Innovation, decarbonization and economic security: sustainability and productivity in the EU-27

The European model of growth shows clear signs of exhaustion, requiring decisive measures to reduce the widening technological gap between Europe and its main competitors. Limited investment in industrial innovation, excessive administrative bureaucracy, and stifling fiscal pressure, along with rising energy prices, are causing serious tensions in all productive sectors, which translate into losses of total factor productivity (TFP). The European Commission has identified three areas of action to reverse this situation and maintain the cohesion of the Member States: innovation, decarbonization, and economic security. Against this backdrop, the aim of this research is twofold: (1) to provide quantitative information on where the EU-27 currently stands in terms of the proposed transformations; and (2) to analyse the determinants of TFP, providing a guide for the implementation of future EU policies. To that end, Data Envelopment Analysis and the Generalized Method of Moments are applied to data from the period 2015-2023. The results show that the EU countries are in a delicate situation, further complicated by regional differences. To boost TFP, the EU-27 must reduce the tax burden, strengthen the education system and embark on a complete overhaul of current decarbonization processes, without overlooking the importance of innovation and strategic autonomy.