Europe is losing its growth momentum — not because it lacks public money, but because it still does not have a truly integrated and deep single market, especially in services. Overregulation and sector-based “mission” policies are crowding out private entrepreneurship and investment. Instead of centralizing more programs and expanding public debt, the EU should remove internal barriers, strengthen the enforcement of the Treaty’s freedom to provide services, slow the pace of new regulations, and shift the growth engine from bureaucratic “fiscal impulses” to market mechanisms and economies of scale. Only then can the European social model be sustained amid demographic decline, high energy costs, and growing global competition from the United States and China.
Where the Real Problem Lies
For more than two decades, the European Union has responded to development challenges with escalating industrial policies, intertwining them with climate and digitalization goals. The latest expression of this approach — the “New Marshall Plan” narrative and the Draghi Report’s recommendations — advocates a large-scale, multi-year fiscal impulse financed primarily by debt to stimulate investment, innovation, and defense spending. The diagnosis — declining productivity, innovation gaps, market fragmentation — is accurate. The remedy is not.
Europe today is not a post-war underdeveloped economy that can be “lifted” by grants and centrally directed projects. On the contrary, it is a global development leader that has stalled due to:
- Fragmentation of the internal market, especially in services
- Excessive and inconsistent regulation
- Administrative favoritism for politically “chosen” sectors
- The slow adaptation of coordinated capitalism to a scale-based, innovation-driven global economy
Why the “New Marshall Plan” Is the Wrong Path
What the Original Marshall Plan Really Taught
The original Marshall Plan (1948–1952) was not a magical formula of “more debt = more growth.” Its essence was the reopening of trade and market integration, rebuilding of core infrastructure, and the transfer of organizational know-how. It was short-term, externally financed, and subordinated to a geopolitical mission — binding Europe to the liberal world order. Its true success lay in unleashing market mechanisms and creating coordinated — yet market-oriented — institutions.
Why Fiscal Expansion Won’t Work Today
Europe’s problem is not a shortage of private capital but the lack of market depth and uniformity that hinders business scaling, dampens R&D investment, and reduces returns on innovation. Large, centrally managed programs:
- Crowd out private investment
- Risk misallocation by “picking winners” politically
- Deepen overregulation and encourage rent-seeking behavior
- Increase debt without boosting productivity sustainably
Historical precedents — from Latin America’s fiscal experiments in the 1960s–80s to Japan after 1989 — show that public spending spurts offer only temporary relief if they fail to address the structural roots of weak growth. In Europe’s case, that root cause is the unfinished Single Market.
Europe’s Weaknesses: Facts, Not Slogans
Productivity and the U.S. Gap
Despite countless strategies and funding programs, Europe’s productivity growth continues to lag behind the U.S. Convergence within the euro area has slowed or disappeared entirely. Industrial policy, especially when burdened with additional goals such as climate neutrality, has failed to reverse this trend.
Fragmentation of the Internal Market
In practice, the Single Market remains segmented:
- In manufacturing, “internal trade costs” within the EU equate to tariffs of around 44%, versus 15% between U.S. states.
- In services, friction costs can reach 110%.
The potential gains from real unification are vast — up to +4% productivity in manufacturing and +8.3% in services if barriers were reduced to U.S. levels. Other studies suggest several percentage points of additional GDP per capita from completing market integration.
Overregulation and Protectionism in Disguise
EU and national regulations often function as a form of non-tariff mercantilism — nominally protecting consumers but in reality discouraging entry from firms in other member states and perpetuating market fragmentation. Harmonization progresses slowly, inconsistently, and with uneven enforcement — punishing those who comply and rewarding those who bypass the rules.
Energy, Green Transition, and Unintended Effects
Linking industrial policy with climate transition has failed to deliver the expected growth engines. European producers of solar panels and wind turbines are even losing their domestic markets to Asian competitors who scale production faster and cheaper. Meanwhile, high and volatile energy costs continue to erode the competitiveness of Europe’s energy-intensive industries.
Demographics and the Labor Market
The EU faces faster aging and lower birth rates than the U.S., while migration policy does not adequately offset the human capital shortfall. Europe’s social model — a civilizational achievement — also raises labor costs and reduces flexibility, which, combined with a lack of scale effects, weakens the global position of its firms.
Coordinated vs. Liberal Capitalism: The Game Has Changed
The coordinated capitalism model served Europe well during reconstruction and convergence. It was based on stable employer–employee relations, cooperative networks, and guided capital allocation to “trusted” technologies. Today’s advantage, however, lies in radical innovation, rapid reallocation of resources, capital market financing, and scaling across vast, unified demand areas. These dynamics cannot be legislated through “mission-driven” policy or subsidies — they arise from competition within a large common market.
What Should Be Done: “More Market, Less Intervention”
Focus on Economies of Scale
Over the long run, only productivity growth drives prosperity. Productivity, in turn, grows with market size:
- Greater scale allows deeper specialization, investment in advanced production tools, and cost-effective automation and digitalization.
