A Shaken World Requires Europe to Get Its Act Together
The European Union stands at a crossroads. Its founding logic, crafted in the aftermath of World War II and refined through decades of integration, may no longer serve the needs of a shaken world. As Dani Rodrik, professor of international political economy at Harvard Kennedy School, argues, the EU’s founding logic needs to be inverted. Geopolitical challenges demand that it acts in unison on defence and security, while economic conditions require a relaxation of shackles to permit experimentation.
This is a provocative thesis. For decades, the conventional wisdom has been that Europe needs deeper economic integration—a single market, a single currency, harmonised regulations—to compete globally. Rodrik suggests the opposite: Europe should focus on a common foreign and defence policy, but let countries do their own thing in economics.
The Trade Pact Paradox
Consider the trade agreements that the EU has negotiated with India and South America’s Mercosur bloc. On the surface, these are successes—demonstrations of Europe’s continued relevance in a world of shifting alliances. Yet Rodrik argues they underscore the EU’s inability to move beyond its past preoccupations.
Deepening the EU’s cooperation with other parts of the world is a necessity and a requirement of multipolarity. But it is better pursued through political agreements rather than trade pacts. Trade agreements consume political capital and divert attention from important economic policy priorities: strengthening the middle class through goods, enhancing productivity in mostly non-tradable services, and fostering an innovation ecosystem that is consistent with Europe’s social model.
This is a subtle but important distinction. Political agreements can signal alignment, build trust, and create frameworks for cooperation without the exhaustive, years-long negotiations that trade deals require. They can be more flexible, more adaptable, and less prone to being held hostage by sectoral interests.
The Security Imperative
The geopolitical case for European unity is stronger than ever. Russia’s war in Ukraine has shattered the illusion that Europe’s security could be guaranteed by others. The United States, under successive administrations, has signalled that its priorities lie elsewhere—first in the Middle East, now in the Indo-Pacific. Europe must take greater responsibility for its own defence.
This requires a common foreign and defence policy that is more than rhetorical. It means pooling resources, coordinating procurement, developing joint capabilities, and creating the institutional mechanisms for rapid decision-making. It means accepting that in matters of security, the collective interest must override national prerogatives.
The challenges are immense. European defence budgets, while increasing, remain fragmented and inefficient. Different countries have different threat perceptions and different relationships with NATO. Some are enthusiastic about European strategic autonomy; others remain deeply attached to the transatlantic alliance. Bridging these differences will require political will and a willingness to compromise.
The Economic Case for Differentiation
If unity is required on security, Rodrik argues for differentiation on economics. The logic is straightforward: European economies are diverse, with different structures, different challenges, and different political economies. A one-size-fits-all approach to economic policy may not serve them well.
Germany, with its export-oriented manufacturing sector, has different needs than southern European countries struggling with low productivity and high unemployment. France, with its large public sector and interventionist tradition, operates differently than the more market-oriented economies of northern Europe. Trying to impose uniform rules across this diversity can stifle innovation and prevent countries from experimenting with policies suited to their circumstances.
Rodrik’s suggestion is to permit greater experimentation—to let countries do their own thing within broad parameters, and to learn from each other’s successes and failures. This is not a return to protectionism or a rejection of the single market. It is a recognition that economic policy is not one-size-fits-all, and that diversity can be a source of strength rather than weakness.
The Middle Class Imperative
Underlying Rodrik’s argument is a concern about the erosion of the middle class in advanced economies. Trade liberalisation, technological change, and financialisation have delivered growth but also generated inequality and insecurity. The middle class, once the bedrock of stable democracies, has been squeezed.
Europe’s social model—its welfare states, labour protections, and collective bargaining systems—was designed to mitigate these effects. But it is under strain. Productivity growth in non-tradable services, where most Europeans work, has been sluggish. Innovation ecosystems have struggled to keep pace with the United States and China.
Addressing these challenges requires a focus on domestic economic priorities, not just trade deals. It means investing in education and training, supporting research and development, upgrading infrastructure, and creating the conditions for businesses to thrive. It means ensuring that the gains from growth are broadly shared, not captured by a narrow elite.
