Report on European Economic Performance and Alignment with Sustainable Development Goals

Executive Summary

This report analyzes the widening gap in innovation and productivity between the European Union and other major global economies, such as the United States and China. The analysis indicates that Europe’s declining economic competitiveness is primarily attributable to political and regulatory frameworks rather than inherent market failures. This trend presents significant challenges to the achievement of key Sustainable Development Goals (SDGs), particularly SDG 8 (Decent Work and Economic Growth) and SDG 9 (Industry, Innovation, and Infrastructure). The report finds that excessive regulation, misallocation of innovation funding, and protectionist policies are impeding the continent’s potential for sustainable growth.

Analysis of Economic Decline and Productivity Gap

Despite the ambitious goals of the Lisbon Strategy launched in 2000, the EU’s economic standing has deteriorated. This decline is evidenced by several key indicators:

1. GDP Per Capita: In 2008, the EU’s GDP per capita was 77 percent of the U.S. figure. By 2023, this had fallen to approximately 50 percent.
2. Nominal GDP: The EU’s nominal GDP of $19.4 trillion in 2024 lags significantly behind the U.S. GDP of $29.2 trillion. Concurrently, China’s GDP has surged to $18.8 trillion, nearly equaling that of the EU.
3. Productivity: European productivity has experienced a contraction over the past three years, further widening the economic gap.

Causal Factors Impeding Sustainable Economic Growth (SDG 8)

The failure to foster robust economic growth as outlined in SDG 8 can be traced to several structural and policy-related issues:

• Government Economic Role: Government spending constitutes 49.2 percent of GDP in the EU, compared to 33.9 percent in the U.S., suggesting a disproportionately large state role that may crowd out private sector activity.
• Regulatory Burden: Overregulation is identified as a primary impediment to efficiency and creativity across the continent.
• Energy Policy and Costs: Self-inflicted high energy costs, exemplified by Germany’s Energiewende, have negatively impacted industrial competitiveness, creating a conflict between the implementation of SDG 7 (Affordable and Clean Energy) and the economic objectives of SDG 8.
• Cultural Barriers: A prevailing culture that penalizes failure, supported by an extensive welfare state, dampens the entrepreneurial ambition necessary for dynamic economic growth.

Challenges to Innovation and Industrialization (SDG 9)

The EU’s innovation gap directly undermines the objectives of SDG 9, which calls for fostering innovation and promoting sustainable industrialization. Key challenges include:

• Capital Markets: The absence of a robust and integrated capital market stifles investment in new ventures.
• Misallocation of Public Funds: A study of the Horizon Europe innovation program revealed that funds were predominantly allocated to established corporations and research consortia, with fewer than 8 percent of recipients being the small, innovative startups crucial for disruptive innovation.
• Stifling Regulations: Recent legislative measures have created significant barriers to innovation, particularly in the technology sector. These include:
  • The Digital Services Act
  • The General Data Protection Regulation (GDPR)
  • The AI Act
  • Corporate Sustainability and Supply Chain Due Diligence Laws

Regulatory Impact on Global Partnerships and Supply Chains (SDG 12 & SDG 17)

While EU regulations on supply chain due diligence aim to advance SDG 12 (Responsible Consumption and Production), they have generated unintended negative consequences for global partnerships, a cornerstone of SDG 17.

• Energy Security (SDG 7): Qatar has warned that the perceived risk of fines under EU supply chain laws could compel it to halt liquefied natural gas (LNG) exports to the bloc, threatening the energy security of member states.
• Trade and Competitiveness (SDG 8): Newly agreed U.S. tariffs on EU imports will place additional pressure on European firms, highlighting the need for enhanced productivity and competitiveness in a challenging global trade environment.

A Comparative Model for Sustainable Competitiveness: The Swiss Case

Switzerland offers a compelling example of how market-friendly policies can foster resilience and competitiveness in alignment with economic SDGs. Despite a 75 percent appreciation of the Swiss franc against the euro since 2008—an effect economically similar to a tariff—the country has maintained robust exports. Key factors contributing to its success include:

• A focus on high productivity, continuous innovation, and economic diversification.
• Market-friendly policies that encourage private enterprise.
• A smaller government footprint, with public spending accounting for approximately 30 percent of GDP.

Conclusion and Recommendations

The current trajectory of political overreach and regulatory excess in the European Union is undermining its capacity to achieve the economic growth and innovation targets central to the Sustainable Development Goals. The continent possesses a highly educated workforce and dynamic businesses but is constrained by a policy framework that stifles its potential. To reverse this trend and prevent a cycle of mediocrity, a fundamental reassessment is required. European policymakers should prioritize the reduction of regulatory burdens and the restoration of market-based policies to unlock talent, foster innovation, and secure a sustainable and prosperous economic future in line with SDG 8 and SDG 9.

