Europe’s challenges: what is new?

Europe’s main policy challenges fall into two categories: raising productivity growth and improving security: in the face of military and hybrid threats, economic vulnerability and climate change. This has been true for some time. It was certainly true at the time of last year’s Bruegel Annual Meetings, when Europe and other United States allies had to come to terms with the fact that the US had turned from a benevolent into a coercive hegemon. 

Unfortunately, that problem has not diminished. And in the meantime, other manifestations of Europe’s two big challenges have come to the fore. 

The 2024 Draghi report framed Europe’s growth challenge largely in terms of catching up with the economic dynamism of the US. Since then, the loss of European market share to China and the extraordinary rise in the Chinese trade surplus in 2025 have added urgency to the productivity agenda. The stakes are no longer just improving the long-term growth trajectory of European economies; Europe must also prevent industrial collapse and promote industrial transformation, at a bearable social and economic cost. 

Whereas the security challenge was largely focused on defence, the acceleration of the artificial-intelligence race between the US and China and the US’s willingness to cut off foreign users from frontier models have opened a new front in both the security and productivity battles. Meanwhile, the Iran war and successive record-breaking heatwaves have reminded Europeans of the urgency of the energy transition as both a security and climate imperative. 

This week’s Bruegel Annual Meetings will discuss solutions to these problems, with panels on how to rescue climate policy, accelerate rearmament, balance AI risks with innovation incentives, improve tax systems, raise economic dynamism, strengthen digital sovereignty, reinvent trade policy, improve regulation and future-proof banking. We will also experiment with a new format: public seminars that explore specific topics in depth and enable more interactive discussion. I hope to see many of you there.

The Why Axis is a weekly newsletter distributed by Bruegel, bringing you the latest research on European economic policy. 

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