12/02/2026
Europe’s competitiveness debate is accelerating under a growing sense of urgency. Slowing growth, geopolitical rivalry and constant comparisons with the United States and China are driving calls for rapid action. The conservative right and employers’ organisations present deregulation as the solution, as if Europe’s future could be secured by cutting back protections rather than by building long-term capacity. For progressives, this moment demands not only resistance to bad ideas, but the responsibility to put forward a credible alternative
In the 1930s, Europe and the wider world faced an economic and political breakdown that shattered old certainties. The Great Depression was more than a recession. Factories ground to a halt, unemployment soared, and investment evaporated. Classical economists insisted that markets would correct themselves – that wages and prices would adjust, and recovery would come automatically. But it did not. The underlying issue was a collapse of confidence, and the subsequent economic despair paved the way for authoritarianism, nationalism and catastrophic war. Europe learned, at immense cost, that economic stagnation and hopelessness can threaten democracy and civilisation.
John Maynard Keynes understood this underlying dynamic. The problem was not only economic. It was psychological and social. A key insight was that capitalism does not run on calculation alone. It runs on confidence, in a world of fundamental uncertainty about the future. Keynes introduced one of the most enduring concepts in modern political economy: animal spirits – the spontaneous optimism that, in particular, drives entrepreneurs to invest, but also more generally allows workers and all citizens to spend and plan in the present, believing in the future even when the future cannot be known.
When animal spirits collapse, the economy freezes. People delay purchases, businesses sit on cash and shed labour, and stagnation becomes self-reinforcing. Recovery requires more than technical adjustment. It requires the rebuilding of collective confidence. Keynes’ conclusion was clear: in moments of profound uncertainty, the state has a responsibility to act – to invest, to create demand, to provide direction, and to restore the belief that tomorrow can be better than today.
Almost a century later, Europe faces a different crisis – but with a similar underlying condition: once again, we live in an era of radical uncertainty. Energy and raw materials have become geopolitical tools. Supply chains and strategic resources are under threat of dislocation. Climate neutrality demands industrial transformation at unprecedented speed. Technology is reshaping work and power relations. Fears of job losses are on the rise. Once again, Europe faces an investment shortfall and a growing lack of confidence.
In this context, the authoritarian far right is ready to harvest discontent in societies where people feel the future is closing in on them. History should remind us that hopelessness is dangerous. Against this backdrop, Mario Draghi’s competitiveness report was widely received as a wake-up call. It recognised that Europe risks long-term decline if it does not mobilise investment, innovation and industrial capacity. Draghi pointed toward a truth Keynes would have supported: competitiveness is not produced automatically by markets. It requires investment, coordination and strategy.
Yet precisely at the moment Europe needs to rekindle its animal spirits – the confidence to invest in the future – an old reflex is returning: deregulation. The problem is not only that deregulation is being advanced as the answer. It is also that we, as Progressives, have failed to offer a clear alternative. Opposition to deregulation is justified, but too often defensive. What is needed is a competing vision of competitiveness grounded in building capacity. We must define a different strategy – one that mobilises investment, secures employment and gives both companies and workers confidence now and in the future. Where such an agenda is absent, deregulation fills the vacuum.
Through the use of ‘omnibuses’, we are told competitiveness will come from weakening obligations, cutting burdens, and tearing down protections in the hope that market forces, unleashed, will deliver renewal. This is profoundly misguided. As Keynes recognised, prosperity is not restored by removing rules in the hope of market readjustment. Prosperity returns when society regains confidence in the future. And that requires government action to boost investment, spending and stabilise employment and expectations.
Animal spirits are not released by heightened insecurity. They are released when people can see something being built. Investment builds confidence. It builds infrastructure, industries and skills. It tells workers and companies alike that Europe has a plan – that the green and digital transitions will be managed, that demand for the products now being developed will exist, and that innovation and work will be rewarded. Deregulation, by contrast, breeds uncertainty. It signals retreat rather than ambition. It risks reducing competitiveness to short-term cost-cutting instead of long-term capacity-building. Europe’s competitiveness agenda now faces a choice. One path is about building: an agenda based on investment, innovation, quality jobs, collective bargaining and social cohesion. The other path is about demolition: deregulation disguised as simplification, Europe’s fragmentation through subsidy races, and a race to the bottom on standards.
What Europe needs is a shared project that people can believe in – not a misguided business-led adjustment strategy and another abstract debate on competitiveness. We should build on what already works: social dialogue, the SURE programme, and the Recovery and Resilience Facility have shown that protecting workers, stabilising demand and investing together strengthens both resilience and growth. The same logic applies to industrial policy initiatives, support for collective bargaining and trade policy that defends labour standards. These are not barriers to competitiveness – they are its foundations. Europe’s animal spirits will not be awakened by deregulation, but by coordinated investment and a shared social project people can trust. For us as progressives, the task is now to turn this insight into a concrete competitiveness agenda – one that rebuilds confidence through investment, security and shared purpose.
Photo credits: European Union 2025
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