Industrial policy, Europe is lagging behind

Can there be a vision of Europe without industry? It may sound rhetorical, but the question arises if one looks at the sequence of statistics over the past two years. Not only the recessionary spiral in Germany, as well as the drop in production volumes in Italy for several quarters now, but also in France today the Pmi manufacturing index is at a nine-month low and well below the recession threshold. The answer to the initial question is of course negative, but this leads to worrying reflections on several levels.

The first is that, after the European elections and the laborious composition of the new Commission, there are still no clear new references for European manufacturing companies to guide their strategic and investment plans. At last, first timid signals are arriving on technology neutrality related to decarbonisation targets, and also on the development of less polluting fuels. But the framework for revising the Green Deal still remains opaque and controversial, with no firm messages on the timing, methods and resources of the energy transition. The import of Chinese electric vehicles to Europe, meanwhile, has increased by around 20 per cent, and the competitive advantage of Asian manufacturers has nothing natural about it but has been built up over time. Starting with those five-year plans of the 1980s that contemplated the extraction and embargo of rare earths, with Deng Xiao Ping stating that rare minerals would be to China what oil is to the Arabian Peninsula. The issue of the automotive supply chain, including the prospects for the endothermic engine, is a key example of how the Green Deal should be reinterpreted and rethought. Or is it really believed that tariffs are the only solution?

On a complementary level, it is well known that Italy, Germany and France together are still the world's leading exporters, gross of intra-European trade. But they invest too little in artificial intelligence, while venture capital in the EU is one tenth of that in the US and the capital market is still too fragmented. And inevitably, European industry suffers as strong new signs of banking protectionism sweep across the continent. What was the point of commissioning Enrico Letta's fine report if the single market is being questioned rather than promoted and extended? Only European companies of sufficient size can invest in innovative capital and generate enough profits to keep up with American ones. Investments in intangibles by American high-tech firms, including large digital companies, have sustained US productivity growth in recent decades while European productivity growth has been sliding downwards. However, the increase in market power and markup in the US, which even this year's Nobel laureates stigmatise in their work, has allowed for more productivity and more high-quality manufacturing employment.

The economic sustainability of industry is vital for the European project, and it is especially so for Germany. The German economy is stuck in recessionary stagnation, with the most recent estimates showing a negative forecast for this year, while in 2025 German GDP is expected to grow by a modest 0.9 per cent instead of 1.5 per cent as previously forecast. Growth at the rate of 1.5 per cent would only occur, according to Ifo, from 2026, due to a structural crisis with too little investment, especially in the manufacturing sector, and stagnating productivity. Yet, and this is the third plane of thought, the Draghi Report, which places investment in innovation and manufacturing at the heart of the EU's competitiveness recovery, was immediately criticised by the German finance minister for the part that advocates mobilising private wealth with the only acceptable new debt, the common European debt. Going forward, the downgrading will affect German debt, but the price of the lack of industrial impetus will affect the whole of Europe.