The union that tries to catch two rabbits

There is an old Chinese proverb that says: He who tries to catch two rabbits catches none. Increasingly, the European Union risks proving it true. It wants to be a global economic powerhouse while simultaneously acting as a regulatory superpower. It wants to lead on climate and digital transformation while holding on to fiscal rules designed for another era. It wants strategic autonomy yet depends on external actors for energy, technology, and defence. And in the process of chasing multiple ambitions with fragmented tools, it is catching none.

The European Commission’s recent warning to Malta on its public finances fits neatly into this pattern.

The message is clear and familiar: Tighten expenditure, respect the thresholds, and stay aligned with the fiscal path. According to the commission’s opinion, Malta risks breaching cumulative expenditure ceilings by 1.5% of GDP, even if annual expenditure is within the recommended limits.

On paper, this is a straightforward fiscal surveillance exercise. But in the broader European context, it feels increasingly disconnected from the union’s own diagnosis of its structural weaknesses.

Mario Draghi’s landmark report, commissioned by European Commission President Ursula von der Leyen and spanning hundreds of pages, could not be clearer. Europe is falling behind. It is losing competitiveness. Its industrial base is hollowing out. Productivity is stagnant. Capital is fragmented. Innovation is slower than its rivals. The world is shifting from efficiency to security, from rules to power, from open markets to industrial strategy. And Europe does not have the fiscal, financial, or institutional architecture to respond at scale. Draghi calls for a transformation as profound as the creation of the single market itself; a new European growth model rooted in investment, technology, and common financing.

Yet even as the union acknowledges the scale of the challenge, its operational instincts remain anchored in old reflexes. The warning to Malta is a small example of a much larger tension. On one hand, Europe says it must invest massively in green technology, AI, digital infrastructure, defence, and industrial deepening. On the other hand, its fiscal framework continues to prioritise constraint over capacity, discipline over investment, annual balances over long-term competitiveness. It is a contradiction Europe has lived with for a decade, and one that becomes harder to ignore as the gap widens between aspiration and action.

The contrast with the United States could not be more striking. The 2025 National Security Strategy reads like a manifesto for muscular economic statecraft. It directly links competitiveness to national power and channels public investment into climate technologies, semiconductors, biotechnology, critical minerals, and strategic supply chains. Whether through the Inflation Reduction Act, the CHIPS Act, or defence modernisation, the US is not apologising for ambition. It is using public finance as a lever for national renewal. Europe, meanwhile, warns member states to pull back on expenditure even as it calls for strategic autonomy and industrial resilience.

This contradiction is at the heart of Europe’s relevance problem. It wishes to be a geopolitical actor in a world of blocs, but it governs itself with the fiscal mindset of a post-crisis rules-based order. It speaks of sovereignty but budgets like a small open economy fearful of debt rather than like a continent seeking to shape its destiny. It wants technological leadership but remains slow, cautious, and fragmented in its approach to innovation policy. It champions productivity while maintaining structural barriers that discourage investment, slow down deployment, and dilute scale.

The implications for Malta are therefore twofold. First, the commission’s warning is real and must be taken seriously. Malta’s expenditure path is drifting above the cumulative thresholds, and a corrective effort will be required. The country cannot afford complacency nor assume that continued revenue buoyancy will solve structural issues. But second, and more importantly, Malta must understand that the European fiscal debate is bigger than Malta. The union itself is wrestling with the limits of its framework. It is trying to enforce discipline while also calling for continental-scale investment. It is trying to respond to China’s industrial acceleration and America’s economic nationalism while restricting the very tools needed to compete.

The lens of opportunity

This is why Malta’s economic strategy cannot be framed solely through the lens of compliance. It must also be framed through the lens of opportunity. The country needs to invest smarter, spend better, and prioritise value over volume. The quality of public spending matters far more than the quantity. Expenditure on innovation, skills, digital transformation, and energy resilience is not consumption; it is investment in long-term competitiveness. Draghi’s report is explicit: Europe needs catalytic public finance that crowds in private investment, not fragmented programmes with limited impact. Malta must position itself within this transition, not at its periphery.

If Europe is slow to reform its fiscal architecture, member states must confront the productivity question at home. Malta faces structural constraints, but it also has structural opportunities. A young labour market, strong service sectors, digital capabilities, and strategic location give the country advantages others envy. But these strengths must be anchored in systems that plan smarter, educate deeper, and invest more strategically. Compliance with fiscal rules may keep Brussels satisfied, but competitiveness will determine whether Malta thrives.

The paradox of today’s Europe is that it diagnoses its challenges accurately yet struggles to act decisively. It warns of declining influence while maintaining processes that limit its capacity to respond. It speaks of ambition while clinging to frameworks that prioritise stability over renewal. It tries to catch two rabbits—fiscal orthodoxy and global ambition. And as the proverb reminds us, it risks catching neither.

For Malta, the lesson is not to wait for Europe to resolve its contradictions. The lesson is to align fiscal responsibility with a clear national investment strategy. To push for smarter spending rather than simply lower spending. To build resilience through education, technology, and skills. And to advocate for a European model that enables growth rather than merely regulates it.

If Europe wants to remain relevant, it must stop chasing rabbits and start choosing priorities. And small states like Malta must help shape that choice, or risk being shaped by it.