Farcical Visions of Competitiveness in the EU

It’s been a little while since we looked at the European Union’s quest to remain “competitive,” but in the wake of Brussels capitulation to Washington on a trade deal, it’s made an oddly-timed comeback. Former European Central Bank Chairman, unelected Prime Minister of Italy, and an architect of Russia sanction policy Mario Draghi is back beating the drums for more centralization and spending in order to catapult the EU back among the world powers.

Draghi’s argument is essentially that the EU is in a bind because Putin and Trump are bad, and the bloc must issue common debt to increase spending on defense and other items like “disruptive” technologies. It’s a vision shared by many EU elite, including officials in Brussels and, of course, investors. Here’s Draghi, courtesy of Politico:

“We had to resign ourselves to tariffs imposed by our largest trading partner and long-standing ally, the United States,” he said of the shift in policy under the U.S. president. “We have been pushed by the same ally to increase military spending, a decision we might have had to make anyway — but in ways that probably do not reflect Europe’s interests.”

“Only forms of common debt can support European far-reaching projects that fragmented and not sufficient national efforts would never be able to implement,” he said. 

European Commission President Ursula von der Leyen defended the US deal in a piece in several European newspapers last week. Here’s the gist of her argument:

The agreement is a deliberate choice, the choice of stability and predictability over escalation and confrontation. Imagine if only the two major economic powers in the democratic world had failed to reach an agreement and had unleashed a trade war, there would have been celebrations in Moscow and Beijing.

Ursula, too, goes on to argue that the EU must do everything in its power—as well as obtain more power—to boost competitiveness.

With Draghi’s soft criticism of the US-EU trade deal, which will see a 15 percent tariff on many European products while the EU pays hundreds of billions for the privilege, some observers believe there’s some sort of intra-elite spat between Draghi and Ursula.

I find that doubtful. They might differ on specifics, but from Brussels to Berlin to Paris they’re singing the same song: spend more to climb out of the Project Ukraine hole. If the past is any guide, the powers that be in Europe are likely waiting until the linked economic-Ukraine-Trump crises reach desperation levels in order to make another major push for common debt and other market-friendly “reforms.” That might seem far-fetched considering the Union’s unity is fraying at the seams, but over the past few years it’s become clear that it’s wise to never underestimate the bloc’s ability to find common purpose for collective self harm.

Let’s examine this obsession with competitiveness and look at what’s really happening in Europe and with the “special bond” that is the trans-Atlantic relationship.

What Do Elites Like Draghi Mean When They Talk about Competitiveness? 

They mean further transforming the EU into a neoliberal paradise for the financial class. We dove into this in coverage of Draghi’s report last October, and while the chief focus might be on getting common debt, there are plenty of other little goodies that capital wants. To quickly recap:

• Less Labor Law for “Innovative” Companies
• Free Rein to AI and Tech Start Ups
• More “Disruption”
• Learn from Hyper-globalization which Decimated Labor by Embracing AI in an effort to Decimate Labor
• Overhaul Education “Skills Investment” With a Focus on Training Workers to Become Productive Tools for Capital
• And continue to slice away at the welfare state through budget cuts and privatizations that, of course, increase competitiveness.

And there’s one key piece of data that those arguing for all this competitiveness usually omit. It’s what the EU’s decision to sever itself from cheap and reliable Russian gas did to the bloc:

Nowhere do they ever consider starting down what will likely be a long and arduous path toward rebuilding ties with Russia.

Instead much of the competitiveness talk dovetails with the fantasy of winning the current confrontation with Russia. For a resource-poor Europe, there is a real competitiveness angle there:

But it’s also where all this ambitious, fantastical talk gets swallowed by cold, hard reality.

Competitiveness and the Ukraine Corrupt Pit of Death

If you’re a Keynesian or Modern Monetary Theory enthusiast, you might be tempted to get on board with Draghi’s prescription for the bloc. After all, it must be better than the usual austerity, right? But it seems the EU is only able to lurch from one bad idea to another, and in this case it’s the worst of both worlds—austerity for social programs and betting the house on rearmament.

The military keynesianism is unlikely to be a success or produce benefits for workers, however, as Isabella Weber and Tom Krebs point out in Foreign Affairs using the example of Germany, which just lost more than 51,000 auto industry jobs over the past year:

Merz’s far more generous approach to military spending will not boost domestic growth in the coming years as much as its advocates suggest. The defense sector is already operating near capacity, and in the short run, increasing government spending on weapons and tanks will have only a limited effect on production. Arms companies such as Rheinmetall have seen soaring profit margins, revealing their market power and the lack of competition they face even amid rising demand. Significant additional public spending may go into boosting their margins further. Rheinmetall’s 15-fold stock surge reflects expectations of continued windfall profits.

