How to move beyond Europe’s reduced-responsibility model

For decades, the European Union has operated under what could be called a ‘reduced responsibility model’. EU countries have relied on United States security guarantees to underinvest in defence, while counting on the vast US market to absorb exports and anchoring financial stability to the US-led governance of international institutions and trade. This model enabled the EU to expand and progress, not least by establishing the single market and introducing the euro. But it also meant robust institutions, able to assume fundamental responsibilities, especially related to security and macroeconomic and financial stability, were not developed.

The enablers of the reduced-responsibility model are now no more. The US move from hegemony to primacy follows its progressive loss of status as a safe haven. To maintain primacy, US economic, financial and political dominance is now predicated on making the rest of the world relatively riskier, including through systematic weaponisation by the US of economic levers for geopolitical ends. Meanwhile, China has moved to consolidate its global economic position by creating strategic dependencies in key sectors.

Open geopolitical rivalry and aggressive strategic models are bound to produce more frequent and intense global shocks. Importantly, this shift is structural: the favourable external conditions that once supported Europe are unlikely to return.

What should the EU do? To move beyond the no-longer functioning reduced-responsibility model and to prioritise long-term collective benefits over short-term cost avoidance, policies previously seen as optional or politically difficult have become essential for the durability of the EU and the resilience and prosperity of its member states. These policies include a common borrowing capacity, European public goods, deeper fiscal coordination, defence integration, safe assets and the investment union.

The issue is no longer a trade-off between national sovereignty and European integration, but whether sovereignty can still be exercised meaningfully without common European instruments. The collective scale provided by the EU on matters previously untouched by shared decision-making has become indispensable if EU countries are to secure their independence and economic, social and strategic security.

But the EU should not aim simply to replicate the technological models of the US or China. Europe needs to devise and implement its own innovation trajectories. In the wake of the publication in September 2024 of the Draghi report – an EU economic blueprint by former Italian prime minister Mario Draghi, written for the European Commission – the challenge is no longer just competitiveness but reducing Europe’s systemic vulnerability to external coercion and shocks in a manner that balances efficiency, equity and sustainability. Industrial policy, capital markets integration, energy policy, defence and technological capacity have therefore become instruments not only of growth, but of economic and social resilience and strategic autonomy.

Given the structural uncertainty, the European social model, by combining efficiency and equity considerations, can help societies absorb change while sustaining democratic legitimacy and long-term resilience. Most importantly, it enables the risk-taking needed for innovation and structural transformation. Not by chance, the Nordic countries, which combine well-functioning markets and a strong social safety net, are the EU’s innovation hub.

In designing an innovation plan, Europe should treat rules such as those that form the framework of the social model not as constraints, but as a strategic asset. The EU’s comparative advantage is that it offers predictability, legal certainty, institutional reliability and long-term investment security. Most importantly, efficient rules can prevent the build-up of oligopolistic positions that attempt to capture the political level and prevent ex-post corrections of market excesses.

Building EU-specific innovation trajectories requires a reorientation of the EU budget away from transfers and towards investment in European public goods. In turn, the concept of solidarity within the EU should be rethought. The current global context calls for a new European social contract with ‘insurance-based solidarity,’ or sharing of the costs of shocks, rather than resource transfers from the north to the south and east. This will recognise that pooling sovereignty provides a type of safety net against pervasive uncertainty that no single state can guarantee alone.

With growing weaponised interdependence and arbitrary power, a rules-based institutional setting is becoming a scarcer, and hence more valuable, commodity. The EU should leverage it, both internally and globally.