Europe’s Moment of Truth

In recent years, there has been a profound change in the international order, which has also had a lasting impact on global economic structures. In speeches, keynotes and panel discussions, European decision-makers claim that the world has changed. Although, in reality, they hope that they are wrong. They hope that the world will recover. That protectionism will disappear. And that the traditional European business model will work again – at some point. But the necessary change in Europe begins with facing up to the truth.

The more confounding the situation, the more careful our analysis must be.

The questions to which we are looking for answers are numerous – and interdependent. Everything is connected to everything else. This complexity is exemplified by three central challenges facing Europe: the geopolitical situation, water scarcity and the AI revolution.

Challenge 1:

Europe’s voice carries no weight in the great game of the superpowers

The geopolitical turning point has seen Europe left behind and baffled. But the European idea was already under pressure before. The European Union had become too lame, too bureaucratic, too overbearing. The crisis of legitimacy within Europe was accompanied by a sense of estrangement abroad. The USA, Russia and China vied for zones of influence and asserted their interests with all their might.

Today, Europe no longer recognises the world around it – and sees itself as the last bastion of clear values. A survey conducted by the Munich Security Conference among the G7 and BRICS states (excluding Russia) proves this. It shows that Europe experiences global challenges as more threatening than other powers.

Together, this cocktail is pure poison. Europe as a whole does not understand that it needs to focus more on hard interests and less on soft values if it is to be taken seriously on the world stage in 2026. And even if there was understanding: Europe’s structures do not allow us to consistently advance our own interests. The Mercosur agreement provided the most recent example. After more than 25 agonising years of negotiations, the deal is reached. But the EU sabotages this success shortly before the finish line by dragging the treaty before the Court of Justice of the European Union.

Challenge 2:

Europe on the brink of water bankruptcy

The European Union’s legitimacy crisis has lent the great European idea of prosperity and peace a bitter aftertaste. The EU is under considerable pressure. Just how much is particularly evident when solidarity is required: when it comes to critical infrastructures and defence, health and energy policy, friendly European relations quickly fray. Even in good times, the marriage of convenience between the EU member states only works with conflict. In bad times, it is on the verge of fracturing.

Over the past 75 years, the European community has largely enjoyed good times together. A real acid test awaits Europe: water bankruptcy. The term comes from a United Nations report published in 2026. The word “crisis” is no longer sufficient to describe the condition of global water reserves, the authors warn.

Europe cannot sit back and relax. Water scarcity has been a European problem for a long time. You just have to look at the large forest fires that happen regularly in southern Europe. The Intergovernmental Panel on Climate Change predicts that a total of 44 million Europeans will be affected by water shortages in 2070. A look at the World Resources Institute’s Water Risk Atlas is correspondingly alarming: A large part of southern Europe is already coloured fiery red. In the coming decades, however, the water risk will “eat” its way up from the south towards the north, due to water scarcity in particular.

Challenge 3:

Europe is not competitive

Economic prosperity has always been a necessary condition for securing peace. The period of peace that lasted for decades in large parts of Europe after the Second World War and continues in some parts to this day is historic. It was made possible above all by a coalition of one-time enemies who formed a common economic area and ultimately the European Union. It is a prime example of the paradox of prevention: we fail to recognise the value of the EU as a project that secures peace and prosperity because we do not know how things would be if it had never existed.

Europe may very well only wake up when peace between the countries of the European Union finally crumbles because prosperity has declined. It is the only positive thing you could take away from Europe’s economic downturn.

In terms of being a centre of business and industry, Europe is not in good shape. For years, the heads of government of European countries and EU politicians have been discussing the location disadvantages, the resulting lack of competitiveness and the downturn in the European economy. When it comes to growth, the gap to China and the USA has widened considerably since the Lisbon Strategy of 2000 failed. In other words, Europe is not only lagging behind politically but also economically.

The situation is particularly apparent in Germany, which has long been the EU’s economic and industrial powerhouse. We are witnessing runaway deindustrialisation with one headline about job redundancies in Germany industry following the other. At the same time, foreign direct investment in Germany has risen significantly. What sounds like good news has a noteworthy downside. German entrepreneurs have lost faith in the country and are selling to foreigners. Even those who were responsible for businesses for decades are now leaving the sinking ship.

And abroad? They are flummoxed by the home-grown problems of European business and industry – and by Germany in particular. They secretly rejoice at our inept handling of things. They are only too happy to fill the gaps on the global market left by our fall.

So how can Europe respond to these challenges? Like this:

Answer 1

Europe needs disruption, liberalism and multilateralism

How can Europe manage to be taken seriously on the world stage – without betraying its own ideals? The search for the answer to this question leads to the offices in Brussels. The European Union is in a state of complete disarray. Domestic political disruption is what is needed for Europe to gain geostrategic significance internationally.

