Central Bank Independence is now more probably more important than ever. First, because it acts as a headwind to volatility in these unpredictable times, and second, because Central Bank Independence also contributes to regional strength. I think we can all say that the diagnosis of the European Union's economic situation is largely shared, and we've seen a number of reports, including the Draghi report recently, that make a very good summary of the situation. Europe has been losing weight in the global economy in the last decades, and we also know that the main reason for this is low productivity growth. Okay, and there are many metrics that one can use in order to show this loss of weight of Europe in comparison with other regions, but one that I like a lot is that in per capita terms, European households' disposable income has grown at almost half the rate of the United States since 2000. So I think it's a good approximation to the challenge that we are facing.
Why is Europe showing this low productivity growth as compared to the US or compared also to China? Well, the main reason is that the main differences in the productivity dynamics are concentrated in the technology sector. And let me give you again some good metrics: only four of the world's top 50 technological companies are Europeans. And of course, we also know that R&D, research and development spending of European Union companies is significantly lower than that of their main competitors. It's not only about technology; there is another part of the dynamics of our European economy that is not good, which is basically the low business dynamics. The number of startups in Europe is low, again always in comparative terms, and very importantly, very few of these startups, the startups that we have, grow rapidly and become large companies, which is probably the main difference as compared to the US economy, on which they have a larger number of startups and then they increase very rapidly, many of them increase very, very, very rapidly.
Well, this is about the past, but if, and of course I wanted to focus about the future, there are also a number of structural challenges in the European economy that could worsen this relatively weak position of our economy. And I will give you eight of these structural factors that might affect negatively the European economy in the next years. The first one is aging population, aging which, well, you know, it's a global phenomenon, but is particularly severe in Europe. And again, the numbers are very telling. According to demographic projections, the percentage of people over 65 relative to the working age population, what is called the dependency ratio, was 29% in 2010 in the European Union, now is close to 35%, and it's expected to be 59%. Of course, this has a very significant impact on growth. Just to give you again one number: employment's contribution to economic growth is expected to turn negative by the end of this decade, as soon as the end of this decade.
Second factor is precisely related to our weakness on the technological sector, which, as you perfectly know, is coming with the development of generative artificial intelligence and other potential disruptive technological developments, as for example quantum computing. Of course, these technological advances could significantly boost productivity for all countries, but Europe's limited capacity, at least at the starting point, may again widen the growth gap with the US and with China.
Third factor: Europe, you know, is a more open and globally integrated economy than the US and China. And of course, this openness has been one of the main sources of growth of the European economy in the last decades. But we also know that the multilateral framework that has governed international relations in recent decades is increasingly being hindered by geopolitical considerations, and therefore different scenarios of global trade trends, fragmentation, are beginning to emerge. And there are some simulations made with macroeconomic models that show significant consequences in terms of lower economic growth, in particular for those economies that are more exposed, that are more open, and again, of course, Europe here is much more open than the US or China.
Fourth aspect that I wanted to emphasize is very much related to recent events, including the COVID pandemic, the energy crisis, the new geopolitical landscape. Well, this has highlighted some of the potential risks associated with our trade dependencies. Europe has a high concentration of its imports from a few external suppliers, mainly from China, which holds a dominant position in the supply of certain critical products. And of course, one key example of these dependencies is related to external energy dependency, which again, given the current geopolitical context, could lead to energy prices being much higher in the European Union than in its competitors, mainly the US or China. And of course, this would further weigh on our competitiveness.
Fifth factor: well, this increasing complex geopolitical scenario also raises the need for Europe to achieve a strategic autonomy in defense, which would require a significant increase in defense spending. And just let me put a benchmark: the NATO commitments that are already there, this would require an increase. And of course, we all know that we are talking these days about numbers that are significantly higher than those that were agreed at in NATO. But for example, for the European Union, wide defense spending will require an additional 0.7 percentage points of GDP in additional defense spending. For Spain, it could be even higher, just because our levels are lower. Meeting these increased security spending demands will add further pressures on public finances, which are already characterized in many countries of high deficits and high debt. Okay, that's another challenge that we have to be facing.
