The Future of European Industrial Policy – 2024

Bocconi Lab for European Studies (BLEST) and the Bocconi Institute for European Policymaking (IEP@BU)

Panel 1: Industrial Policy in the EU architecture

The ‘new’ EU Industrial Policy: Distortion of competition in the internal market?

by Simone Gerner

Adam Ambroaziak, in his talk about European Industrial Policy in turbulent times gave economic insights on the actual consequences of European Industrial Policy. He highlighted that combining the social, environmental, and national security aspects of the Industrial Policy with effective competition constitutes a big challenge not only between the EU and third states, but also between companies within the EU itself. He emphasized that the actual economic impacts on the industry should not be neglected when focusing on such legitimate aspects. He also critically noted that European state aid is now directed not only to structurally weak regions, but rather across the entire EU. In this context, he also noted a paradigm shift in EU internal policy, which is, the reliance on state aid as a tool to face almost any problem affecting the Union  (market failure, covid and energy crisis, unfair competition from third countries).

Finding the right Industrial Policy

Manuela Moschella followed with her talk ‘Not one but many EU industrial policies – a comparative research agenda’, focusing on the political and social science perspective of the European Industrial Policy. By first observing that not all industrial policies are the same – due to different goals, tools and policy means – she then emphasized the importance for policy makers of choosing the right policy. She stated that the chosen policy has not only implications for the Single Market and the EU integration process, but also for the relationship among member states. Beyond that, the industrial policy has a significant impact on the global positioning of the EU, especially in relation to competition with third countries, such as the US and China. Moschella emphasized the differences between ‘market- creating’ and ‘market-directing’ measures, defining the former as “general measures” such as investments in research and development, education, infrastructure and technology and by ensuring fair competition. The EU investment policy indeed tends to be a ‘market creating’ measure, often based on general measures which lack clear policy priorities with outward-looking orientation. On the other hand, market directing measures are more targeted to allocating fiscal resources to specific sectors or industries. She emphasized the importance of recognizing that the choice of different types of industrial policy varies in each country. Factors that explain the choice are economic conditions, external dependencies, international politics, but especially domestic political factors and societal support.

Implementing Industrial Policy through the Economic and Monetary Union?

Concluding the first panel, Fabian Amtenbrink examined the European Industrial Policy from a monetary perspective. In his talk ‘Implementing the EU’s Industrial Policy through European Economic and Monetary Union – A viable strategy?’ he elaborated the EU’s ‘New Industrial Strategy’ by focusing on the “twin” ecological and digital transition. While the main channels for implementing the industrial policy include the single market, competition law, and trade policy, the less apparent channels, such as the Economic and Monetary Union (EMU), European Semester, NextGenEU, and Monetary Policy must not be forgotten. Even though the current economic governance framework – specifically the European Semester – encourages member states to align public spending with investments in digitalization and sustainability, the assessment and monitoring of national budgetary plans lack explicit exceptions for investments in the green and digital transition. The future economic governance framework in the EMU, agreed upon in February 2024, does not tackle this problem: even though giving incentives for member states to invest in the twin transition, it remains primarily geared towards budgetary sustainability. 

Amtenbrink raised concerns about the democratic legitimation of the EU industrial strategy through the Recovery and Resilience Facility (RRF), by addressing the democratic deficit affecting the NextGenEU package. Furthermore, he questioned the RRF's effectiveness in promoting investments in the twin transition and its temporary nature. 

The conclusive question of the talk concerned whether the current EU strategy is a sufficient substitute for a more substantial supranational fiscal capacity to invest in the twin green and digital transition.

