The Renaissance of Industrial Policy in the European Union: An Introduction
By Werner Raza, Christa Schlager, Viktor Skyrman, Michael Soder
The EU's renewed embrace of industrial policy risks prioritising security and competitiveness over social justice and climate action—but a progressive alternative remains possible.
After decades of marginalisation, industrial policy has returned to the European Union's political agenda with remarkable force. While this shift in economic discourse deserves welcome in principle, progressives must urgently examine the fundamental questions driving this renaissance: why pursue industrial policy, how should it operate, and—crucially—who benefits? What motivations underpin these initiatives? Which objectives take priority? Who sits at the decision-making table, and who bears responsibility for implementation?
These pressing questions animate the contributions to this volume. Though our authors span different institutional and disciplinary backgrounds, we share a common purpose: shaping an industrial policy agenda that effectively promotes the green and digital transformations (aka twin transformation) while ensuring social balance and democratic legitimacy.
The European Union's contemporary industrial policy measures initially emerged from two existential challenges: the climate crisis and the digital revolution. Recently, however, the liberal international order's crisis and intensifying rivalries between great powers—particularly the United States and China—alongside the war in Ukraine, have led European policymakers to embrace an increasingly geopolitical approach to economic policymaking. Security considerations now overshadow green and social agendas.
This shift is threatening to fundamentally reconfigure initiatives such as the European Green Deal, the Important Projects of Common European Interest (IPCEIs), and numerous member state policies developed over the past five years. Concern about the EU economy's lacklustre dynamism and its technological lag behind the US and China—analysed comprehensively in the Draghi Report—has prompted the new European Commission to refocus debate on promoting the EU's global competitiveness. While these programmes typically emerge through close cooperation with the corporate sector, the interests of other stakeholders—particularly trade unions and civil society—receive far less consideration.
Most worryingly, by re-establishing competitiveness as a primary objective, the new Commission apparently intends to retreat from its social and environmental agenda. Security and competitiveness objectives are becoming the central motivations for future industrial policy. Industrial policymaking in the EU thus stands at a critical juncture, with its strategic trajectory for the coming years under intense discussion.
The case for inclusive industrial policy
Against this evolving background, this edited volume intervenes in the debate from a critical perspective. Our basic premise holds that sustainable and successful industrial policy requires an inclusive approach based on democratic deliberation and participation. Progressive industrial policy must integrate the interests of all affected stakeholders, including workers and civil society.
The volume pursues three objectives: first, to assess existing industrial policy initiatives and programmes, identifying weaknesses and deficits in both design and implementation; second, to introduce additional elements critical for inclusiveness and thus long-term success, spanning company, sector, governance and macroeconomic levels; and third, to propose an action programme for progressive industrial policy in the coming years, both within the EU and globally.
The book's five sections systematically examine the challenges and opportunities facing European industrial policy. Section I begins by assessing EU economic dependencies across three critical domains. Dario Guarascio, Jelena Relic and Francesco Zezza examine the EU’s energy dependencies; Bernhard Tröster, Simela Papatheophilou and Karin Küblböck analyse critical raw materials; while Christian Reiner and Roman Stöllinger investigate the technological dependencies.
These contributions reach a shared conclusion: while the EU has begun confronting these external dependencies, progress remains markedly slow. More effective and determined action will prove necessary to achieve the EU's targets for strategic autonomy through industrial policy. Reducing dependencies—whether on energy imports or critical raw materials—will require, above all, more rapid transition to a renewable energy system and a fully-fledged circular economy within the EU. Internationally, just and sustainable cooperation with partners, particularly in the Global South, will prove crucial.
Section II addresses the employment impacts of the twin transformation. Marialuisa Divella, Valeria Cirillo, Lydia Greco and Eustachio Ferrulli provide a preliminary assessment of the Just Transition Initiative and its implementation in Italy, Spain and Germany. Despite the Commission's claims that it "leaves no one behind", the initiative's scope remains too limited. Implementation has proved slow, marked by institutional capacity constraints and lacking comprehensive, forward-looking regional planning. The authors emphasise the need for longer-term programme horizons, strengthened administrative capacities and more inclusive territorial planning processes that genuinely involve trade unions and civil society.