Sixth point I wanted to mention is, well, the fight against climate. The fight against climate undoubtedly requires an ambitious global response. Well, the reality is that there are significant differences in targets among the world's major players, and in particular, the EU, the European Union's decarbonization goals are clearly more ambitious than those of its competitors, potentially again imposing additional relative costs on our industry. There is another challenge that we will be facing.
Seventh aspect I wanted to mention is competition policy. Competition policy has been a key factor in driving economic activity in Europe. However, the rise of US tech giants and also China's scale of production raises questions about the effectiveness of these policies in Europe. And as a result, proposals are emerging to redefine the relevant market in certain sectors to foster the presence of large companies, and this is, for example, the case of the telecommunication sector. In other cases, such as the technology sector, there are calls to give more weight to innovation criteria, and similarly in the defense and space industry, there are calls to prioritize resilience and strategic autonomy. And of course, strategic considerations are and should probably be legitimate and even necessary, but at the same time, poorly designed public subsidies could lead to the consolidation of inefficient industries and also create barriers to entry for new businesses. And you have to relate these potential negative side effects to the fact that I was mentioning before that the business dynamics in Europe is not good as compared to the US or China.
And then final point: the European Union has a strong public welfare system, and of course we are very happy with this because it promotes equality and it promotes social equity. But at the same time, this system also necessitates higher tax levels, imposing additional cost on European businesses and reducing their competitiveness compared to international competitors. And again, let me give you some numbers: in 2022, the European Union had a tax-to-GDP ratio of close to 40% of GDP, compared to 28% in the US and 20% in China. And again, let me also link the situation with the pressure that we will be having in terms of increasing defense expenditure and also the implications that an aging society will have on pensions or healthcare expenditure, public expenditure, which in the end would also lead to higher prices on taxes in our countries.
So this is about the problems. The question is how the EU should respond to Europe's declining economic relevance and these structural challenges. Let me try to give you some indications, first of a more general dimension, and then I will focus slightly on what central banks can also provide to these solutions. First, and very important, I think the European Union must continue to promote an international order based on rules, as well as the development and projection of the foundational values of the European project, which are freedom and solidarity. These values and their peaceful coexistence generate positive externalities to others and have enabled our progress so far. So I think it's important that we put this as the basis of everything.
Second, reversing the trends of recent decades and addressing these new challenges I was mentioning require an ambitious reform agenda. And in this agenda, the first element should be to deepen our common market, the single market. So the economic argumentation is relatively simple: if we are facing economic fragmentation at the global level, the European Union response must focus on reducing internal fragmentation. And there is a lot of margin here. There is a paper that was published by the International Monetary Fund last October that put all the barriers that we have internally in Europe in terms of tariffs, and according to this report, internal barriers in Europe are equivalent to tariff rates of approximately 44% for manufacturing and 110% for services. Compare these numbers on those numbers that we are discussing every day on a potential trade war with other countries. So the capacity of reducing these barriers in order to reduce internal fragmentation and increase growth is high. And of course, we have the Draghi report that offers a very comprehensive and detailed perspective on how to deepen the single market.
Third element, and here I move to the Draghi report: deepening the single market requires giving European policies a predominant role over national initiatives. And here it is particularly necessary to increase investments in major projects that provide public goods, European public goods, in areas such as defense and security, research and development, energy infrastructure, climate change mitigation, and support for certain globally strategic industries, among others. Related to this, a fourth line of action: since these actions represent European public goods, they should ideally be financed through common resources. National financing would be inefficient since it would not adequately internalize the European Union's overall needs and priorities, and likely insufficient and distortive as it would depend on each country's individual fiscal space or the introduction of differential incentives through state aid, potentially disrupting competition within the single European market. So it's common projects with common financing what we need.
And then, of course, we also need, because the amounts that are needed in order to be invested are very significant, we also need private investment. And achieving a substantial increase in private investment requires both expanding the size of capital markets in the European Union and increasing their integration. One of the main problems with the European Union current situation is precisely the fact that capital markets play a much lower role than in the US. Our economies are basically financed through banks, not through capital markets. And then the second problem is that we don't have a single market, so the capital market is also fragmented. And again, there are many reports produced by the European Commission and other analysts that provide a good benchmark on how to deal with this situation. Let me perhaps only focus on one element: to me, a key element in order to achieve this deepening of the capital market should be the proper promotion of pension savings in the European Union and the channeling of these savings into productive investments.