Panel 2: Industrial Policy for the Energy Transition

by Maria Gandini

Professor Stefano Soro, from DG Internal Market, Industry, Entrepreneurship and SMEs, provided invaluable firsthand insights into the EU Commission’s role on policy regulatory and financial action to support the EU industry in the energy transition. By first addressing the present air quality problem in Milan, he emphasized the pressing need for action and the imperative of addressing environmental and climate change concerns, underscored by the recent enactment of the Climate Law. The ‘reverberating’ effects of Covid-19 pandemic not only triggered a sharp increase in raw material and energy prices, but also, positioned environmental imperatives on the same level of financial considerations, intensifiying the urgency for sustainable political solutions. The geopolitical tensions between Russia and Ukraine further accentuated the necessity for the EU countries to diversify energy sources as opposed to the former ‘all eggs in one basket’ formula, and therefore the dependence on Russian gas. This situation, which he defined as ‘permacrisis’, demanded a comprehensive formulation of suitable industrial policies addressing the economic and climate imperatives. Dr. Soro outlined a series of measures undertaken by the Commission, ranging from the EU Green Deal and the Recovery Plan for EU to legislative initiatives such as the Net-zero Industry Act and the Critical Raw Materials Act. These efforts have been complemented by robust financial support mechanisms, including the Multiannual Financial Framework and Next Generation EU (2021-2027), as well as initiatives like the Innovation Fund and European Investment Bank, underscoring the EU’s commitment to fostering a sustainable and resilient industrial landscape.

Following Stefano Soro’s comprehensive overview, Professor Gabriella Perotto from Bocconi University shed light on the external dimension of the Net-zero objective, probing whether the securitization of the EU industrial policy is indeed underway. 

Delving into the intricate interplay between climate objectives, open strategic autonomy, and free trade, Professor Perotto underscored the multifaceted tensions surrounding the EU action. The environmental imperatives, being global in nature, are also deeply interlaced with EU external relations, requiring a recalibration of the current policy frameworks. The notion of open strategic autonomy, while seen as a key objective, remains indefinite, lacking a clear institutional definition. Moreover, the pursuit of trade openness often clashes with the imperatives of both climate goals and strategic autonomy, prompting questions about the paradigm shift required in EU policy making. Professor Perotto analyzed the justifications and cause of Net-zero objectives, focusing on how the green transition, being an emergency and matter of security, justifies protectionist measures within the securitization process. This latter subject permeates the entirety of the EU industrial landscape, affecting sectors – such as defense – that diverge  from the others, thus fundamentally reshaping the contours of EU industrial policy. In essence, the securitization of EU industrial policy through the pursuit of climate objectives is underway, highlighting a the influence of pressing global challenges in the re-setting of EU priorities.

Professor Francesco Costamagna from the University of Turin, continued the discourse by delving into the prospect of a more interventionist EU industrial policy for the Net-zero age, questioning whether this would lead to a proper paradigm shift. He started by providing an historical background, highlighting the absence of industrial policy matters in the founding treaties of the Union, and its subsequent introduction in 1992 with the Maastricht Treaty. However, Article 173 TFEU, the sole article introducing the topic [AA1] in the EU legislation, constitutionalized a hostile approach towards interventionism. Without a fully-fledged legislative competence, the EU should act only in support of Member States  in pursuing specific objectives, thus preserving competitiveness of EU industries. The horizontal, market-based and competition-enhancing approach laid down by this provision is recently facing important developments, thanks to the late green growth strategy. Costamagna highlighted the transformative potential of initiatives such as the EU Green Deal and the Net-zero Industrial Act, especially in fostering strategic autonomy and reducing dependency on critical raw material. Particularly, the Net-Zero Industrial Act represents a regulatory milestone, aimed at increasing manufacturing for clean energy technologies while granting freedom for strategic endeavors. The Professor however cautioned that the scope of the current paradigm shift should not be overstated. While there is flexibility within the EU legal order allowing for greater interventionism, the path towards a true transformative change remains contingent upon a deeper reassessment of prevailing economic ideologies. Thus, while steps have been made towards a more interventionist industrial policy, the path towards a real paradigm shift remains a work in progress, marked by tensions between market forces and environmental imperatives.

