A few days after the publication of a Joint Statement and the details of the EU-US trade deal, European leaders were taken by surprise by another tariff threat coming across the Atlantic. The EU executive was still trying to convince Europeans of the rightfulness of the deal, struck in July, when the White House threatened substantial additional tariffs on countries that regulate tech companies, such as the EU’s Digital Service Act (DSA) and Digital Markets Act (DMA). The threat reveals yet again Europe’s difficult position, which stems from a bitter diagnosis of geopolitical fragility. Its causes are a combination of weak competitiveness and a lack of autonomous military power.
In 2024, Messrs. Draghi and Letta uncovered a problem most Europeans were unwilling to face. They tied falling purchasing power to low productivity and eroding competitiveness, exposing the weaknesses of the Single Market. These weaknesses are central to the EU’s diminishing geopolitical clout. Both reports amounted to a clear call for action. The Commission responded with a competitiveness compass, promising an initial boost through simplification measures. While such reforms were welcomed by many, powerful voices also rejected them at face value. Ursula von der Leyen was prematurely criticised by parts of civil society for backtracking on her own green agenda and yielding to demands from corporate interests. The competitiveness push is necessary to reverse the ; however, it came too late to prevent Trump’s tariff threats from exposing these vulnerabilities.
The Turnberry Era (a term capturing Trump’s ad hoc, transactional approach to negotiations) exposes the EU to an uncomfortable scenario predicted by Draghi in 2024. Security means stability, which is necessary to allow the investments needed for the green transition and sustainable growth. The EU’s excessive dependence on the US for its own security is a liability. In the past year, this liability has become obvious under unreliable US leadership, leaving Europe unprepared for all-too-possible scenarios of conflict escalation and, worse, war. The reliance on US military intelligence and support played a significant role in the deal that was supposed to be about trade. This is why we ended up with unbalanced concessions from the Europeans. Trade Commissioner Maroš Šefčovič, in a rare but frank remark, justified the deal by saying that “It’s not only about trade; it’s about security, Ukraine, and current geopolitical volatility.”
Struggling to compete with the US and China is a symptom of a geopolitical fragility, not the cause. The causes lie in the combination of lagging competitiveness and a weak Single Market, on the one hand, and limited military capacity, on the other. While the Single Market has evolved over time, it remains fragmented compared to the American and Chinese economies –it is holding back services and new firm growth. Its imperfections prevent scalable market solutions. Three core imperfections hinder the market: a fiscal disunion, a fragmented capital market, and scattered investment in innovation.
Size Matters
As a bloc, the EU could be the world’s second‑largest economy—behind the US and ahead of China—but it is not. The EU has a Single Market, but not a single economy. Europe’s largest countries are small compared with the US. Their relative weight is declining, which weakens the EU’s bilateral negotiating power. A unified EU economy would amount to roughly 66% of US GDP, whereas the largest national economies account for far less: Germany 16%, France 11%, and Italy 11% (The World Bank, 2024). A combined EU GDP may work in statistics, but not in a Turnberry-style world of economic power.
Two intervention points are critical internationally. The first is to address the imperfections of the Single Market. Despite being a cornerstone of European integration, the Single Market remains far from truly ‘single’, particularly in financial services. This market fragmentation inhibits the efficient allocation of capital and services across Member States, imposing charges equivalent to a 110% tariff on the EU’s financial industry, according to the Commissioner for Financial Services, Maria Luis Albuquerque.
The second action is to close the gap in innovation and R&D expenditure. With R&D spending at 2.2% of GDP, the EU lags behind the US (3.5%) and China (2.4%). According to the Draghi Report, internal disparities are concerning: only five Member States—Belgium, Sweden, Austria, Germany, and Finland—meet the EU’s 3% R&D spending target. Nine countries—Lithuania, Luxembourg, Slovakia, Ireland, Bulgaria, Cyprus, Latvia, Malta, and Romania—are below 1%. According to Mr Draghi, this shortfall contributes to Europe’s declining share of global GDP.
Addressing these two ills—the fragmentation of the Single Market and the R&D spending gap—requires policy and political coordination. For the European Union to meet the potential of the combined economic and geopolitical power of its 27 Member States, it needs stronger political coordination. By deepening economic and political integration, the EU can amplify its market reach and bargaining power. While there are several possible treatments of these two ills, progress will be considerably easier through unified action among Member States.
Better policy coordination should aim to break silos within the way the Commission works. The divided approach is prevalent in the Commission and among Brussels stakeholders. By keeping policies and proposals in sectoral boxes, we perpetuate a fragmented policy environment that hinders the effectiveness of actions. This was evident in and the EU-US trade deal. Environmental advocates often dismiss the role of markets and trade, while some trade experts neglect geopolitics and the transactional nature of negotiations.
At the start of her second term, President von der Leyen reshuffled Commission portfolios to reduce fragmentation and unify command. The move limited individual actions of some Directorates-General (DGs) and encouraged a more integrated approach. Yet the effort remained insufficient against the natural forces of division. Increasing policy coordination within the Commission and with Member States is not simple and requires political will. Unless Europe learns to overcome this silo mentality to strengthen the Single Market and close the R&D gap, its geopolitical hand will remain weak.
The Half-Time Check-Up
The crisis Europe faces is not abstract. It is tangible and unfolds through low productivity, fragmented capital markets, uncoordinated fiscal policies, and reliance on US security guarantees. Together these factors diminish the EU’s geopolitical weight and make it less powerful as the US advances new geopolitical strategies and downplays the role of past alliances. The EU may become caught in a new US China strategy, which some analysts argue aims to counterbalance the Moscow-Beijing alignment by drawing Russia back into international politics and closer to the US. While cautious steps are being taken towards joint procurement and a more integrated defence‑industrial base, the structural tasks—capital‑markets integration and fiscal union—remain ambitions rather than immediate priorities.
Transatlantic volatility may only be starting, demanding bold political action. Options of ‘more Europe’ seem preferable over ‘less Europe’. Whether a federal Europe is politically feasible in our lifetime remains uncertain. Without greater political integration, it is unclear whether the Single Market, the backbone of the European project, will evolve to a higher policy coordination and drive a geopolitical renaissance.