And of course, we also lack a complete banking union. The creation of the single resolution mechanism, the single supervisory mechanism, and a unified regulatory framework has been very positive, but we don't have still a fully mutualized European deposit guarantee fund. This is a remaining pending agenda that I think we should also develop in the following years. And then, last but not least, I've been talking about reforms that affect the European Union as a whole, but we also know that many of the problems and the challenges that our economies are facing are derived from the lack of an ambitious agenda at the domestic level, so in each of the individual countries. And let me perhaps here put the example of Spain. Spain, in recent decades, the Spanish economy has experienced a slowdown in productivity that has been much lower, the dynamics of productivity, than the one in the European Union. And of course, I was saying that the European Union productivity was also low as compared to China and the US. And this weak productivity growth represents one of our main structural challenges, along with higher unemployment rates, and it is one of the main reasons why Spain's economy has been unable to reach the euro's per capita income level over the past decades. Of course, the European Union agenda is absolutely key to face the challenge, but if we don't also at the individual level, at the national level, we also do all the reforms that are needed, I mean, the reform agenda will be completely incomplete.
So let me now finalize with some remarks on what about the role of central banks. It was also in the title of the conference, and here I will mention three issues that I think central banks can do in order to complement the European Union agenda in Europe. First is the defense of multilateralism. Fragmentation in itself has also implications for financial stability. Financial stability, given the degree of integration of capital markets at the global level, is a global public good. So we need global rules in order to guarantee financial stability. And our task as central bankers is to try to limit the economic cost of the current global political climate. How? Well, by continuing to speak up for the international financial rules-based order that has brought us stability and prosperity in the last decades. Second, by pointing to the economic and social cost of protectionist policies, and also by staying committed to constructive international working relationships as much as possible, so that the international financial policy framework can continue to function. And here there is one key element in the agenda, which is of course the finalization of the regulatory reform in the banking sector, the so-called Basel III, that is still pending in some countries, and it would be very, very positive that we finalize this agenda.
Second point I wanted to mention is, of course, fulfilling our mandate. This is what we can deliver, and this is absolutely critical in order to accompany this reform agenda at the European Union level. And of course, what is the main objective of central banks is price stability. Price stability is a necessary condition for trust and hence for growth. Central banks' commitment to bring inflation back durably to 2%, in the case of the European Central Bank, for example, underpins household and business confidence and helps ensure a low cost of financing, which is a necessary condition for innovation to thrive. And if I may, I think Central Bank Independence is now more probably more important than ever. First, because it acts as a headwind to volatility in these unpredictable times, and second, because Central Bank Independence also contributes to regional strength. We have just to remember the Nobel Prize last year was given to some economists that were emphasizing critically the role of institutions as a determinant of growth, and part of these institutions, key part of these institutions, is of course Central Bank Independence.
And then finally, with this I will end. I think central banks can also support innovation through their own projects. And here I should mention that, for example, the Eurosystem is preparing for a digital Euro. This new form of public money would be comparable to a digital banknote. It would be accepted everywhere in the Euro area with a high level of privacy and free of charge for individuals. It would be distributed by banks and other private intermediaries, therefore preserving financial intermediation. Very importantly, private pan-European projects could take advantage of its open and harmonized standards. Thus, it will help overcome the fragmentation of payment solutions in Europe, and it is also, in my view, a key way of promoting European resilience against economic fragmentation. Currently, digital payments in the Euro area often rely on non-European companies. By contrast, the digital Euro would be built on exclusively European infrastructure. So with this, I would end, just emphasizing that, of course, the challenges I was mentioning at the beginning are real, are very significant. It's not only about the future; the past has already shown us a decline of European Union growth relative to other countries. But at the same time, I think we have a common diagnosis in Europe, and now the only important thing is to gain the political will to develop all these reforms. Thank you very much.
