The socio economic model of the European Union at the core of which stands social market principles, increased state participation in the economy and as a result high bureaucracy has proved its weak efficiency in increasing European economic competitiveness in the conditions of growing globalisation. The present research introduces two main theses explaining the vulnerability of both strong and weak economies of the European Union which arise as a result of implementation of social market driven policies. First, it is regarded the example of EU states having low socio-economic development and fragile institutions, mostly represented by the Eastern and Southern EU countries, and second, advanced nations with strong institutions from the West and North of the community. It is necessary to underline that the research regards the theses from the perspective of entrepreneurship-bureaucracy interaction and, the effect of them upon innovation and economic competitiveness. The results reached through applying quantitative analysis comes to prove that socio-economic model developed in the European Union is hindering the economic competitiveness of both groups of countries, yet the factors weakening economic progress differ. Thus, the paper concludes that the European Union needs to reform its economic priorities to be able to compete on the global markets.