Europe’s Industrial Policy Revolution Needs a Common Purse

Executive Summary

The European Commission has become a market shaper, not just a referee. In this study, “The Rise of EU Industrial Policy: Promoting and Protecting the Single Market,” we show how, since the mid-2010s, EU industrial policy has expanded beyond regulation into active market shaping. The Commission now funds innovation, brokers industrial alliances, facilitates state aid, and protects the Single Market from unfair foreign competition — a structural shift toward a European “developmental network state.”

External shocks and Franco-German realignment made this possible. While industrial policy integration was long resisted, events like Chinese takeovers of strategic German firms, U.S. protectionism, Brexit, and supply-chain fragilities created functional demand for more EU-level action. Crucially, Germany’s shift after 2016 aligned it with France’s interventionist tradition, creating the political spillover needed to unlock Commission activism. The COVID-19 pandemic and the war in Ukraine reinforced this trajectory, giving Brussels greater scope to act as a convening and coordinating actor.

Europe’s new industrial tools operate across four fronts. The Commission’s developmental role now spans: targeted resourcing (via Horizon Europe and the Recovery and Resilience Facility), brokering (industrial alliances on batteries, hydrogen, semiconductors), facilitation (state aid flexibility through IPCEIs), and protection (FDI screening, foreign subsidies regulation). Each function follows a different governance logic: budgetary tools remain largely intergovernmental (“spillaround”), alliances rely on network governance (“network spillover”), state aid facilitation reflects supranational reinterpretation (“spillover”), while protective measures balance EU coordination with national discretion (“spillaround”).

Industrial activism without coordination breeds imbalance. Despite progress, Europe still lacks a coherent strategy. Temporary crisis frameworks and national subsidy races risk favouring fiscally stronger members, notably France and Germany. Without common financing, Brussels’ new activism could widen competitiveness gaps rather than closing them.

Europe must now match its new power with coherence. A credible industrial strategy requires streamlined instruments, shared financing, and stronger transparency. Linking industrial tools explicitly to green and digital transitions would ensure that Europe’s push for strategic autonomy reinforces — rather than fragments — the Single Market.

Policy recommendations

1. Consolidate and streamline EU industrial instruments to reduce fragmentation and ensure coherence across funding, alliances, and protective measures.
2. Level the playing field among member states by advancing common financing tools (e.g., a European sovereignty fund) that avoid disproportionate advantages for fiscally stronger countries.
3. Strengthen transparency and oversight mechanisms so that EU citizens and institutions can monitor who benefits from industrial support and under what conditions.
4. Embed industrial policy within green and digital transitions by aligning IPCEIs, alliances, and budgetary instruments explicitly with climate neutrality and digital resilience targets.
5. Balance openness with strategic autonomy by refining trade and competition tools to protect EU industries without undermining Single Market integrity.