As the world navigates relentless geoeconomics shifts, the latest 2025 IMD World Competitiveness rankings reveal a worrying picture in Europe. The continent is home to the globe’s most competitive economies, yet this glittering success masks a deep and widening rift between a super-league of champions and the rest of the bloc.
The Champions League and the Rest
Europe continues to dominate the top tier of global competitiveness, with Switzerland and Denmark sitting at 1st and 4th place overall, respectively. They are joined in the top 10 by Sweden (8th) and the Netherlands (10th). Their success isn’t accidental; it’s a masterclass in holistic economic management. These countries have world-class governance, stellar infrastructure, business efficiency, and strong economic performance. They set the global gold standard in competitiveness.
Yet, an alarming sign remains the competitiveness gap between Northern/Western Europe and the Southern and Eastern member states. While the champions reside in the top 20, many of their EU partners are in the bottom half of the rankings. Countries like Bulgaria (57th) , Romania (49th) , Croatia (53rd) , Poland (52nd) , and Hungary (48th) face deep-seated structural challenges. The data points to significant weaknesses in government efficiency, business efficiency, and infrastructure holding them back. This divergence is not just a line in a table, it represents a fundamental challenge to European cohesion. A continent moving at two competitiveness speeds risks economic divergence and invites strategic fragmentation.
The Great Divide: From Convergence to Cohesion
For years, policymakers in Brussels, Berlin and Paris have called for convergence across the European Union. Notably, convergence is the name of the formal report monitoring countries’ readiness to join the Eurozone, Europe’s single currency area. The vision is one of shared growth, where richer and poorer members and regions advance together, innovation ecosystems flourish from Sofia to Seville, and talent is empowered across the continent. Twenty years after the big bang Eastern enlargement, the reality is mixed at best: while convergence continues, cohesion is still elusive, and nationalistic, Brussels-bashing political parties are making headway in polls across the EU.
The EU’s core is absorbing the periphery’s most precious resource – human capital. Young doctors from Bulgaria staff hospitals in Munich. Romanian programmers fuel the Dutch tech boom. Polish researchers fill academic gaps in Stockholm. This pipeline of talent keeps Western and Northern Europe demographically stable, fiscally balanced, and globally competitive. In fact, structural incentives actively sustain the status quo and fuel extreme anti-European, nationalistic and zero-sum tendencies across the continent:
- Cheap labor supply: Maintaining a surplus labor force from the periphery allows wage suppression in the core, while fueling inflation back at home.
- Demographic stopgap: Aging societies across Europe, means lavish social security models are sustained by importing youth from shrinking peripheries, an outflow cushioned by remittances invested in real estate and status consumption.
- Political insulation: With fewer high-skilled workers at home, Eastern Europe has a smaller base to shape EU decision-making or shape industrial policy according to its needs and strengths.
- Zero sum: Such zero-sum calculations block EU’s further enlargement and projection of global influence, as the most recent members fear that EU funds would shift to even lower-cost partners, triggering an additional squeeze on high-value jobs and investment.
Several sources support these ambivalent or even exploitative dynamics:
- The World Bank data show consistent net flows of high-skilled workers from East to West. For example, Romania has lost more than 30% of their medical professionals to Western Europe;
- IMF working papers have flagged the demographic risk to cohesion and long-term fiscal health of CEE countries;
- Policy inertia in reforming structural funds, cohesion policies, or fair taxation suggests there’s limited urgency to correct imbalances, especially from net contributor states;
- Draghi’s 2024 competitiveness report hinted at the need for a new model of European convergence, subtly acknowledging that the current setup is extractive rather than developmental for some regions.
What’s Next: Follow NATO’s Lead?
As a result, Europe’s Eastern flank has become a battlefield for influence: as talent has continuously left for the core, Russia and China have sought to move in – with tanks, but also with infrastructure, money, and ideology. Serbia, Hungary, Slovakia, Bulgaria, to name a few continue to be perilously dependent on Beijing and Moscow, thinking they are able playing both sides. This illusion feeds narratives, which seek to exploit the European East – West divide, creating potent openings for political black swans, such as the recent presidential race in Romania. This isn’t just backsliding, it’s a continuing geopolitical retreat. The EU’s blind spot is becoming Moscow’s and Beijing’s playground and makes the US indispensable for preserving unity.
Europe’s demographic troubles in the East means fewer workers, fewer innovators, and fewer defenders. If the EU’s frontier turns into a depopulated buffer zone, it won’t just be weaker, it’ll be indefensible. This is likely to invite Russia to continue its belligerence towards its former allies, under the benevolent gaze of its “no limits” partner – China. The hope is that with the EU’s soon-to-be-announced next Multiannual Financial Framework 2028 – 2035, Europe will find courage, resources, and leadership to match the 5% of GDP commitment for defense in NATO, with similar efforts in its single market, competitiveness, and economic statecraft policies.
This opinion is based on the data from the latest IMD World Competitiveness Yearbook 2025. ARC Fund is IMD’s partner for Bulgaria. ARC Fund is a member of the Global Trade & Innovation Policy Alliance.
The analysis was originally published in EUalive.net.
