Europe is at risk of falling further behind in the global race for artificial intelligence (AI) development due to significant gaps in investment and structural energy challenges, according to recent analyses. Former European Central Bank President Mario Draghi's warning two years ago about Europe's potential “slow agony” without renewed investment and productivity now appears increasingly prescient.

In July, the European Commission announced plans to establish seven large AI computing hubs, with 18 of the European Union’s 27 member states competing to host these facilities. Collectively, these countries have pledged approximately €3 billion ($3.5 billion) in future computing purchases. However, this scale of investment pales in comparison with the $1.3 trillion forecast capital expenditure by six major hyperscale US-based technology companies through 2027, as noted by S&P Global Ratings. While the figures are not directly comparable, they underscore the vast disparity in financial commitment between Europe and its competitors.

A critical factor hindering Europe’s competitiveness is its fragmented energy market, which limits the continent’s ability to efficiently allocate electricity from surplus regions to areas with rising industrial demand. The current energy transmission infrastructure suffers from weak interconnections, disparate transmission fees, and complex permitting processes. These inefficiencies strain the bloc’s single market principle and have serious economic consequences.

Data from the International Energy Agency reveals that in 2025, large energy-intensive industries in the EU confronted an average electricity price of about $107 per megawatt-hour. This rate is more than double that of the United States and roughly 57% higher than electricity costs in China, placing European manufacturers at a distinct disadvantage.

The repercussions are evident in the European industrial sector’s performance. An analysis of Eurostat data by Marius Köppen, senior analyst at the Center for the Study of Democracy, shows that total industrial production in the EU increased by only around 1% from 2021 to 2025. More concerning declines have occurred in several key sectors: chemicals manufacturing dropped by 19%, while production of basic iron and steel, cement, and aluminum decreased by 16%, 14%, and 11%, respectively.

While elevated energy costs play a major role, other factors contribute to the industrial downturn. Weaker global demand, the relocation of European plants to the United States and China, and intensifying competition from Asian companies have also impacted industrial output. Notably, even as much of Europe’s economy has rebounded from the combined effects of the COVID-19 pandemic and the energy crisis triggered by Russia’s invasion of Ukraine, its energy-intensive industries remain under strain.

To improve its position in the AI and broader industrial sectors, Europe will need to address these underlying structural issues, particularly by creating a more integrated and efficient energy market that supports large-scale industrial growth. Without such reforms, the continent risks cementing its technological and manufacturing disadvantages amid an increasingly competitive global landscape.