Navigating Change: The Evolution of EU Industrial Policy Towards Strategic Interdependence

Abstract

The aim of this study is to critically examine the transformation of EU industrial policy, focusing on the shift from a predominantly market-oriented governance model to one characterized by strategic interdependence. We ask how this evolution influences the EU's ability to manage dependencies, secure critical inputs, and enhance its productive capabilities in an increasingly interconnected global economy. To achieve this, we employed a mixed-methods approach, combining qualitative analysis of EU policy documents and quantitative assessments of industrial performance metrics. Our findings indicate that the integration of traditional principles, such as the Single Market and competition, with strategic measures is vital for fostering resilience and competitiveness. We identify key challenges and opportunities that arise from this new approach, emphasizing the need for a balanced strategy that promotes both openness and strategic management. Overall, we conclude that the future of EU industrial policy will hinge on its capacity to navigate geopolitical complexities while ensuring sustainable growth and innovation within its industrial sectors. The study further examines how emerging technologies, skills, infrastructure and industrial ecosystems will shape Europe's future productive capacity. It considers whether EU intervention should focus on market-making, market-shaping, or a combination of both. Particular attention is given to the allocation of public resources according to their contribution to productivity, social welfare, strategic resilience and citizen utility per euro spent. We also assess the potential benefits and risks of a more integrated industrial governance structure, including the possibility of a strategic budget line under DG Industry linking people, organisations and technology. Finally, the study argues that European industrial policy should focus less on protecting existing firms and more on creating the conditions in which globally competitive industries and high-quality employment can emerge.