Panel 3: The challenges of the EU Digital Transition

Chiara Criscuolo: an attempt at framing and measuring industrial policies.

by Carlotta Di Cretico

The Organisation for Economic Co-operation and Development (OECD) conducted research on the topic of industrial policies, resulting in a paper authored by Chiara Criscuolo, Nicolas Gonne, Kohei Kitazawa and Guy Lalanne.^[1]

In her speech, Dr. Criscuolo outlined the key features of the paper by addressing issues relating to the framework and taxonomy of industrial policy, measurement and benchmarking, estimation of the impact of industrial policy and ex-post evaluation and implementation. According to Dr. Criscuolo, Industrial policy aims to provide interventions intended to structurally improve the performance of the domestic business sector, ensuring that there are no restrictions to the manufacturing sector, and it includes horizontal and targeted policies. Industrial strategies on the other hand include an articulated group of policy instruments designed to reach specific policy objectives (goals such as innovation, resilience, SDG, Competitiveness, productivity, and economic growth, inclusive development, green transition). The Taxonomy of industrial policy instruments is articulated through the distinction of “within instruments” (which affect firm performance), “between instruments” (affecting industrial dynamics), “demand insturments” (affecting demands), and “governance instruments” (instruments coordinating stakeholders like international cooperation[A2] , public-private fora, and industry boards). In this sense, measurements of industrial policies are needed for sound policymaking, to ensure transparency and accountability, to enable evaluation and to facilitate international coordination.

The speaker then followed on this theme by answering the question “What do we want to know?”, shifting the focus on what are the priorities (e.g. digital and green transition, SMEs), what are the policy instruments used (e.g. grants, tax expenditures) and how do these two evolve over time? 

For the purposes of the research, the industrial policy expenditures are articulated in the “direct policy” sector, supporting businesses, aimed at promoting investment (including through digital transformation and sustainable production), competitiveness or other economic activities. This excludes direct subsidies to consumers, public procurement, agriculture. Other parameters were then taken into consideration in the determination of the scope of research, such as data collection methodology (i.e. harmonized concepts, quality checks), and the available information (such as the type of policy instrument, annual expenditure, eligibility criteria). The authors of the research later went into further detail about the expenses shouldered by countries and what are the policy instruments used, concluding that in several countries covered by the research, financial products are used less than grants as instruments for financing business activities, pointing out that the measurement was made taking GDP growth into account. Assessing the impact of the Green Stimulus was also a very important part of the research, and they highlighted that low-carbon technology supported the economy in post-COVID fiscal packages. Subsequently, the focus was redirected to the pandemic, where the authors asked themselves what impact COVID-19 had on the ecological transition, noting that in general, this had a different positive impact from country to country (in Italy the impact was quantifiable in a 6.5%, [A3] while for example in the US the impact was lower and attested around 3.2%).

In conclusion of the first speech of the panel, the speaker highlighted how RD&D support has a major and growing impact on emission reductions over time, since one euro spent on research and development generates a six-fold reduction of all reductions [A4] due to investments in the applications of tools for reducing emissions expected for 2050.

Nicola Lucchi: Legal challenges of the European Digital Legislation

The speaker addressed the topic through the lens of three European legislative acts. The first act analyzed was the Digital Market Act, which can be considered as a Hybrid form of anti-trust legislation, i.e. the enforcement of competition law at the European level which has the purpose of avoiding the abuse of a dominant market position. All countries are currently expected to comply with the Act, since [A5] the implementation period has ended and the so-called “Gatekeepers” (Alphabet by Google, Amazon, Apple, ByteDance for TikTok, Meta, Microsoft) have been given six months to comply. This legislation provides new obligations for gatekeepers, such as data use prohibitions (to prevent merging data from different services of the same company, e.g. Facebook and Whatsapp by META), platform user protection (safeguarding the interests of business users, including advertisers and publishers), self-Preferencing Restrictions (legal measures against platforms prioritizing their products/services, e.g. Google Search favoring Google Products), pre-Installations Rules (regulations on mandatory pre-installed services), bundling Practices (guidelines on combining services and products), interoperability and Access (ensuring business and end-user access) and it also provides sanctions for non-compliance (fines up to 10% of global turnover for violations).

The second act analyzed was the Digital Services Act, a new regulation effective from 27^th February 2024. The Recipients of this piece of legislation are sizeable online platforms, hosting services, and intermediary services. The implementation problem posed by this Act is that from the initial finding, the company definition doesn’t correspond to the measure of the service that the companies supply; for this reason, it is crucial to identify the real number [A6] in order to identify exactly which kind of player is called in action and the disclosure needed to guarantee the effectiveness of the regulation.