The Innovation Challenge
Europe’s innovation deficit is well documented. The continent produces world-class research but struggles to translate it into commercial success. It has few home-grown tech giants and relies heavily on American and Chinese platforms. Its venture capital markets are smaller and less developed.
Fostering an innovation ecosystem consistent with Europe’s social model is a formidable challenge. It means finding ways to support startups and scale-ups without abandoning labour protections and social safety nets. It means creating a regulatory environment that encourages risk-taking while protecting consumers and workers. It means investing in the skills and infrastructure that innovation requires.
This is not a problem that trade deals can solve. It requires domestic action, sustained over years and decades. And it may require different approaches in different countries, depending on their industrial structure, institutional capacity, and political context.
The Global Role
If Europe is to assert itself on the global stage, it needs to restore its economic dynamism and social cohesion. The world needs an alternative to the US and China—a model of capitalism that is more inclusive, more sustainable, and more consistent with democratic values. Europe, with its history and institutions, is best placed to provide that alternative.
But providing an alternative requires getting its own house in order. It means addressing the economic challenges that have eroded middle-class living standards. It means investing in the public goods—education, infrastructure, research—that underpin long-term prosperity. It means demonstrating that a social market economy can deliver both growth and inclusion.
Conclusion: The Courage to Chart a New Course
Rodrik’s call for Europe to get its act together is timely and urgent. The old certainties are gone. The United States is no longer a reliable guarantor of European security. China is a strategic competitor. The multilateral order is under strain. Europe cannot afford to be a passive observer of its own fate.
The path forward requires a inversion of the EU’s founding logic: unity on security, diversity on economics. It requires a focus on domestic priorities—strengthening the middle class, enhancing productivity, fostering innovation—rather than on trade deals that consume political capital without delivering transformative change. It requires the courage to chart a new course, not just to react to events.
The world is shaken. Europe must get its act together. The alternative is irrelevance.
Q&A: Unpacking Europe’s Challenges
Q1: What does Dani Rodrik mean by inverting the EU’s founding logic?
Rodrik argues that the EU’s traditional approach—deep economic integration combined with intergovernmental cooperation on foreign policy—needs to be reversed. Geopolitical challenges demand that Europe act in unison on defence and security, requiring a common foreign and defence policy. Conversely, economic conditions require greater differentiation and experimentation, allowing countries to pursue policies suited to their circumstances rather than being bound by one-size-fits-all rules.
Q2: Why are trade pacts problematic according to this analysis?
Trade pacts consume significant political capital and divert attention from important domestic economic priorities: strengthening the middle class, enhancing productivity in non-tradable services, and fostering innovation consistent with Europe’s social model. Rodrik argues that deepening cooperation with other regions is better pursued through political agreements rather than exhaustive trade negotiations. Political agreements can signal alignment and build trust without the years-long negotiations and sectoral compromises that trade deals require.
Q3: What is the security imperative for European unity?
Russia’s war in Ukraine has shattered the illusion that Europe’s security can be guaranteed by others. The United States has signalled that its priorities lie elsewhere. Europe must take greater responsibility for its own defence, requiring a common foreign and defence policy that involves pooling resources, coordinating procurement, developing joint capabilities, and creating institutional mechanisms for rapid decision-making. This requires accepting that collective security interests must override national prerogatives.
Q4: Why does Europe need differentiation in economic policy?
European economies are diverse, with different structures, challenges, and political economies. Germany’s export-oriented manufacturing sector has different needs than southern European countries struggling with low productivity. France’s interventionist tradition differs from northern Europe’s market orientation. Permitting greater experimentation allows countries to pursue policies suited to their circumstances and learn from each other’s successes and failures, while maintaining the benefits of the single market.
Q5: What global role can Europe play if it gets its act together?
The world needs an alternative to the US and China—a model of capitalism that is more inclusive, more sustainable, and more consistent with democratic values. Europe, with its history and institutions, is best placed to provide that alternative. But doing so requires addressing domestic economic challenges, investing in public goods, and demonstrating that a social market economy can deliver both growth and inclusion. Europe cannot be a passive observer; it must actively shape its own future.
