investment. we can no longer disregard the need to redress the balance between efficiency and security. at the same time, the negative consequences of severe economic fragmentation and of a return to protectionism should not be underestimated. they are not limited to the countries concerned nor to the purely economic sphere. history teaches us that trade openness and the free movement of goods, capital, ideas and people are powerful drivers of integration and prosperity. in a more challenging environment than in the past, we must therefore protect those principles of international cooperation and the multilateral institutions that have underpinned global economic development and have fostered a lasting peace among the major powers since the end of world war ii. economic fragmentation and technological challenges in europe today given how open it is to the rest of the world, the euro area is significantly exposed to the potential risk of global economic fragmentation. trade with countries outside the euro area was in excess of 55 per cent of gdp in 2023, compared with foreign trade equal to 40 per cent of gdp for china and 25 per cent for the united states. 2 exports contribute to overall demand to a far greater extent than in the united states. banca d ’ italia the governor ’ s concluding remarks annual report 2023 the euro area is also dependent on foreign supplies of key resources : oil and natural gas, for instance, which account for over half of its total energy needs, originate almost entirely from third countries. these vulnerabilities bear on the ongoing decline in europe ’ s international standing. the population of europe is now only 5. 7 per cent of the global population. over the last two decades, the european union ’ s share of global gdp has fallen from 26 to 18 per cent, whereas that of the united states has remained almost unchanged, at 26 per cent, and that of china has quadrupled to 17 per cent ( figure 2 ). this decline mainly reflects the unsatisfactory growth in productivity, which has fallen behind the united states by 20 percentage points over the same period. figure 2 global gdp shares of the world ’ s main economies ( per cent ) united states european union china india 1998 2000 2002 2004 source : international monetary fund. ( 1 ) the data refer to current eu member states. in the current geopolitical environment, europe must act decisively to become more competitive and bolster its strategic autonomy. this is not in order to set itself against other countries or to retreat within its borders, but to safeguard the future of european citizens

lock - in to low - wage / low productivity production. this would lead into rapidly widening income differences between the eu countries. in the longer term, know how, business management skills, and capital imported through fdi need to be “ rooted ” in the societies such as to build up domestic capacity and ability for further increases in productivity. as static comparative advantages based on lower labour costs has been deployed, the new member countries need to base longer term industrial strategy on dynamic comparative advantage and policies that enhance productivity through innovative activities of the firms. once more, competition combined with appropriate renewal of institutions would be essential.