Esther-Mirjam SENT

Chair of the Labour Party (PvdA) in the Netherlands, professor of economic theory and policy at Radboud University, Netherlands

Increasingly, Europe’s economy is portrayed as incompatible with competitiveness. This framing confuses institutional constraint with economic weakness, and risks eroding the foundations of Europe’s prosperity and social cohesion.

Bill Clinton’s campaign team once coined the phrase “It’s the economy, stupid” to discipline political debate: stop chasing distractions and focus on what actually shapes people’s lives. Europe today needs a similar refocusing, but on its own economic strengths. The European economy is built around labour protection and regulation, prioritising stability and collective wellbeing. It has produced durably high living standards and cohesion, yet this reality is increasingly recast as weakness.

That myth is loudly promoted by the Trump administration, but it no longer only comes from Washington. The same narrative increasingly resonates across Europe itself, where debates on competitiveness mischaracterise Europe’s social and economic institutions as liabilities. If Europe accepts this framing, it risks hollowing out the foundations that have sustained its living standards and social cohesion. Europe does not need to resemble the US to be strong. European strength lies in its own political economy and in the outcomes this model produces.

The transatlantic comparison is usually reduced to gross domestic product (GDP) per capita, where the United States outperforms the EU. But GDP is a blunt instrument. It captures aggregate output and average income, while telling us little about how prosperity is distributed or how securely it is lived. When attention shifts to economic security – protection against unemployment, illness and poverty – Europe performs far better than the competitiveness narrative suggests. These outcomes are produced by an institutional settlement that governs markets rather than deferring to them.

Take redistribution and labour markets. European societies reduce inequality more effectively than the US through taxes and transfers, backed by collective institutions. This is not only a moral choice; it is associated with lower economic volatility and greater resilience during downturns. In the United States, labour is poorly organised, industrial relations are fragmented and the welfare state remains politically fragile. The result is not dynamism but volatility. Households fall hard when shocks hit, and politics radicalise under pressure.

Europe’s stronger social protections work differently. Collective bargaining and labour standards, supported by social security, limit extreme wage dispersion and insecurity. This stabilises incomes and consumption and supports long-term investment in skills and health. Welfare, in this sense, is not redistribution after growth; it is part of the infrastructure that sustains shared prosperity and social stability.

Gender equality in the labour market exposes this institutional difference even more clearly. Female employment rates are on average significantly higher in the EU than in the United States, in part because Europe has institutionalised social reproduction through paid parental leave and public support for care. The absence of a federal right to paid maternity leave in the US is not a cultural quirk; it is an economic constraint. Gender pay gaps and labour market segmentation remain, but their persistence points to the need for stronger coordination and enforcement rather than deregulation.

These institutional strengths matter not only domestically but also shape how Europe exercises power externally. Tariff threats from Washington expose the dangers of confusing performance with power. Economically, tariffs are crude tools that raise prices for consumers. Politically, they function as instruments of coercion rather than trade correction. Tariffs aimed at individual EU member states are particularly ineffective: the single market makes them porous, while enforcement would strain already overstretched customs authorities. The threat matters as a signal, but it is not a model Europe should imitate.

Retaliatory tariffs may look assertive, yet they risk inflating prices at home and reinforcing a politics of insecurity. Europe should not damage its own economic foundations to prove it can play the same game. Throwing boulders into one’s own harbour is not strength; it is a sign of panic.

Europe’s real leverage lies elsewhere: in regulation. The EU shapes global markets because access to its market matters. From competition policy and digital market rules to labour rights and environmental standards, European regulation sets benchmarks that others follow. This is not bureaucratic overreach. It is geopolitical capacity, as firms and states adapt to EU rules in order to access its market. That is precisely why sweeping deregulatory agendas, sold in the name of competitiveness, are strategically misguided. They weaken the very source of Europe’s influence: credible rules and the capacity to enforce them.

The alternative is clear. Europe should resist deregulatory reflexes and strengthen enforcement, while exporting its standards through trade and market access. Europe cannot outspend or outgun the United States. But it can out-govern it if regulation is treated as a source of power rather than as a liability.

There is an irony in borrowing a phrase popularised by a former US president to argue that Europe should not mimic America. But the irony is instructive. Europe’s future strength will not come from copying Washington’s gestures or internalising its pressures. It will come from consolidating Europe’s own political economy: welfare as infrastructure, labour rights as stabilisers and regulation as geopolitical power.

It’s the European economy, stupid.

Photo credits: Shutterstock.com/wjarek