The dramatic events unfolding globally—from wars and geopolitical upheavals to trade disruptions—have caught Europe unprepared. The Florence 2026 Report urges the EU to replace its tried-and-tested “model of reduced responsibility” with a new European social contract that integrates defense, finance, and the provision of public goods. In this op-ed, the report’s authors argue that this shift would restore Europe’s agency by compensating for the EU’s lack of external support and building mutual trust based on insurance-like solidarity.
There is little doubt that the international order is at a breaking point (Gensler et al. 2025, Obstfeld 2025, Papakonstantinou and Pisani 2024). Dramatic events unfolding globally, ranging from wars and geopolitical upheavals to trade disruptions, have caught Europe—both the EU and its Member States—unprepared. It remains difficult to predict where current developments will lead. However, it is already clear that these upheavals have dismantled the external governance and institutional framework that underpinned the EU’s political agenda, institutional design, and economic development, rendering what we have termed Europe’s “model of reduced responsibility” (MRR) completely dysfunctional.
The Florence Report (Buti et al. 2026) – a flagship initiative of the EMU Lab at the Robert Schuman Centre for Advanced Study of the European University Institute – explores how Europe can navigate this fundamentally transformed world order. It examines the roots and dimensions of fragmentation and analyzes how these developments restrict policy space at both the national and EU governance levels. From a pragmatic perspective, the report re-examines established governance frameworks in order to articulate a coherent political agenda aimed at moving beyond the MRR (Meaning Reform and Restructuring) towards a more independent and secure Europe.
The end of the reduced liability model
For decades, the EU operated according to a “model of reduced responsibility”: member states could underinvest in common defense by relying on US protection, depend on the vast US market to pursue export-led growth strategies, and anchor their financial stability in the US-led hegemonic governance of international law and trade institutions. To be clear, European integration was first and foremost driven by powerful domestic political forces, but the international context of the time allowed member states to advance the Union project by circumventing “full responsibility” in key areas. The remarkable achievements of a united Europe have all suffered from the same diagnosis of being a “brake.” Europe embraced the single market project but never implemented a common strategy to ensure the efficiency and resilience of its own infrastructure, telecommunications, or energy networks. She launched the euro, claiming that the ECB’s unparalleled independence, the Stability and Growth Pact, and the no-bailout clause would guarantee a resilient financial and macroeconomic framework to deliver on the promise of shared prosperity.
Figure 1 Europe’s reduced liability model
Fractured by open geopolitical rivalry and strategic competition, the global environment is no longer conducive to the EU’s model of limited responsibility. Neutral common goods such as energy, finance, and climate have been explicitly weaponized, turning public goods into public ills. What the EU relied on as pillars of cooperation and stability is now being used against it.
Although we are still navigating uncharted waters, it is already clear that the collapse of the status quo is structural: the external conditions that sustained Europe’s development have largely disappeared and are unlikely to materialize again in the same constellation that initially allowed the low-responsibility model to flourish. Beneath its apparent and surprising resilience, the global economy faces a high risk of collapse, triggered either by war or by financial shocks resulting from excessive private credit or the potential bursting of an AI bubble.
The current situation is truly exceptional: the collapse of the MRR is a silent crisis eroding the very foundations upon which Europe has long based its progress. These dynamics are not easy to discern, and the EU’s conventional crisis management model, based on ad hoc reactive measures, will not suffice to address them. The Union must instead adopt a completely different approach: the widespread and accelerated implementation of a common and coherent strategy aimed at stabilizing its very foundations.
Four principles
Four fundamental convictions guide the analysis of the Florence Report. First, while stimulating growth and competitiveness is essential, it is not an end in itself. Rather, it is a means of preserving the European social model in the face of aging populations, climate change, and geopolitical pressures, and therefore requires broad political consensus from design to implementation. Second, we believe that the European social model should not be seen as a constraint on economic dynamism, but as a source of stability and a potential catalyst for innovation. Well-designed social policies can reconcile labor market flexibility with social sustainability. We reject the defeatist narrative of a weak Europe and argue instead that the foundations of the EU—democratic values, the rule of law, and regulated markets—constitute a distinct and underestimated form of power that positions Europe as a global leader in maintaining the rules-based international order, essential for the survival and functioning of modern democracies. Finally, despite the political limitations of federalization, the EU can still benefit from economies of scale through targeted joint action on common projects. Delivering tangible benefits to citizens through shared action could, in turn, redefine policy preferences and create virtuous feedback loops that gradually reduce constraints at the national and European levels.
