Industrial Policy: ‘Europe Can No Longer Afford the Inefficiency of a National Patchwork’
Patrick Lenain and Rens van Tilburg | 30 January 2026
Fiscal, Op-Eds | Tags: Competition, Decarbonization, Europe, Fiscal Space, Industrial Policy
This op-ed was first published in Les Echos, with the title ‘Politique industrielle: “L’Europe ne peut plus se permettre l’inefficacité du patchwork national”’.
Faced with American and Chinese competition, Europe must undertake a radical shift: move from a mosaic of national subsidies to a unified and more intelligent industrial policy, argue Patrick Lenain and Rens van Tilburg.
The economic situation of France and, more broadly, of Europe is currently the subject of intense debate, including in the recent op-ed by Jean-Pierre Landau published in Les Echos.
The difficulties of the manufacturing sector are among the most discussed issues. Europe certainly continues to be a major manufacturing power, but its external surplus is shrinking. Another source of concern: its dependence on foreign producers who may disrupt their exports—as demonstrated on several occasions by Xi Jinping’s China and Donald Trump’s United States.
There is also a strong desire to play a leading role in the digital revolution, particularly in artificial intelligence, cloud computing, semiconductors and robotics. Investments in decarbonisation technologies, such as low-carbon hydrogen, carbon capture, and the production of batteries and electric vehicles, are also a priority.
Technological neutrality
In this context, industrial policy has made its comeback in Europe. Long unpopular, it is now supported by a new paradigm. Public interventions often used to aim at rescuing struggling firms, effectively preventing their exit from the market, including in sectors where demand was declining. Policymakers also sought to promote national champions, often at the expense of competition.
The new industrial policy, by contrast, focuses on public goods – innovation, security, digitalisation and decarbonisation. It claims technological neutrality rather than pre-selecting the technologies of the future. It does not attempt to micro-manage companies: investment decisions are left to the market. Public authorities now seek to encourage the entry of new players in order to foster competitive dynamism, as theorised by Nobel laureate economist Philippe Aghion.
Intra-European competition
Traditionally reluctant regarding state aid, the European Commission has adjusted its stance. It now supports industrial policy through numerous programmes, such as the Net-Zero Industry Act, the Clean Industrial Deal and the recent Industrial Accelerator Act.
It is logical that European institutions play an active role in this area: in the current global order, industry, trade, energy and security are closely intertwined. It is therefore essential to implement a common strategy across all Member States.
At the same time, however, the twenty-seven Member States each deploy their own industrial policy in one form or another. The result is redundant interventions, inefficient spending and a form of intra-European ‘beggar-thy-neighbor’ competition. Coordinating industrial policy at the European level is therefore vital. Only by acting as a genuine union can Europe compete with the United States and China.
Sub-optimal allocation for Europe
The European economy is deeply heterogeneous: some regions are constrained by energy supply, electricity grid capacity, public finances, labour availability or land, while others retain significant room for manoeuvre.
The Netherlands, for example, has largely exhausted its available land and grid capacity. France currently has surplus electricity production potential; eastern Germany experiences some underemployment; and regions in southern and eastern Europe still offer space to host large industrial sites.
Yet the current system does not allocate public support based on these comparative advantages. Public subsidies still largely originate from Member States rather than from the European Union.
There is a mosaic of national subsidies competing for investments, sometimes duplicating and often overlapping – resulting in limited efficiency and missed opportunities. The amount of aid depends on the fiscal space available in each national budget, leading to a suboptimal allocation for Europe as a whole.
Competitive auction system
It is vital to consolidate these national subsidies and deploy a system of calls for projects and allocation through competitive auctions at the Union level, so as to direct funds towards projects with the highest potential.
The European Innovation Fund, the Hydrogen Bank and support schemes for industrial heat already provide significant experience in allocating European funding according to project quality.
We should not be naive: such a shift will not occur overnight. But in times of crisis – financial crisis, Covid-19, the war in Ukraine – Member States have shown that they can accept greater cooperation.
The increasingly challenging geoeconomic environment, combined with the lead taken by the United States and China in key sectors, creates precisely the type of urgency that should encourage Europe to take its next major step forward. Only with a truly unified industrial policy does the European Union stand a chance of regaining its industrial and strategic autonomy.
What the European Union needs is a smarter industrial policy: one in which support is allocated competitively, based on project merit, rather than through the current patchwork of national state aid.
Related Posts
How Ministries of Finance can Support Coherent Climate Policy Packages
Council on Economic Policies | 26 February 2026Fiscal, Discussion Notes | Tags: Carbon Pricing, Decarbonization, Energy, Industrial Policy, Innovation, Policy Coherence, Tax Expenditures
The success of the low-carbon transition will depend less on isolated climate measures than on the ability of governments to design and sustain coherent policy packages that align fiscal, energy,... continue reading
Accelerating Industrial Decarbonisation. The Role of Tax Incentives
Flurim Aliu, Sofia Berg, Luke Hatton, Patrick Lenain, Agustin Redonda, Magd Shamashan and Nirosha Elsem Varghese | 17 November 2025Fiscal, Discussion Notes | Tags: Decarbonization, Energy, Industrial Policy, Tax Expenditures
Achieving net-zero targets in industrial sectors will require substantial investment in low-carbon technologies, especially in “hard-to-abate” industries such as steel, cement, and petrochemicals. In this context, tax incentives have emerged... continue reading
It Takes Two to Tango: The Role of Ministries of Finance in Designing Pricing and Non-Pricing Climate Actions
Patrick Lenain | 4 November 2024Fiscal, Policy Briefs | Tags: Carbon Pricing, Energy, Fossil Fuel Subsidies, Renewables
This policy brief examines the recent emergence of climate policy packages and their impact on climate, social, financial, and fiscal outcomes. It also recommends steps that Ministries of Finance can... continue reading
Economic Policies for Affordable, Secure and Clean Energy. Insights from France
Patrick Lenain | 3 May 2024Fiscal, Policy Briefs | Tags: Decarbonization, Energy, Fossil Fuel Subsidies, France, Industrial Policy, Tax Expenditures
France has launched a vast transformation of its energy system, with the aim of providing affordable, secure and clean energy. ... continue reading
Inflation Reduction Act vs. Green Deal: Transatlantic Divergences on the Energy Transition
Patrick Lenain | 20 March 2023Monetary, Trade, Blog | Tags: Decarbonization, Energy, Industrial Policy, Protectionism, Tax Expenditures
The U.S. Inflation Reduction Act (IRA) has caused significant transatlantic tensions since its signing by Joe Biden in August 2022. The White House aims to break with the country’s high... continue reading