across Europe and stronger support for key industries. This includes establishing a “fifth freedom” within the single market: the free movement of knowledge and research.

Diversifying supply chains is another crucial priority. The COVID-19 pandemic and the war in Ukraine have starkly exposed Europe’s vulnerabilities in this regard. Strengthening international partnerships—particularly with countries in the Global South—and securing access to critical raw materials are vital steps toward building long-term resilience.

Accelerating the energy transition remains essential. Reducing reliance on imported fossil fuels demands a rapid expansion of local renewable energy sources, coupled with enhanced protection of energy infrastructure against both physical and cyber threats.

Equally important, Europe must deepen its engagement with developing countries through initiatives such as the Global Gateway, which promotes sustainable and inclusive infrastructure. These partnerships are vital in supporting the ecological and technological transitions of countries in the Global South.

Strengthening global governance: a necessity for Europe

To effectively address these mounting risks—particularly the destabilising impact of Donald Trump’s eagerness to reshape global trade through tariffs and coercive diplomacy—Europe must take a firm stand in advocating for fairer and more sustainable global governance. It cannot allow China to position itself as the sole champion of a rule-based international order that appears to serve the interests of the least-developed countries.

The EU should spearhead the creation of a global forum on trade, environment, and development to promote a coordinated international approach. A plurilateral system of rules—agreed upon by WTO members excluding the United States—could be explored, particularly with regard to the use of subsidies. This framework should allow for greater flexibility in climate change mitigation while minimising the negative impacts of subsidy competition.

To avoid a cycle of retaliatory measures and the resurgence of protectionism, the EU must also work in concert with other like-minded countries to contain the fallout of trade disputes and safeguard the resilience of global supply chains.

Europe is likely to find willing partners in this endeavour and now faces a pivotal window of opportunity. But to seize it, the EU must strengthen its stance against reactionary and destabilising forces. This will require evolving beyond its traditional identity as a normative power and embracing a more assertive role—including elements of hard power.

This moment could well mark the turning point where Europe either regrouped—or retreated.

This text summarizes some of the findings in the REGROUP paper “Drivers of economic risk and scenarios for the EU“.