Europe’s Competitiveness Imperative in 2026

It could become a year of turn-around for the EU. Last year saw the political focus finally move towards competitiveness, towards burden-reductions for companies and towards more economic resilience. In 2026, geopolitics, security and defense, as well as targeted investments , define the landscape.

Europe stands at a decisive crossroads: reclaim its position as a prime destination for investment and a credible geopolitical actor, or watch capital, talent, and innovation migrate to leaner, more predictable markets, leaving its strategic influence diminished alongside its economic weight.

European firms adjust to reshaped trade, technology, and finance developments and look for opportunities in infrastructure and defense related investments.

Regrettably, the fragmentation of the Single Market remains a concern and has not been addressed by the EU’s political actors. Export controls, sanctions, and investment screening are raising risks amid volatile supply chains and global subsidy races in clean tech, chips, and defence. Market surveillance, and hence the efforts of keeping non-complaints products off the EU’s market on the other hand remain insufficient.

Thus, to turn 2026 into a year of economic strength for the European economies, industrial electricity costs have to be reduced, vulnerabilities in new domains like cyber, space, and undersea and other critical infrastructure have to be overcome, inflation risks addressed.

In 2025 counter to the ‘peak pessimism on Europe’ at the beginning of the year, Europe avoided a recession. But action is needed to close the productivity gap, increase public and private investments to at least 5% of European GDP, with a strong focus on innovation in critical technologies, a more integrated single market, streamlined regulation, a shift in industrial policy to create ‘European champions’, and a clear focus on energy transition and security.

The competitiveness check, promoted to assess how new policies, laws, or initiatives will affect the economic strength, innovation, and ability of European businesses (especially SMEs) to compete, must become “fully” operational, i.e. being applied consistently and at high quality across the board.

Looking ahead, competitiveness policy must move beyond Single Market integration and regulatory simplification. The risk-averseness of European societies has become unsustainable. Giving companies and entrepreneurs the space to be innovative and to test their ideas should become the new guiding principle. Our SMEs deliver great solutions for Europe and should receive more support and recognition for their efforts, including access to new and global markets. Mercosur and other trade agreements are a silver lining in this context and with regard to diversifying supply chains and access to resources.

Against this backdrop, competitiveness policy must become openly geoeconomic, built on three pillars:

• Industrial and trade policies that strengthen Europe’s productive base while keeping the Single Market open, attractive, and globally connected, avoiding protectionism that fragments value chains.
• Security-related measures, from export controls to investment screening, that remain targeted, proportionate, and predictable, with special consideration for SMEs’ compliance capacity.
• Investment in skills and innovation, addressing the shortage of over 3.5 million STEM professionals and Europe’s declining share of global venture capital, now at 18% compared to 25% a decade ago.

In 2026, EU leaders face a defining choice: will Europe emerge as a competitive, dependable hub in a divided global economy? It depends entirely upon us, our determination and ability to anticipate, focus and act.

Sandra Parthie, EESC Employers' Group President.