- In services, the data/IT revolution fuels “industrialization”: large providers optimize processes, standardize quality, and reach smaller local markets — precisely what fragmented Europe lacks.
Complete the Single Market – Especially for Services
- Introduce a legally enforceable ban on new cross-border barriers in services within the EU, modeled on the U.S. “dormant commerce clause.”
- Turn the Treaty’s Article 56 freedom of services into a practical tool: companies should be able to challenge discriminatory national laws in regular courts, without waiting years for Brussels harmonization.
- Define a narrow list of justified exceptions (e.g., public trust professions) and apply mutual recognition by default in all others.
- Launch a public register of non-tariff barriers with a fast-track complaint system.
Stop the Regulatory Overload and Strengthen Enforcement
- Introduce a moratorium on new horizontal regulations until a credible audit of existing ones is completed.
- Prioritize equal enforcement across all entities — including non-EU companies operating under unequal conditions.
- Simplify rules: regulatory complexity favors large incumbents while penalizing SMEs — the backbone of the European economy.
Energy: Security and Predictability of Costs
- Ensure technological neutrality in climate policy, including full acceptance of nuclear energy.
- Accelerate procedures for energy storage and grid infrastructure — a precondition for scaling renewables without instability penalties.
Private Capital Over Public Funds
- Instead of “superfunds,” build a deeper capital market: unified tax treatment of capital income, easier IPOs, cross-border funds, and investor passports.
- Public support, if any, should be catalytic and temporary, with a clear phase-out horizon.
Skills and Labor Mobility
- Implement faster mutual recognition of qualifications and facilitate cross-border mobility, including in mid-skilled professions.
- Focus integration policies on activation and upskilling, not merely on social transfers.
A “More Agile EU”: From Plans to Action
In business, agility means short feedback loops — decision, test, correction — close to the market and customers. In EU policymaking, it means:
- Decentralized enforcement of Treaty freedoms: empowering national courts rather than relying solely on lengthy Commission-led harmonization.
- Fewer simultaneous goals: prioritize market integration over competing “mega-missions.”
- Level playing field: strict enforcement for all participants, including non-EU firms.
- Transparency and measurability: every new intervention should have a measurable market gap it aims to close, not just a list of billions spent.
Responding to the Draghi Report: Right Diagnosis, Wrong Cure
The Draghi Report rightly identifies Europe’s investment and innovation gaps, market fragmentation, regulatory chaos, and weak coordination. But its proposed cure — centralized debt-funded programs and sectoral missions — risks repeating past mistakes. It:
- Centralizes risk (debt + allocation from Brussels)
- Marginalizes market mechanisms
- Reinforces the same mission-driven policies that have delivered limited results so far
We should agree on the goals, but take a different path: first the market and scale, then — where coordination truly fails — targeted, narrow public policy corrections.
What About the European Social Model?
It is not a “cost” to be cut — it is a value that must be financed through productivity. Without sustained productivity growth, Europe cannot maintain its high standards of worker protection and public services. The best insurance for the social model’s future is a fully functioning Single Market, which boosts productivity across the entire economy.
Ten Concrete Steps for the Next 24 Months
- A framework law introducing a negative prohibition on service barriers, enforceable by national courts.
- A white list of exceptions (closed catalog of professions/sectors); all others covered by mutual recognition.
- A public register of service barriers with a fast-track complaint process and quarterly progress reporting.
- A regulatory moratorium on new digital/AI/ESG acts until impact audits simplify compliance for SMEs.
- Symmetric enforcement on global platforms and importers (product safety, taxes, extended producer responsibility).
- A single EU passport for IPOs and investment funds; harmonized capital gains taxation.
- A fast-track system for grid and storage projects; full technological neutrality in the energy mix.
- Cross-border mobility: mutual recognition of qualifications within 90 days for most professions.
- Conditional public support only when private co-funding is proven; mandatory sunset clauses.
- An annual Single Market Barometer tracking trade frictions, entry times, and enforcement disparities.
Conclusion: “More Europe” Means “More Market”
Europe does not need another wave of debt and subsidies under the banner of “missions.” It needs a truly single market — especially for services — and agile enforcement of Treaty freedoms. Only under such conditions will private capital and entrepreneurship unlock the economies of scale, specialization, and innovation necessary to sustain the European social model in a world of demographic and geopolitical headwinds.
The EU’s “New Marshall Plan” narrative is seductive in its simplicity — spend more, coordinate more — but it risks short-lived growth followed by debt and disappointment. The real plan for Europe should be completing the Single Market. There is no more genuinely pro-European policy than one that returns the engine of development to citizens and businesses — within clear, simple, and fairly enforced rules.
Source: Związek Przedsiębiorców i Pracodawców (ZPP), “Competitiveness and Growth of Europe: More Market, Not a New Marshall Plan,” October 2025; ceo.com.pl
