Europe needs a new social contract, Florence Report argues

A group of leading economists and political scientists is calling for a fundamental rethinking of Europe's economic model. The continent's existing policy framework is no longer fit for purpose in a fractured global economy, they argue.

The Florence Report, a flagship initiative of the Economic and Monetary Union Lab at the European University Institute, was presented Monday at the Peterson Institute for International Economics in Washington. The report's core argument is that Europe faces a convergence of pressures – slowing growth, eroding competitiveness, geopolitical fragmentation, demographic decline, and rising demands on public institutions – that together demand a more integrated and cohesive approach to economic policy.

"The existing European social contract is under strain from multiple directions," said Marco Buti, the Tommaso Padoa Schioppa Chair at the European University Institute and a co-editor of the report. "We need a new one, centered on renewed economic strategy, resilience, solidarity, and sustainable growth."

The report, edited by Buti, Giancarlo Corsetti of the European University Institute, and Anna Peychev, also of the EUI, was discussed by a panel that included Adam S. Posen, president of PIIE; Corsetti; Jeffry Frieden of Columbia University; Harold James of Princeton University; and Beatrice Weder di Mauro, president of the Centre for Economic Policy Research.

The discussion focused on the report's diagnosis of Europe's structural weaknesses and its proposed remedies. Among the key challenges identified are the continent's lagging productivity growth relative to the United States and China, its vulnerability to supply-chain disruptions and energy shocks, and the fiscal constraints that limit member states' ability to respond to crises.

The report argues that the European Union's current institutional architecture – built around the Maastricht Treaty's fiscal rules and the European Central Bank's monetary framework – is insufficient to address these challenges. It calls for deeper fiscal integration, including a permanent central fiscal capacity, and for a more coordinated approach to industrial policy, innovation, and defense spending.