SDGs Addressed in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

   The article on Europe’s innovation and productivity gap touches upon several Sustainable Development Goals (SDGs), primarily focusing on economic performance, industrial strategy, and the policies that influence them. The following SDGs are relevant:

   • SDG 8: Decent Work and Economic Growth: The core of the article discusses Europe’s lagging economic growth, declining GDP per capita, and shrinking productivity, which are central themes of SDG 8.
   • SDG 9: Industry, Innovation and Infrastructure: The article explicitly addresses the “innovation gap,” the role of industrial policy, the effectiveness of innovation funding like Horizon Europe, and the need for a robust capital market, all of which are key components of SDG 9.
   • SDG 7: Affordable and Clean Energy: This is mentioned in the context of Germany’s economic challenges, where “self-inflicted high energy costs” from its energy transition policy are cited as a burden on its economy. The potential halt of gas supplies from Qatar also connects to energy security.
   • SDG 17: Partnerships for the Goals: The article discusses international trade dynamics, such as EU protectionism, U.S. tariffs, and the potential breakdown of a key energy partnership with Qatar, which relates to global trade and policy coherence under SDG 17.

2. What specific targets under those SDGs can be identified based on the article’s content?

   Based on the issues discussed, several specific SDG targets can be identified:

   • SDG 8: Decent Work and Economic Growth
     • Target 8.1: Sustain per capita economic growth. The article directly addresses this by highlighting the decline in EU GDP per capita relative to the U.S., stating it “had fallen to 50 percent” of the U.S. figure by 2023.
     • Target 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading and innovation. The article’s central theme is the failure to achieve this, citing “lagging productivity and a growing innovation gap” and the fact that “European productivity has shrunk over the past three years.”
     • Target 8.3: Promote development-oriented policies that support productive activities, entrepreneurship, creativity and innovation, and encourage the growth of micro-, small- and medium-sized enterprises (SMEs). The article critiques EU policies for “stifling innovation” and notes that the Horizon Europe fund failed to adequately support “small, innovative startups.”
   • SDG 9: Industry, Innovation and Infrastructure
     • Target 9.3: Increase the access of small-scale industrial and other enterprises to financial services and their integration into value chains and markets. The article points to a failure in this area, noting the “lack of a robust capital market” and that “Fewer than 8 percent of recipients [of Horizon Europe funds] were small, innovative startups.”
     • Target 9.5: Enhance scientific research and upgrade the technological capabilities of industrial sectors by encouraging innovation. The article discusses the “100 billion-euro EU innovation program” (Horizon Europe) but concludes it had “limited innovation and economic impact” because funds were misallocated.
     • Target 9.b: Support domestic technology development, research and innovation by ensuring a conducive policy environment. The article argues the opposite is happening in the EU, where “political overreach, stifling regulation” and specific laws like the AI Act are creating a non-conducive environment.
   • SDG 7: Affordable and Clean Energy
     • Target 7.a: Enhance international cooperation to facilitate access to clean energy research and technology and promote investment in energy infrastructure. The article highlights a risk to this target, as “Qatar has warned that EU regulatory overreach… could compel it to halt natural gas exports to the bloc,” threatening a key energy partnership and infrastructure reliance.
   • SDG 17: Partnerships for the Goals
     • Target 17.10: Promote a universal, rules-based, open, non-discriminatory and equitable multilateral trading system. The article suggests the EU is moving away from this by becoming “increasingly protectionist, mainly through regulation.”
     • Target 17.14: Enhance policy coherence for sustainable development. The article provides a clear example of policy incoherence, where EU “supply chain due diligence” regulations risk undermining its energy security by alienating a key supplier like Qatar.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

   The article provides several quantitative and qualitative indicators that can be used to measure progress:

   • For SDG 8 (Economic Growth):
     • Indicator 8.1.1 (Annual growth rate of real GDP per capita): The article provides specific data points for this indicator, comparing the EU’s GDP per capita to that of the U.S. (“77 percent of the U.S. figure” in 2008, falling to “50 percent” by 2023). It also gives absolute GDP figures for the EU, U.S., and China.
     • Indicator 8.2.1 (Annual growth rate of real GDP per employed person): This is directly referred to as “productivity.” The article states that “European productivity has shrunk over the past three years.”
   • For SDG 9 (Industry and Innovation):
     • Indicator 9.5.1 (Research and development expenditure as a proportion of GDP): The article mentions the “100 billion-euro EU innovation program” (Horizon Europe) as a measure of public R&D spending. Its effectiveness is questioned, but the figure itself is an indicator of investment.
     • Proxy Indicator for Target 9.3 (Access to finance for SMEs): The article provides a specific metric: “Fewer than 8 percent of recipients [of Horizon Europe funds] were small, innovative startups,” which serves as an indicator of how well innovation funding is reaching small enterprises.
   • For SDG 7 (Energy):
     • Qualitative Indicator of Energy Costs/Affordability: The article points to “self-inflicted high energy costs” in Germany as a negative indicator related to energy policy success.
     • Qualitative Indicator of Energy Security: The threat from “Qatar… to halt natural gas exports” serves as a critical indicator of the stability of Europe’s energy supply and partnerships.
   • For SDG 17 (Partnerships):
     • Qualitative Indicator of Trade Policy: The description of the EU as “increasingly protectionist” and the mention of “U.S. tariffs on EU imports” are indicators related to the openness of the global trading system.

SDG Analysis Summary Table

4. Table of SDGs, Targets, and Indicators

Source: gisreportsonline.com