Europe has experienced a significant slowdown in both economic and productivity growth since the early 2000s, causing the average European today to earn approximately 34% less than their American counterpart, with 70% of this income gap driven by lower productivity levels. For years, Europe has failed to take advantage of the digital revolution, which is why only four European technology firms are among the fifty biggest worldwide. These structural weaknesses are compounded by rising geoeconomic exposure. China, for instance, currently supplies nearly 100 percent of the heavy rare earth elements critical to clean energy and advanced manufacturing technologies.
The Latin American economy, for its part, has experienced minimal economic growth over the past decades. Between 2014 and 2023, the region’s gross domestic product grew at a mere 0.9%. Latin America remains the world’s most unequal region in terms of income distribution, with a persistently high poverty rate of 27%. Governance failures and extensive state intervention in the economy have hindered the region’s economic performance. Latin America’s market composition lacks the human and financial capital needed for higher growth rates. Weak property rights protections, judicial systems and infrastructure are also present throughout the region.
Europe and Latin America represent complementary reflections of each other’s economic strengths and structural needs. Europe generates surplus capital and hosts globally competitive export firms, yet its growth remains constrained by regulatory burdens, internal market fragmentation, and sluggish domestic consumption. Latin America and the Caribbean (LAC), in contrast, form a market of over 650 million people characterised by persistent unmet consumer and industrial needs and considerable untapped export potential. This complementarity has become strategically critical as Europe seeks to reduce dependency on Chinese supply chains. This is particularly true in the energy sector, given Latin America’s possession of nearly 40% of global copper production and significant reserves of nickel, cobalt, and rare earth elements.
As the European Union and the Mercosur countries (Argentina, Brazil, Paraguay, and Uruguay) move toward ratifying their comprehensive partnership agreement, they face a strategic choice: whether EU–Latin America relations become a pillar of Europe’s competitiveness and economic security, or whether that space is ceded to competitors like China. This report is framed around that decision. It sets out what is concretely at stake for both sides, identifies the binding economic constraints shaping EU and LAC performance, and pinpoints their highest-value opportunities in terms of economic growth and security. It then advances a focused set of politically realistic policy actions capable of delivering measurable economic gains.
