The European Union is exploring its most radical governance shift in decades — allowing smaller groups of nations to integrate more deeply on finance and defense as the 27-member bloc struggles to compete globally.
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EU explores breakaway blocs as Draghi pushes 1.2 trillion euro plan
The European Union is exploring a shift away from its consensus-based model, allowing smaller groups of nations to integrate more deeply on finance and defense as the 27-member bloc struggles to revive economic growth.
"Groups of countries naturally emerge as the ones who want to do the same thing," Mario Draghi, former European Central Bank president and former Italian premier, said in an interview. Draghi has championed the approach he calls "pragmatic federalism."
Six of the EU's largest economies are pushing to unite the bloc's fragmented capital markets under common rules and a single supervisory body. European Commission President Ursula von der Leyen has given members until the end of the year to agree on the plan, saying she would support a group of countries setting it up on their own if consensus proves impossible. A separate group of 10 EU members is working on a pilot project to stockpile critical raw materials including rare-earth elements and gallium.
The stakes are existential for Europe. Internal barriers to trade within the EU are equivalent to a tariff of as much as 44% on manufactured goods, according to the International Monetary Fund. Europe has only four of the world's 50 biggest technology companies, and none of the six companies with a market capitalization above $1 trillion created in the past 50 years are European. Draghi's 2024 report estimated the bloc needs an additional 1.2 trillion euros per year through 2031 to close the competitiveness gap with the U.S. and China.
From Schengen to the Euro: A Pattern of Smaller Coalitions
The shift marks a departure from the EU's founding ethos of consensus. The Schengen passport-free zone began in 1985 with just five countries and has since expanded to 29, surpassing the EU itself. The euro launched in 1999 with 11 members and now counts 21. Both innovations started as smaller coalitions before being absorbed into EU law.
"These workarounds don't fragment the bloc because eventually all member states can join," said Jim Cloos, a former top EU official who attended leaders' summits from 2006 to 2021.
The urgency has grown as Europe confronts multiple external threats. Russia's war in Ukraine has exposed critical gaps in European defense capabilities — 78% of EU defense procurement spending goes to suppliers outside the bloc, according to European Defense Agency data. The Trump administration leveraged Europe's security dependence to push through a trade deal shaped by Washington's demands last year.
The Competitiveness Gap Widens
On technology, the gap with the U.S. is widening. U.S. venture-capital investment reached $319.2 billion in 2025, roughly four times Europe's total, PitchBook data shows. European companies face higher capital costs and fragmented markets that prevent them from scaling to compete globally.
"The first best for Europe is to move together in 27 members," Draghi said. "If that is impossible, then you have a situation where groups of countries naturally emerge."
France and Germany are leading the push to merge financial markets, while Sweden, Poland and the Baltic states are tightening defense-industry partnerships. Germany and former EU member Britain have strengthened their security alliance, co-leading European efforts to develop deep-strike capabilities.
EU leaders agreed in March on a timeline of economic changes running through 2027, including streamlining regulation and building artificial intelligence gigafactories. Hidden behind that timeline is an implicit warning: if countries cannot find a way to work as one, breakaway coalitions will forge ahead.
The last time the EU attempted a similar structural shift — the creation of the euro — it took decades of experimentation and reversals to pull off. Draghi said the current push is "a slow train that used to be stuck in a station, and this is gaining speed."
This article is for informational purposes only and does not constitute investment advice.