The last act analyzed was the AI Act, which is currently still under discussion (though the approval of the Act does not appear far away). and has the purpose of increasing transparency and trust for AI products. The most urgent risks of AI concern Transparency (both on its technical operations and the market mechanism that makes AI profitable) and Data Value (which is constituted by data value, data protection and profit redistribution of the data generated). The underlying issue seems to be the market competition because there are numerous dominant positions, and to avoid creating a dominant position (which already exists) we are committing the same mistake of regulating ex-post. For example, only art. 52c out of all 85 articles is IP-oriented, and the problem of IP is that since data are protected by norms, it appears not well regulated enough, () which will affect competition.

Concluding the third panel, Lucchi highlights how the Brussels Effect is expected, as in fact EU regulations are known to set global standards - but there is also the risk of economic isolation of Europe because of excessively strict rules.

Panel 4: State Aid and European Industrial Policy: An Uneasy Bed Fellows?

by Thomas Grenier

As mentioned by Prof. Hancher during the panel, the current EU policy framework focusing on green aid as the predominant objective of accelerating the European Union’s single market environmental transformation. However, this aid has disproportionately emphasized specific technologies like hydrogen, which resulted in a distortion of the internal market of the Union. It was also emphasized that the current majority of the funding is coming from key Member States like Germany and thus, it exacerbates the dilemma in the relationship between European industrial policy and State aid. Hence, there are some Member States within the internal market of the EU that wield an important financial advantage compared to smaller participants. thus allowing the former to foster the development of new key technologies in the transition. 

This contention by Prof. Hancher is strongly supported by the current financing of Northvolt, a Swedish battery manufacturer which was awarded a substantial grant of 902 million euros directly from the German government. By receiving this State aid, the company thus became the first beneficiary of the recent subsidy-matching schemeorchestrated by the European Commission, which allows Member States to counteract foreign subsidies to protect the internal market and compete directly with other countries like the United States.  

Moreover, it was accentuated that the precarious dilemma of the failure to provide appropriate investment avenues within the EU could potentially precipitate the exodus of  large European enterprises to competitive countries outside the Union. This predicament poses a real threat to the EU’s competitiveness within the global arena. From a business standpoint, it is eminently understandable that such European enterprises exert important pressure upon the Commission in order to facilitate substantial investments from the EU. In the event that it would be able to secure those important public investments from the Union, it could conceivably be grounds for the dismissal of the Chief Executive Officer (CEO) by the enterprise’s stakeholders. 

A strong and interesting dilemma was highlighted during the panel by the question of who the actual beneficiaries coming from State aid in the EU in large European enterprises are. To identify the people positively impacted by such financing, it was argued that numerous factors must be assessed within the current framework of the European industrial policy. Nonetheless, it is possible to attest that some private stakeholders such as major investing firms receive direct benefits from such funding provided by the European Union.  Instead of only funding nitrogen energy to achieve the transition’s goal, an alternative route that could be considered in the future framework is, as Prof. Hancher pointed out, nuclear energy. Eventually, it could be added to the strategic sectors of the EU’s industrial policy. If so, it would result in a more efficient funding process for such projects. However, because Member States do not seem to have a unanimous agreement regarding nuclear energy, it is unlikely to happen. 

The IPCEIs and the Instrument of pan-EU Industrial Policy

Dr. Agnolucci then proceeded to explain the current framework within the Union of Important Projects of Common European Interest (IPCEIs). During the reasoning, an emphasis was put on the importance of collaboration between the Member States, especially in the international competitive standing against other States. Hence, the monitoring of State aid for some important projects and the way Member States decide to allocate their resources could easily be harmonized through a modification of the European industrial policy framework. In doing so, The EU would possibly have the necessary tools to reconcile its own industrial policy with the imperative coming from competition on a global scale. As the internal single market remains an everlasting principle on which the Union was funded, it seems that such an outcome aims in the right direction.

