Why the Italo-German Competitiveness Paper is Heading in the Wrong Direction
Europe’s recent show of resolve on tariffs and Greenland needs follow-through — not a recipe of deregulation and looser state aid that would deepen fragmentation and inequality. A commentary by Marco Buti, and Marcello Messori
The encouraging — if still inconclusive — steps taken in recent days by EU governments in response to the unacceptable US pressures over tariffs and Greenland now need to be confirmed by consistent behaviour and concrete measures. In this respect, the strategic direction that will emerge from the informal European summit on 12 February will be highly consequential.
The “non-paper” on European competitiveness produced by Germany and Italy is meant as an input to that summit. It is therefore worth asking whether the document moves in the desirable direction of consolidating Europe’s recent progress. Despite some positive elements, our answer is a concerned no.
Our reservations relate more to the “how” than to the “what”. The emphasis on completing the EU single market in order to foster European champions is welcome, but it is misguided to pursue that objective primarily through sweeping deregulation and a loosening of state-aid rules.
As the Italo-German paper underlines, the EU urgently needs to support innovative investment to close competitiveness gaps vis-à-vis the US and China. It is also right to recognise that the Union’s greatest strength is its single market. The document even goes so far as to encourage European firms to adopt a centralised legal regime in place of national ones — the “28th regime” proposed by the Letta report.
Yet when it comes to the policy instruments required to meet these goals, the non-paper performs a 180-degree turn. It privileges two moves: a sharp deregulation drive that would push further a trend already visible in several Commission “omnibus” packages; and a relaxation of existing constraints on state aid.
The first initiative would not eliminate the alleged barriers — the so-called “internal tariffs” — which, disregarding contrary empirical evidence from the recent academic debate, the two governments persist in estimating at 44 per cent for trade in goods and 110 per cent for services.
Those internal frictions are not only lower than claimed; they are largely the result of national governments failing to transpose, or actively rejecting, EU rules — as Italy’s beach-concessions legislation illustrates. Deregulation would therefore risk legitimising the fragmentation of the single market into multiple national, or even local, markets, potentially sheltering inefficient firms behind new forms of protection.
The second initiative would widen asymmetries among member states: between those with ample national fiscal space (such as Germany) and those constrained by high public debt and scarce resources (such as Italy).
One implication would be to neutralise the impact of the otherwise positive proposal to create a competitiveness fund within the next multiannual EU budget for 2028–34. Another would be to reinforce the strictly national, rather than European, character of German defence investment and related innovative sectors.
That would give substance to the spectre evoked a few months ago by Friedrich Merz of building — in a Germany where the AfD is growing — “the strongest national army in Europe”. A possible quid pro quo for Italy could be permission to stretch out, over a longer period, the use of the remaining (but still significant) resources of the National Recovery and Resilience Plan.
As a short-term political trade-off, the above may help explain the incentives facing the two countries. But the consequences for the EU — and ultimately for Italy and Germany themselves — would be devastating.
The instruments set out in the Italo-German non-paper would weaken the already insufficient internal cohesion among EU member states and thereby compromise the first steps towards a European capacity to withstand the abuses of the Trump administration.
This is why our assessment is one of concern. The risk is that the convergence between Merz and Italian Prime Minister Giorgia Meloni — traces of which were already visible in recent European Parliament manoeuvres orchestrated by Manfred Weber, leader of the European People’s Party — would not strengthen the EU but weaken it.
In the scenario implied by the paper, Merz would secure a green light to restructure, on a national basis, Germany’s now inefficient economy — still the EU’s largest. By contrast, it is far from clear what longer-term benefits would accrue to the Italian economy, whose European future depends on a single market that ensures a level playing field across all member states.
The likely victim of this Italo-German mésalliance is EU integration itself. Rather than advancing through common borrowing to finance and produce genuinely European public goods, the Union would drift towards a confederation of nation states — each too small to count, and therefore ideal vassals to Trumpian strong-arm tactics.
A previous version of this article was published by the Italian daily HuffPost
IEP@BU does not express opinions of its own. The opinions expressed in this publication are those of the authors. Any errors or omissions are the responsibility of the authors.
