## Europe’s Future Hinges on Greater Unity

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**Canonical URL:** [Europe’s Future Hinges on Greater Unity](https://www.imf.org/-/media/files/publications/fandd/article/2025/06/pov-nixon.pdf)

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### Geopolitical and resource access challenges
- Europe faces a crisis with three interlocking dimensions: geopolitical, economic, and institutional.
- The EU is deeply reliant on the global rules-based order but lacks domestic resource endowments.
- Demand for critical minerals necessary for clean energy technologies is expected to rise fivefold by 2040.
- The EU’s share of global production of critical minerals is less than 7 percent.
- Production of most minerals is highly concentrated in one or two countries; China dominates refining and even refines Europe’s own modest mining output.
- The EU has attempted to diversify access through trade agreements, but these remain vulnerable to:
  - trade wars,
  - rising export restrictions,
  - a desire by developing economies to capture more of the value chain,
  - the absence of a functioning dispute resolution mechanism at the World Trade Organization.
- Securing access for US companies to critical minerals is a centerpiece of President Donald Trump’s America First foreign policy.
- European businesses are “barely present in the critical minerals supply chain” due to environmental, social, and governance rules and concerns over political stability and the rule of law.
- Key question posed: Can “rule-bound Europe develop the geopolitical and industrial strategies to compete in this more contested global order?”

### Economic integration and structural barriers
- Deepening economic integration is essential to boost productivity and competitiveness.
- Reports by Enrico Letta and Mario Draghi provide clear blueprints for reform; the European Commission has vowed to deliver.
- Priority sectors for extending the single market: defense, energy, telecoms, and finance.
- The EU first announced a better regulation agenda in 2002 and launched the Regulatory Fitness and Performance Programme (REFIT) in 2015.
- Deeper integration in financial services has long been discussed; the Giovannini reports proposed measures in 2001 and 2003; many reappeared in the push for a capital markets union in 2015.
- The project has been rebadged as a savings and investment union.
- Current market fragmentation statistics:
  - The EU still has 18 clearing and 21 settlement markets,
  - compared with just one of each in the US.
- Fragmentation in market infrastructure leads to fragmented products and services.
- “Gold-plating” by member states—adding local requirements when transposing EU directives—acts as a real barrier to deeper integration.
  - The Commission has promised to counter such practices.
  - Koen Lenaerts, president of the European Court of Justice, reminded commissioners they have the power to bring cases against offending member states.
  - Raises the question: Is the Commission prepared to take legal action against governments over gold-plating?
- Achieving a true savings and investment union requires harmonization of:
  - national insolvency rules,
  - corporate law,
  - aspects of tax law,
  - and promotion of pan-European pension vehicles.
- Recognizing political difficulty of harmonization, the Commission resurrected the idea of a 28th legal regime (first proposed in 2009) as an alternative, but it “so far has amounted to little.”
- Completion of the EU’s banking union is largely absent from current competitiveness discussions, despite longstanding relevance:
  - missing measures include a single banking rule book, a backstop for the Single Resolution Fund to restructure failing lenders, and a common deposit insurance program.
- Without thriving cross-border banks, a savings and investment union is unlikely to fulfill its potential.
- Concerns on consolidation and vulnerabilities:
  - Would capital markets union cause exodus of domestic savings from some member states?
  - If the European defense sector were consolidated, would member states still access weapons in a crisis?
  - Would removal of national barriers to telecom market consolidation cause loss of government control over vital infrastructure?
  - Would an integrated energy market leave countries vulnerable to higher prices or shortages if a crisis hit elsewhere on the continent?

### Institutional trust, sovereignty, and possible responses
- A third challenge is lack of trust between member states and in EU institutional processes.
- Fabian Zuleeg describes a “unity-ambition dilemma”: the bloc proceeds by unanimity even when not strictly needed, at the expense of integrationist goals.
- Unanimity has become harder as national and European politics have become more fragmented.
- Europe’s inability to rise to economic challenges undermines support for EU integration.
- Some key players sit outside the EU—Britain especially could play an important role in pan-European defense, capital markets, and energy sector integration.
- One response: bypass EU institutional processes and establish coalitions of the willing in areas such as defense, relying on improvised intergovernmental arrangements.
  - Such arrangements must be flexible to accommodate government changes.
  - They could create new legal complexities and exacerbate fragmentation.
- Historical note: Europe has taken many large and seemingly impossible leaps forward in integration in response to shocks over the past 80 years.
- Closing assessment: Faced with a shock posing profound risks to security and prosperity, Europe must forge a unity “beyond anything it has previously contemplated—and quickly too.”

*Point of View by Simon Nixon*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2025/06/pov-nixon.pdf_