Of course, the government has insisted that this military spending will create well-paid manufacturing jobs. Yet Merz’s cabinet is full of business executives and lacks a strong voice for labor issues, an absence that has drawn criticism from the CDU itself. Moreover, the defense build-out will not likely compensate for the impending loss of jobs in ailing industries such as the automotive sector. Rheinmetall’s profits almost doubled between 2020 and 2024, but the number of its employees based in Germany rose just 25 percent in that period. The conversion of civilian plants to military use does not offer much more hope. In the East German town of Görlitz, a former Alstom train factory was taken over by the German-French defense company KNDS and now produces tanks, but the factory’s workforce has been slashed in half. The arrival of KNDS was clearly better than nothing, but it is unlikely to turn things around in a place such as Görlitz with a high unemployment rate of 7.7 percent.

And to reinforce their point, Germany’s economy just contracted again. But on the bright side, the country can produce more weapons for Israel’s genocide, NATO-Ukraine’s retreat, and continue to enrich arms manufacturers primarily in the US.

Earlier this year ammunition giant Rheinmetall overtook Volkswagen in market value. It was a symbolic shift for Germany and the EU, but that value is also reliant on keeping the meat grinders churning. Back on August 7 when Trump announced the upcoming meeting with Putin Rheinmetall stock had one of its worst days in decades. It has since recovered as investors are giddy over the state’s redirection of tens of billions towards war spending.

With or without common debt, Europe is looking at continuing to funnel money to the US fossil fuel industry:

While many have pointed out that these figures are unrealistically high, regardless of whether the imports come from the US or elsewhere, they are not coming from Russia—at least not directly—which means Europe is paying exorbitant costs for what used to come cheap and easy.

Of course, the energy purchase pledge and overall trade deal could hit the fan if the US continues to come for EU tech sovereignty. At least that’s what the Europeans are saying, but we’ve heard tough talk before only for the bloc to cave in the end.  and as long as Europe’s political class is desperate to keep the US onside against Russia there’s no reason to believe they won’t cave again.

At issue is the EU’s Digital Services Act (DSA). There are a whole host of problems with it from a free speech perspective as Nick Corbishley has documented frequently here at NC.

The Trump administration and its friends in Silicon Valley might talk up that angle, but they are chiefly concerned with the rules being a burden on U.S. tech companies. The EU is already dominated by US IT companies that supply software, processors, computers, and cloud technologies, but they’re also looking for domination in all other fields, including AI, and don’t like being regulated by vassal states (even though Brussels has yet to impose a single fine for content moderation breaches, and Ursula’s Commission big splash case against X has languished for more than a year).

EU industry chief Stéphane Séjourné said on Wednesday that the trade deal will “have to be reviewed” if the US is serious about its demands for the EU to deregulate its tech sector.

We shall see.

Back in 2022, the EU promised major retaliation for the Inflation Reduction Act, which provided $369 billion worth of subsidies and tax breaks at a time European industry was just started to get killed by higher energy prices due to the NATO proxy war against Russia in Ukraine. That threat quickly faded away with EU trade chief Valdis Dombrovskis urging everyone to look at the “bigger picture,” which was apparently that only Russia and China would benefit if Europe got into a spat with the US.

We see Ursula making the same argument with the recent trade deal. And recall that shortly after “Liberation Day” some European officials talked about moving closer to China in response. How did that work out?

As part of the humiliating deal, the EU agreed to curb AI chip flows to China, which won’t do much more than dent China while the repercussions for Europe could be enormous:

The EU likes to call China and Russia adversaries, yet leans on them like crutches for the minerals that keep its high-tech dreams alive. In 2024, 46% of rare earths came from China, another 28% from Russia. That’s nearly 75% of the whole supply chain balanced on the goodwill of… https://t.co/i7TDGTCez0 pic.twitter.com/PNw2JFtiAp

— Brian McDonald (@27khv) August 20, 2025

All for Ukraine. For the European elite’s Russophobia and/or greed in thinking they could collapse the government in Moscow and snatch up a big chunk of Russia’s wealth. And now it’s their inability to stop digging—as they likely know that’s when the true scale of their misleadership will be evident—have them over the barrel with Trump who is no doubt enjoying twisting the knife.

Sabine Weyand, the EU’s top trade official, recently explained that the EU’s dependence on the U.S. security umbrella effectively forced its hand in the trade talks. What’s the plan to stop it from forcing the EU’s hand repeatedly? Here are three potential options:

1. Hope and pray. Weyand further stated the following:

“I have the impression that the signs are different now and that there is a type of Zeitenwende,” Weyand said, referring to a turning point in the EU’s relationship to the U.S. “Of course this is a backdrop against which we also have to discuss our trade relationship. The EU member states were not willing to take the risk of a further escalation, which would have been the immediate response to countermeasures by the EU.”

This route isn’t working out so well for Europeans. The next day Trump unleashed his demands on tech regulation.

2. Brussels could awake from its fever dream, face up to impending political upheaval and the realities of geography, and go bearing gifts to Moscow. We all know this isn’t going to happen—at least not until much more suffering has passed. And so we’re stuck with option three.

3. The rearmament and competitiveness path—without critical minerals and with expensive energy, collapsing economies, dimwit vultures as political leaders, and an unsupportive populace. How do we like those odds?