European heads of state and government came together in Brussels on Wednesday to discuss ways to heighten the European Union's (EU) economic competitiveness. At the special summit, they were issued a stark warning that the EU's economic performance was falling behind that of other key global players, most notably the  United States and China.

In a final joint statement, EU leaders spoke of a new European competitiveness deal and reforming the EU single market. "The European Union is commited to acting decisively to ensure its long-term competitiveness, prosperity and leadership on the global stage and to strengthen its strategic sovereignty."

Mindful of huge subsidies being disbursed in other key nations, such as Washington's 2022 Inflation Reduction Act (IRA), the EU had tasked former Italian prime minister Enrico Letta with drawing up a report on the health of the EU's single market. The central question underpinning it all was how to boost public and private investment.

'No time to waste'

Presenting his findings on Thursday, Letta's main pitch to leaders was that they should more closely integrate their energy, telecommunications and, above all, financial sectors.

Until now, these domains have been left largely under the control of individual EU governments, but Letta argued it was time to put an end to excessive market fragmentation. He also suggested making better use of EU citizens' private savings, which he said ended up in foreign investment funds far too often.

"There's no time to waste," Letta told reporters. "The gap between the EU and the US in terms of economic performance is becoming bigger and bigger."

The EU represents one of the world's largest economies after Washington and Beijing but is losing ground in key green economy technologies such as solar panels and batteries. Last year, the EU's economic output rose by 0.4%, according to official figures, compared to 2.5% in the US and 5.4% in China.

As Letta highlighted in his report, US GDP per capita increased by almost 60% from 1993 to 2022, compared to less than 30% in Europe in the same time period.

To prevent the EU from losing its competitive edge permanently, the 27 leaders want to invest more in tackling climate change and adapt to a more insecure geopolitical reality — with war in Ukraine and in the Middle East.

From climate to defense, EU has expensive plans

The European Commission estimates that the EU must invest an additional €620 billion ($660 billion) every year to meet its climate and renewable energy goals.

"We all understand that we are facing huge and difficult challenges," European Council President Charles Michel said Wednesday. "We need to tackle the climate challenge. We need to address the digital revolution of our societies. We need to invest more in defense and security. And we face a demographic challenge across the EU."

But member states disagree on how to raise fresh cash: publicly or privately, jointly or separately. In 2021, the EU took unprecedented levels of collective debt to finance its coronavirus recovery plan in 2021. But current debates suggest member states are no longer on the same page in this matter.

In recent months, France has been pushing for further joint debt, while Estonian Prime Minister Kaja Kallas has made the case that the EU should issue bonds to fund its defense spending needs. Traditionally, more fiscally conservative states like Germany and the Netherlands have proven more skeptical.

Destined to be disregarded?

Guntram Wolff, a senior fellow at the Brussels-based think tank Bruegel, praised the findings of Letto's report. "European productivity growth is trailing behind global peers. Letta puts a razor-sharp focus on deepening the single market to change that," he told DW. "Governments need to overcome vested interests at home and move forward."

Yet despite widespread praise for Letta's report, divisions among EU leaders on various issues it touched upon were on full display. The most contentious topics were harmonizing corporate tax rates, beefing up EU financial supervision authority, and developing rules on business insolvency.

President Michel, who chairs EU summits, assured leaders these would be the main points of discussion moving forward and highlighted progress that had been made in each field so far. Above all, however, he stressed that "there is a need for more investment."

Edited by: Maren Sass