Completing European integration: A policy agenda for the fractured global economy
The Florence Report was launched on 21 April 2026 at the European University Institute and was edited by Marco Buti, Giancarlo Corsetti, and Anna Peychev. It argues that Europe’s long-standing “reduced responsibility model” i.e. relying on the US for security guarantees, open markets, and multilateral order, has collapsed, and the EU must now build a New European Social Contract around common public goods, defense integration, and a Savings and Investment Union. It features 30 original contributions from more than 40 authors across economics, law, political science, and history. The report is divided in two parts:
Part A
The reduced responsibility model and what replaces it
The EU long benefited from delegating security, trade governance, and financial stability to the US-led order. This allowed progress on the Single Market, the euro, and enlargement, without building the institutional capacity to manage those responsibilities independently. The transformation is structural, not cyclical: the benign external environment that sustained European development will not return. External shocks now interact with internal structural weaknesses, creating an adverse feedback loop that fragments policy space and amplifies divergences among member states. The report proposes a three-pronged policy agenda to escape this trap:
- Strengthen Europe’s role in a multipolar order — support multilateralism, ally with other middle powers, and contribute to global public goods (climate stability, rules-based trade, financial cooperation).
- Complete the Savings and Investment Union — overcome financial fragmentation, improve capital allocation, and redirect Europe’s high savings surplus into productive investment, especially in high-growth and innovative sectors.
- Ensure an adequate supply of European Public Goods — particularly in defense, infrastructure, and technology, areas where national provision is insufficient and collective action generates significant economies of scale.
The EU must also rebuild a renewed European Social Contract based on insurance-based solidarity, mutual trust, and a shared sense of purpose, without which institutional reform and collective action remain politically impossible. Warning against a “fragmentation trap”: as long as short-termism dominates national politics, shared sovereignty will be framed as a zero-sum game, blocking the larger long-term gains available through integration.
Part B
- Framing the European project: Political economy under pressure
Europe now faces a paradox: domestic political fragmentation has made collective action harder precisely when geopolitical pressures demand more of it. The US shift toward transactionalism, the weaponization of trade and currency instruments, and the rise of national-identity populism across EU member states are structurally eroding Europe’s capacity to act as a coherent global player. - Securing policy space within EU systemic frameworks
The EU’s social, fiscal, monetary, and financial frameworks are being stress-tested by external shocks that interact with their existing design weaknesses, particularly the unresolved tension between centralized monetary policy and decentralized national fiscal priorities. Contributors argue for reforms that expand policy space: rethinking fiscal rules, broadening euro area participation, preserving monetary sovereignty in the face of digital currencies, and redirecting Europe’s large savings surplus toward domestic growth-conducive investment. - Sustaining EU Competitiveness between geoeconomics and structural trends
The breakdown of multilateral trade rules, US tariff shocks, and the rise of geoeconomic rivalry require the EU to simultaneously defend and deepen the Single Market while building economic security tools such as export controls and FDI screening. The energy transition (via the Clean Industrial Deal) and AI are positioned not merely as sectoral challenges but as strategic levers for reducing dependencies and boosting productivity, provided, of course, that Europe reduces its structural reliance on foreign technologies. - Financing collective action: from European public goods to security
The EU needs a significantly expanded supply of European Public Goods but progress has been driven more by crisis necessity than by deliberate design. Defense market fragmentation, reliance on US technology, and weak EU own-resources constrain the Union’s strategic autonomy; contributors call for joint procurement, shared financing, and a gradual expansion of EU-level fiscal capacity, potentially through VAT or excise-based revenues. - Financing growth through savings, investment, and capital markets
Europe is trapped in a high-saving, low-growth equilibrium where fragmented capital markets prevent household savings from flowing into productive investment. Completing the Savings and Investment Union, through pension reform, a European securitization platform, reduced post-trade fragmentation, and stronger EU-level supervision, is presented as the central strategy for raising investment, lowering firms’ cost of capital, and ultimately boosting EU GDP and competitiveness.
Reconfiguring Europe in a Fractured Global Economy
Editors: Marco Buti, Giancarlo Corsetti, Anna Peychev
From: European University Institute
Europe’s strategic options in a multipolar economy
The most extensive independent commentary on the above Florence Report comes from Adam Posen. A summary of his arguments:
- Dollar dominance is eroding this is an opportunity for the Euro
Posen argues that two pillars kept the dollar dominant: the lack of alternatives, and the dollar’s role in US security alliances . Both are now crumbling. Drawing on work by Obstfeld and Rey, he notes that markets are now behaving toward the dollar as they would toward an emerging market currency with interest rates rising as the dollar falls on bad news, the reverse of its historical pattern . This creates a direct opportunity for the euro to expand its global role, provided the euro area maintains financial stability and avoids mimicking the Fed’s loosening of supervisory standards . - Reject industrial policy overreach
Posen is sharply critical of momentum toward large-scale European industrial policy, especially attempts at self-sufficiency . He accepts that a narrow set of truly critical sectors (genuine security dependencies) warrant intervention, but warns that overused industrial policy creates new vulnerabilities, wastes resources, and empowers domestic champions that act against the national interest (citing Boeing and Volkswagen as cautionary examples) . Resilience comes from diversification, not self-sufficiency . - “Principled Plurilateralism” as Europe’s strategy
Rather than imitating US or Chinese mercantilism, Posen argues Europe should lean into what it does well: being rules-based, open, and a fair standard-setter . He coins the term “principled plurilateralism” i.e. making trade deals in a multilateral spirit without waiting for WTO consensus, as the EU has done with India and the CPTPP . As the US retreats from setting global standards in areas like green tech, data privacy, and food safety, Europe is well-positioned to fill that role and gain soft power, investment, and talent as a result . - Europe has more agency than it thinks
Posen closes on a note of conditional optimism: Europe can meaningfully improve its own and the world’s situation through an attainable set of policy choices . The key is resisting the temptation to emulate the “manufacturing obsession and bullying” of the US and China, and instead being “Europe’s best self,” open, principled, and rules-based .
Strategic Direction for Europe in the New Economic Geography
By: Adam S. Posen – Peterson Institute for International Economics
