Legal Foundations for a New EU Industrial Policy

Executive Summary

The EU’s industrial policy rests on a weak and fragmented legal basis. Under the Treaties, the Union holds only “supportive” competence in industrial policy, limiting its ability to legislate or steer strategic initiatives. Instead, Brussels has relied on neighbouring legal bases — state aid exemptions, cohesion policy, economic governance, and the EU budget — to drive projects like the Green Deal, Chips Act, and NextGenerationEU. While this workaround has enabled action, it produces inconsistency, opacity, and weak legitimacy, undermining the EU’s capacity to lead industrial transformation.

Ambition without competence creates inefficiency. Industrial policy has advanced in substance but lags in legal structure. Because the EU lacks a clear mandate, measures are pursued “through the backdoor,” risking legal uncertainty and fragmented governance. The result is a patchwork of second-order policies that partially fulfil industrial objectives but fall short of an integrated strategy. Without reform, the gap between geopolitical ambition and legal capacity will widen.

Treaty reform could provide the missing legal backbone. Moving industrial policy from Article 6 to Article 4(2) TFEU would create a shared EU competence, while revising Article 173 to permit harmonising measures. This would align competence with ambition, reduce reliance on indirect legal bases, and enhance democratic legitimacy by embedding industrial policy in ordinary legislative procedures. Similarly, reforming Article 310(1) TFEU to relax the EU’s balanced-budget rule would enable permanent debt-financed instruments, building fiscal capacity for long-term strategic investment.

Existing tools can be repurposed in the meantime. Even without Treaty change, cohesion policy and the EU budget could serve as anchors for a more coherent industrial strategy. Cohesion funds, with their bottom-up governance and place-based logic, offer a vehicle for territorially inclusive industrial policy. Expanding the EU budget and exploiting its flexibilities could complement unequal national subsidy capacities, preserving the Single Market and reducing subsidy races.

Policy recommendations

1. Create a shared EU competence for industrial policy, moving from Article 6 to Article 4(2) TFEU and revising Article 173 to permit harmonising measures.
2. Enable a permanent EU-level fiscal capacity by reforming Article 310(1) TFEU to relax the balanced-budget requirement and allow strategic borrowing.
3. Leverage cohesion policy as a legal and institutional base for place-based industrial initiatives, combining EU-wide priorities with local ownership.
4. Exploit EU budget flexibilities and expand resources to complement national funding and safeguard the Single Market.
5. Enhance democratic accountability and transparency, embedding industrial policy in the ordinary legislative process and strengthening parliamentary scrutiny.