A three-part political program
Establishing a new model of European independence and security requires a fundamental shift in perspective: the Union is not a constraint on national political space, but a creator of it. By exchanging some of their formal sovereignty for collective security and prosperity—particularly in areas such as the climate transition, common defense, and large-scale digital infrastructure—Member States can reap benefits that no single nation can effectively deliver on its own and achieve a level of global relevance that would otherwise be beyond individual reach. This approach also underpins the successful implementation of the three-pronged political agenda of the Florence Report: strengthening multilateralism through multipolar global alliances aligned with European values, creating a genuine Savings and Investment Union to boost competitiveness and innovation, and reorienting the EU budget towards the provision of European public goods.
Given recent experience and existing legal constraints, future progress in this joint undertaking will likely result from initiatives led by shifting coalitions of willing Member States. The central task is to structure these efforts in such a way as to allow for broader participation over time and to avoid descending into an “à la carte” EU—a collection of fragmented projects that weaken the EU’s institutional unity. The fundamental challenge in pursuing this course of action is not a lack of inherent power, but the need to overcome self-failure and what might be termed the “fragmentation trap”—a short-termism in political behavior driven by national political rhetoric that presents shared sovereignty as a zero-sum game, even though deeper integration would clearly improve welfare in all Member States. Therefore, overcoming the now-dysfunctional model of reduced responsibility (MRR) requires the creation of a suitable institutional framework to address these biases. Even more crucial for the future, the EU must address the fundamental problems that undermine its productivity. But rather than simply trying to catch up with the United States or China, Europe should leverage its dynamic comparative advantage by strengthening its own technological trajectories, combining innovation, efficiency, equity, and sustainability.
Table 1 Response to the crisis of the reduced liability model
A new European social contract
The collapse of the external conditions that underpinned Europe’s limited responsibility model has exposed structural weaknesses, eroded policy space, and amplified divergences between Member States. Fragmentation—both internal and external—now limits Europe’s capacity to take the necessary measures, posing a direct threat to European prosperity. Overcoming this dynamic will require restoring a policy and institutional capacity conducive to collective action, rooted in a renewed European social contract. At the heart of this vision lies the concept of “insurance-based solidarity” championed by the late Jürgen Habermas: since no Member State can reliably predict its future exposure to shocks, all have an interest in establishing mechanisms to share risks and costs over time. This “veil of ignorance” strengthens the case for collective mechanisms that transcend narrow national calculations. Solidarity then becomes future-oriented: it is justified not by permanent transfers, but by the hope that everyone can, at different times, benefit from common support. By extension, the new European social contract is not merely an economic arrangement, but a political project of mutual recognition and responsibility. Mutual trust is the “intertemporal cement” of this arrangement, enabling countries to maintain their cooperation over time by recognizing that the benefits of this shared assurance may not be immediate, but will materialize at different times and in different circumstances.
There is also a key political advantage that should not be overlooked in this regard: public support for European integration and a stronger EU remains strong, even in traditionally skeptical countries. Capitalizing on this support could help alleviate political constraints and address the Union’s current challenges; failing to do so risks eroding it.
By adopting a forward-looking approach and solidarity based on insurance, the Union can demonstrate to its citizens and the world that it is both ready and able to take its destiny into its own hands. The Florence Report provides the intellectual arguments for a new European social contract, asserting that a Union stronger than the sum of its parts is the only viable option for navigating a world where old alliances and certainties have vanished. There is no longer any way to shirk the full responsibility for building a stable multipolar world, implementing the Savings and Investment Union, and strengthening the supply of European public goods. The external and internal dimensions of a stronger Europe are inextricably linked as a single whole.
Source: cepr.org
