Europe at the Crossroads – Between Responsibility, Rationality, and the Courage to Realise Its Own Potential

It is tempting to describe our era as one of crisis. Geopolitical instability. Economic uncertainty. Democratic strain. Institutions under pressure. A public discourse growing harsher by the day.

But perhaps a more accurate — and more constructive — description is that we are living through a crossroads.

Not because the world is collapsing, but because the structures that sustained prosperity after the Second World War are no longer sufficient to carry us forward. Not because Europe has failed, but because the European project remains incomplete.

That distinction matters.

The paradox of rationality

Europe has long prided itself on being the continent of rationality.

Institutions over impulses. Rules over arbitrariness. Compromise over confrontation. A deep belief that complex problems can be solved through cooperation, the rule of law, and gradual reform.

This has been Europe’s great strength — but it is increasingly becoming a paradox.

When confronted by actors who do not share these assumptions, rationality risks turning reactive rather than formative. When others act performatively, deliberately testing limits and exploiting uncertainty, Europe often responds correctly — but late, fragmented, and defensively.

This is not a moral failure. It is an institutional one.

The long arc: post-war Europe and deferred transformation

To understand where we stand today, we must look further back than today’s headlines.

In the decades following the war, Europe built prosperity through stability. A multitude of national currencies, limited capital mobility, and active use of monetary policy allowed economic crises to be managed through devaluations and inflation rather than through painful restructuring of the real economy.

For a long time, this worked.

But it also meant:

• firms were sheltered longer,

• structures were preserved,

• competitive pressure was softened.

In the United States, with one currency and an integrated capital market, crises hit harder. Companies failed — but new ones emerged faster. The economy was harsher, but also more dynamic.

The divergence was gradual at first. Then unmistakable.

Monetary union: necessary, but incomplete

The financial crises of the early 1990s were a wake-up call for Europe. The diagnosis was correct: a common market requires a common currency and a shared monetary policy.

The creation of the euro and the EMU was a decisive step. The exchange rate as a shock absorber disappeared. Discipline increased.

But Europe stopped halfway.

Capital markets remained national. Pension systems stayed fragmented. Venture capital markets shallow. Insolvency and tax regimes divergent. The pressure to transform increased — but the conditions to succeed in that transformation were never fully built.

Europe removed the brake, but never installed the engine.

Globalisation’s asymmetry and the rise of populism

From the 1990s until the global financial crisis, globalisation accelerated dramatically.

Simplified — but accurate — the division of labour looked like this:

• the United States specialised in technology, platforms, intellectual property, and scale;

• Asia became the centre of cost-efficient production;

• Europe increasingly focused on consumption, regulation, and redistribution.

American technology giants became global champions. Profits and capital accumulated in the US. Europe built strong welfare systems — but produced fewer globally scaling companies.

This is not a normative judgement. It is a structural observation.

In the United States, this development created clear distributional tensions. The gains from globalisation were concentrated. Discontent grew.

It is in this context that populist narratives took hold: that Europe is “free-riding”, that the US “pays for others’ welfare”, that multilateral systems disadvantage ordinary citizens.

Economically, these claims are crude simplifications.

Politically, they are highly effective.

And they do not disappear when confronted with better footnotes.

Europe’s real task

When leaders gather at the World Economic Forum and when voices such as Ursula von der Leyen, or Emmanuel Macron  speak of responsibility, stability, and European agency, the problem is not a lack of insight or ambition.

The problem is structural.

Here, clarity is essential — especially for ourselves.

Europe does not primarily need to strengthen itself against the United States.

Europe needs to strengthen itself for Europe.

To:

• mobilise its own capital,

• enable more globally competitive firms,

• finance welfare and security sustainably,

• reduce its structural dependence on external systems.

This does not require protest.

It requires construction.

Five indispensable building blocks

If Europe is serious about reducing its financial dependence on the US — and about unlocking its own potential — it must build institutions:

• A genuine Capital Markets Union, enabling efficient risk-sharing and capital allocation

• Harmonised regulatory frameworks, allowing companies to scale across borders

• Deeper European bond markets, providing an alternative to US Treasuries

• Better conditions for scale-ups, so firms can grow without relocating

• Pension capital invested at home, so European savings finance Europe’s future

This is not ideology.

It is institutional economics.

Conclusion: responsibility without naïveté

Europe should not abandon its rationality.

But it must stop romanticising it.

Being the adult in the room is not enough if one stands alone.

Being right is not enough if the structures do not support action.

Our task today is not to react louder, but to build smarter.

Not to escalate rhetorically, but to reduce dependency structurally.

Europe is not facing decline.

Europe is facing - and writing - an unfinished chapter.

The question is not whether the potential exists.

The question is whether the political will, ability and courage now exists to realise it.

Mathias Knutsson