Hence, IPCEIs are a unique tool that the European Union can use fairly and consistently with its current legal framework. Since such projects primarily aim at the Union’s imperatives regarding industrial policy, it is possible to assess that a large amount of the resources provided are allocated in very specific sectors within a particular important project such as research and development (R&D) as well as the facilitation of initial industrial development activities. In order for IPCEIs to achieve their main objective, it is essential to prerequisite the symbiotic partnership between public resources and private financing. The collaboration between all the European stakeholders will thus be fortified and the transition towards a digital and environmental market will be enhanced by their involvement in large-scale projects within the EU. Although IPCEIs’ initiatives have been harnessed prior to the COVID-19 pandemic, DrAgnolucci specified that such a tool is just one within the EU’s arsenal and thus, it is important to acknowledge its limitations and explore the alternatives proposed by the industrial policy of the Union.

Regarding the legal basis of the IPCEIs, it is important to consider binding and soft law. Firstly, article 107(3)(b) of the Treaty on the Functioning of the European Union (TFEU) mandates the Union with an obligation to provide aid and offer support and coordination to those instruments within the internal market. Secondly, it is also important to consider the important corpus of soft law, mainly the IPCEI communication. Although it lacks binding power on third parties, it is important to emphasize that the communication does however represent an important normative benchmark for the national authorities. Especially, the communication regarding Important Projects of Common European Interest allows Member States to adopt an aid package pursuant to the legislation. Regarding the Commission itself, the IPCEIs communication has a binding effect while it assesses the compatibility of the important projects.

At the European level, the compatibility of IPCEIs is assessed according to two general factors: the cumulative criteria and the positive indicators. When looking at the general criteria, the emphasis is being placed on the importance of “concrete, clear, and identifiable important contribution to the Union’s objectives or strategies”, as well as the minimum threshold which requires at least four Member States to be involved in the project. However, it is important that the IPCEIs also have ramifications contributing to the “wide European society”. In dr. Agnolucci’s observations, the current participation threshold was recognized to be an improvement compared to the previous requirement. However, a thorough analysis of the involvement of States in such projects authorized since 2018 provides evidence of a recurring pattern involving the same Member States, particularly France, Italy and Germany. Therefore, this major flaw regarding mandatory requirements causes disparity within the EU’s territory and thus, constrains the outcomes over the entire European society.

When it comes to assessing the positive indicators of an IPCEI, one of the key factors is the direct or indirect involvement of the Commission within the governance of the project or in its design. The participation of the EU’s institution in a project enhances its chances of being considered as an IPCEI. Another important element to assess is the close collaboration between large-scale companies and small and medium-sized enterprises (SMEs). Dr.Agnolucci mentioned that the current framework regarding the involvement of the Commission within the project’s governance has a negative impact on the assessment. This is mostly caused by the lack of a mandatory requirement on the matter even if it is an important factor in assessing the efficiency of such a project. With a stronger involvement of the European Union in the governance of IPCEIs, it would be possible to obtain a better and more accurate monitoring of the interactions between all the participating private actors. As it was rightly pointed out by Prof. Hancher, the collaboration between such actors always poses a threat of anticompetitive agreements due to the risk of information sharing. 

Regarding the current funding mosaic of the projects within the European Union, the participation of private investment and State aid represents the majority of the money granted to the IPCEIs. Hence, it was argued that there is presently a lack of funding coming from the EU’s institutions which could potentially be a key factor in the future alignment between the State aid and the European industrial policy[SL7] . Thus, Dr. Smulders recognized the problem of lack of transparency and the black box paradox caused by the opacity of the funding mechanism. However, it was later argued that the lack of transparency can be closely linked with the importance of business secrecy, which makes it even more difficult to access non-confidential documents concerning the funding granted to private companies.

At the moment, the European Union is awaiting the report from Mario Draghi regarding its competitiveness. Once received, it will allow the EU to adopt a strategic plan to orchestrate the future trajectory of its industrial policy. Nonetheless, to become the global leader in the digital and environmental transition, the Union will have to inject 500 billion euros into the internal market. The panel was closed by Dr. Smulders’ reminder that the upcoming European legislation will allow a reconnection between the funding of the Union and the funding of other stakeholders.