Béla Galgóczi's analysis reveals that employment transition challenges extend beyond managing job losses in carbon-intensive industrial sectors. The slow pace of building green industries and economic activities that provide new employment poses equal concern. EU industrial policy must therefore accelerate green transformation by promoting green sectors and jobs. The competitiveness so dear to the new Commission will critically depend upon creating new competitive advantages in a shifting global economy where other powers—particularly the US and China—already enjoy technological leads in green and digital technologies.
Section III examines deficits and challenges in the governance of EU industrial policy. Werner Raza argues that long-term societal support for industrial policy promoting the twin transformation will critically depend on both input and output legitimacy. The current institutional policy setup needs major reform on both accounts. Conditionalities, including social conditionalities, emerge as instruments with potential to improve EU industrial policy legitimacy across both dimensions.
Wolfgang Polt highlights significant deficits in EU industrial policymaking regarding both strategic outlook and governance systems, including lack of leadership, poor coordination across multiple levels, and missing implementation capacities. Rainer Kattel examines deficits in the EU innovation system, characterised by institutional fragmentation, bureaucratic processes and limited innovation generation. The essay argues that policymakers at all European governance levels should focus on designing and developing organisational ecosystems for innovation, fostering dynamic capabilities and allowing experimentation.
Section IV addresses the macro-financial framework for effective industrial policy in the EU, particularly the existing investment funding gap. Viktor Skyrman discusses various options to increase EU-level funding capacities for the twin transformation. Observing the limited success of the prevailing de-risking approach, Skyrman calls for conditionalities linking company subsidies to profit reinvestment, suggests expanding EU-level taxation—particularly on financial transactions, wealth and capital gains—and proposes leveraging Europe's development banks for scaled-up credit allocation and equity funding.
Following a critical assessment of the new EU fiscal rules, Philipp Heimberger discusses options to expand fiscal space for additional public expenditure supporting the twin transformation. Besides advocating modifications to key technical assumptions underpinning the new rules and expanding national co-financing for EU programmes, he proposes establishing a permanent EU investment fund financed by issuing bonds on EU capital markets.
Gaston Bronstering, Agnieszka Smolenska and David Barmes explore monetary policy and the European Central Bank's role. Their analysis reveals that the ECB's measures supporting green transition remain fragmented and insufficiently connected to the broader EU sustainability agenda. The chapter identifies practical pathways, including the ECB using EU sustainability definitions (Taxonomy, Green Bond Standard), greening its collateral frameworks, and implementing Green Targeted Longer-Term Refinancing Operations (Green TLTROs).
Building a progressive agenda
The final section presents proposals for a progressive industrial policy agenda promoting the twin transformation. José Miguel Ahumada and Fernando Sossdorf identify critical elements for promoting green industrial policy in the Global South. These include putting foreign direct investment to use for productive diversification, building regional production networks and stronger regional funding structures, ensuring digital sovereignty, and strengthening institutional capacities for industrial policy.
Synthesising all contributions, the concluding chapter by Werner Raza, Christa Schlager, Viktor Skyrman and Michael Soder proposes a progressive agenda for EU industrial policy based on six pillars: enhancing spaces of participation; ensuring fair distribution of benefits and costs; accelerating the twin transformation agenda; promoting a governance framework with capacities and capabilities; closing the funding gap; and cooperating with partners on global twin transformation.
Democratic politics in the EU stands at a crossroads. Using public money and industrial policy for military rearmament while cutting social spending and deprioritising the green transformation will not deliver economic growth and employment. Instead, this path will deepen the ecological crisis and social inequities while exacerbating geopolitical conflicts. Such an approach ultimately plays into the hands of authoritarian populists.
Industrial policy in the EU should instead promote a new economic model serving both planet and people. Our hope is that this collection will contribute to that vital project.