Europe’s sustained prosperity depends on its capability to create and absorb radical innovation. Still, a fresh analysis of the European Commission’s 2028-2034 Multiannual Financial Framework (MFF) by top economists suggests that the Commission’s proposed MFF may fail that task. The authors – Clemens Fuest, Daniel Gros, Philipp-Leo Mengel, Giorgio Presidente, and Cristina Rujan – note that the EU’s innovation budget campaign is, in fact, at odds with the requirements of the rapidly changing global economy structure, despite headline spending being at the record level.
The warning signal was raised by the economists a few months after the 2025 Nobel Prize in Economic Sciences was awarded to Joel Mokyr, Philippe Aghion, and Peter Howitt for their work on innovation-driven growth and creative destruction. Their findings signal out one thing as very important: the support for experimentation, risk-taking, and the substitution of old technologies with better ones are the institutions needed for long-run prosperity. In this context, the economists argue that Brussels’ innovation framework proposal fails to reflect the spirit of that.
Bold funding but unchanged structural defects
The European Commission intends to fund research and innovation with €175 billion over seven years—almost two times the size of the current Horizon Europe programme. However, this amount equals less than 0.2% of the EU GDP annually, which is a really modest sum considering the scale of the productivity and competitiveness challenges Europe is facing.
Experts say that the most alarming issue with the funding is the one about the programme’s four “Pillars” that it divides the funds into. Pillar II – Global Challenges and European Industrial Competitiveness is the single-largest component, aiming to soak up more than €75 billion, or approximately 43% of the total budget. The projects that the Pillar is to fund are multifaceted, multi-country, and long-term collaborations with 20 or over partners—a project type that is usually very prescriptive, bureaucratically heavy, and not efficient in terms of disruptive innovation, as the supported research suggests.
The economists contend that technology restrictions and predefined results set in Pillar II leave little to no freedom for trial and error, thus the position of the power-holders in the industry gets strengthened rather than giving way for radical breakthroughs. The majority of project calls are formed by member-state committees whose decisions are swayed by the opinion of the already established firms, which results in what the writers refer to as a “structural bias toward incremental innovation.”
Evidence of Low Scientific and Economic Results
Official evaluations indicate that the performance of Pillar II is poor. The interim evaluation of Horizon Europe mentions only 3,026 peer-reviewed publications resulting from the projects with a total cost of over 25 billion euros. Thus, the effective cost per publication is as high as 8 million euros, which is much less efficient than the European Research Council (ERC) situation under Pillar I.
The results on the money side are quite as disappointing. By means of the IEP-COMPET dataset that connects grants with firm performance, the authors reveal that the grant recipients enjoy an initial increase in turnover, which is a natural consequence of new funding, but after the project closure, they experience a decline in revenue. The lack of continued growth leads to questioning the long-term economic impact of such projects.
Regarding innovation, the Commission points to 24 intellectual property filings and about 1,900 “innovative outputs,” but does not provide a clear explanation of what counts as such. At the same time, the data disclose that more than half of the patents filed by the recipients are for “mid-tech” industries, which means that almost half of the budget is directed to companies that are unlikely to be the source of radical technologies. The authors alert the readers that the EU runs the risk of being stuck in a “middle-technology” loop where it is making minor improvements in mature industries instead of taking new paths.
An Appeal for High-Risk, Bottom-Up Innovation Funding
The economists suggest that the EU has to change completely its innovation strategy. They are against the policy of large-scale, top-down, collaborative schemes with most of the funds going to the established players and instead propose to redirect the funds towards small, independent firms and bottom-up ideas with real disruptive potential.
Their proposal includes ramping up spending in Pillar III — Innovative Europe, which houses the European Innovation Council — as well as broadening the initiative and support of the programmes that are agile, experimentation-friendly, and have much lower administrative burdens.
“Europe cannot revive its growth without a bold move toward disruptive innovation,” the authors write. “The new MFF should fund ideas, not just existing companies, and empower the next generation of innovators.”
Their argument adds to the pressure on the EU decision-makers as talks on the next long-term budget get more intense — the budget, which may be a key factor in determining Europe’s competitive position for the next several decades.