But not all disruption is the same. The term, which describes the radical upheaval of technologies, processes, systems, societies and cultures, should be used with caution. It must not be seen as a carte blanch to destroy political structures to avoid onerous and lengthy reform efforts.

If you want to use disruption as a tool for change, you must not forget to follow it up by shaping the free spaces created by the upheaval. In this way, it becomes creative destruction – constructive disruption. This is how Europe can emerge from the ashes – more powerful, leaner, more functional and more relevant to the citizens of the European Union than ever before.

This domestic political shift is the basic prerequisite for gaining influence abroad. The result would be an unprecedented free space that needs to be shaped. And Europe does not have to use the crude, protectionist methods of other political powers – on the contrary.

Yes, Europe must (and can) advocate for its own interests more strongly. It therefore must not betray its core values. The move away from liberalism and multilateralism in global politics and economics has left a gap that Europe can fill. The simple fact is that this has never been truer.

While the superpowers USA and China are helping mercantilist state capitalism to flourish again and are happily intervening in markets, sticking to free trade gives Europe an edge, especially in terms of efficiency and innovation. The same applies to safeguarding multilateralism: new partnerships on equal footing, especially with countries from the Global South, will give Europe a global competitive advantage.

Answer 2

Europe needs a Blue Deal

While the European Union is dysfunctional, it is far less affected than other powers by one of the world’s most existential threats: water scarcity. However, this is only a temporary competitive advantage. The clock is ticking against Europe. The states of the European Union are therefore called upon to take the right precautions today, so that they are not literally left high and dry tomorrow.

Firstly, this means understanding that critical infrastructure no longer only includes the – undoubtedly highly relevant – defence, health and energy sectors, but also the water sector. The simple fact is that without water there is no life. And without action with regard to water infrastructure, there will be no European sovereignty. And secondly, this includes tackling the problem with a visionary major project – and implementing the Blue Deal that has already been called for many times.

What is certain is that this must be based on a strategy worthy of the name from the outset. The water crisis must be tackled with long-term concepts. Quick fixes and activism are not enough. It is also evident that the responsibility for drafting and implementing the Blue Deal must lie at the European level – this is a fundamental requirement! The entire process would be doomed to failure if it were to get hung up in petty nationalism.

In light of the scale of the water crisis, we must be open to all ideas. On the one hand, the goal must be to harmonise the entire European water infrastructure by 2050. But we should go even further: let us consider transporting water through long pipelines from the water-rich north to the water-poor south of Europe. Ultimately, this is the only way to achieve a redistribution of water resources based on solidarity.

European water infrastructure will surely be resilient if this clearly ambitious plan is implemented. The moral value of the initiative is priceless. The EU’s crisis of legitimacy is putting it under pressure as a community of shared values and an economic area.

What Europe needs is a new, positive narrative concerning the nucleus of the European idea: solidarity between the countries of Europe. Between the rich and the poor. Between the big and the small. But most importantly: between the water-rich and the water-poor.

Answer 3

Europe needs an AI mindset

In the midst of the economic and industrial downturn, a technological revolution like artificial intelligence is catching Europe off guard. Right?

On the contrary: Actually, AI is arriving “just in time” for Europe. Thanks to it, Europe’s traditional business model once again has a chance. Particularly for Europe’s beleaguered industry, this presents an opportunity to preserve its excellence and innovative strength while boosting productivity at the same time. This development fundamentally reshapes Europe’s position as an industrial hub. The key lies in physical or even industrial AI: industrial processes and data flows are optimised, making production more efficient and intelligent.

On the fertile ground of Europe’s state-of-the-art industrial ecosystem – which is already largely aligned with Industry 4.0 but too expensive by international standards – industrial companies can flourish, and with them the European economy as a whole. At least if Europe channels the disruptive power of AI in the right direction.

Firstly, the EU must resist the temptation to regulate AI applications in the industrial environment and thus stifle the productivity enhancing power of the technology before it has a chance to materialise. And secondly, Europe needs to commit itself culturally to a common AI mindset: artificial intelligence is not an enemy but an ally of Europe as a business location. It must be treated as such.

By becoming a pioneer of physical and industrial AI, Europe has the chance to catch up in the AI race. To strategically differentiate itself, Europe can leverage AI to strengthen industrial performance and locational advantages, while the United States, for example, is driving AI primarily as a scalable software and platform business.

The more confounding the situation, the more important pioneers are.

Three European challenges, three European answers. They show that only those who have the courage to speak the truth will find answers. They show that the challenges facing Europe in 2026 are complex and interdependent – everything is connected to everything else, so there are no simple solutions. And they show that Europe has the opportunity to emerge stronger from supposed crises if it manages to build momentum for change.