The EU's vicious cycle: cohesion or decline?

The European Union stands at a critical juncture in its efforts to remain globally competitive. As former European Central Bank president Mario Draghi argued in his recent report on the state of the EU competitiveness, the bloc needs massive reforms, robust investment, and streamlined decision-making to stave off economic stagnation. In particular, Draghi advocates for a shift to more qualified majority voting (QMV) in areas such as economic governance, a departure from the unanimity that often paralyses decision-making.

On the surface, Draghi’s recommendations are straightforward: more cohesion, less bureaucratic delay, and a stronger, unified response to global economic challenges. However, this plea for unity and reform comes at an especially inconvenient time for the EU, as it grapples with internal fragmentation, rising populism, and increasing scepticism toward the centralisation of power in Brussels.

The core question is whether the EU can implement these reforms and harmonisation policies when some of its foundational principles – such as free movement under the Schengen Agreement – are being called into question. As Germany reintroduces temporary border controls and other countries contemplate similar measures, it seems that disunity, rather than cohesion, is becoming an increasingly prevailing sentiment across the continent.

To understand the challenge, it’s essential to contextualise the current state of the EU economy. The global economic landscape is increasingly shaped by fierce competition from the United States and China, both of which boast robust economies driven by substantial innovation, state-backed investments, and more streamlined governance. Europe, in contrast, lags behind in technological advancements, industrial development, and digital innovation. Draghi’s report underscores that if the EU fails to act swiftly, it risks becoming a stagnant economic force, unable to compete effectively on the world stage.

Draghi’s suggestion of moving from unanimous voting to qualified majority voting is particularly critical. The unanimity requirement for many EU decisions has long been a stumbling block for the bloc. The need for unanimous agreement among all 27 member states often delays decision-making, allowing only the lowest common denominator to be enacted. However, shifting to QMV, while logical on paper, would inevitably reduce the veto power of individual states. This is a tough sell at a time when many member countries feel that their national sovereignty is being eroded by an
increasingly powerful Brussels.

The potential backlash against reducing national agency could further embolden populist movements and Eurosceptic rhetoric, which are already gaining traction in several member states. This brings us to the central paradox facing the EU: it must act as a cohesive bloc to be competitive, but the very steps needed to achieve this cohesion could deepen internal divisions. Calls for harmonised policies on state aid and subsidies are essential to prevent individual member states from undercutting one another with preferential treatment to domestic industries.

However, this level of harmonisation inevitably limits the ability of national governments to respond to local economic conditions. In countries where citizens already feel disenfranchised by EU policies, further restrictions on national policymaking could fuel resentment.

This creates a vicious circle: as the EU pushes for greater harmonisation and cohesion in a bid to boost competitiveness, member states may feel increasingly marginalised, which in turn leads to more fragmentation. The irony is that this very fragmentation makes the EU less competitive on the global stage, thereby reinforcing the perception that the bloc is underperforming economically. This fuels further discontent and disunity, making the necessary reforms even harder to implement.

The EU's promise has long been one of shared prosperity through integration. However, in recent years, this vision has come under strain. The lingering effects of the Eurozone crisis, Brexit, and the ongoing migration debates have left many Europeans questioning the value of deeper integration. Germany's decision to introduce temporary border controls, ostensibly to manage migration, is a stark symbol of this growing scepticism.

This internal division comes at a moment when external pressures on the EU are mounting. The war in Ukraine, the rise of China as a global economic superpower, and increasing geopolitical competition over critical technologies and supply chains, especially in sectors like semiconductors and rare earth materials, have all underscored the need for the EU to act decisively to maintain its place in the global order.

Yet, without internal unity, the EU risks being relegated to a second-tier power, unable to compete on equal footing with its global rivals. Draghi's recommendations are sound in principle but fraught with practical challenges. Achieving the level of cohesion and harmonisation he advocates requires the EU to reconcile its internal divisions first. This means finding a way to balance national sovereignty with the need for collective action. It also requires addressing the underlying causes of Euroscepticism, such as inequality and the sense that Brussels is out of touch with local concerns.

If the EU is to succeed in its bid to remain globally competitive, it must find a way to break the vicious circle of fragmentation and underperformance. This will require bold leadership, not only from Brussels but from national capitals as well. The road ahead is undoubtedly challenging, but the alternative – continued stagnation and political disintegration – would be far worse.

Vijay Pathak, is based in Luxembourg and is a graduate of Yale University, PDLI Fellow, and Brady-Johnson Program scholar in Grand Strategy, as well as a recipient of the 2024 NATO Youth Award and writes on EU foreign policy and global affairs.
 
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