Governments and boardrooms across the EU are deeply divided over the idea – backed chiefly by France – of a “Made in Europe” strategy.
It would set tough local content rules and is provoking a bitter debate whose outcome may well decide Europe’s 21st-century fate.
The arguments reveal uncomfortable fault lines splitting the EU.
Is the bloc still a free trader or has it turned protectionist?
And can Brussels go ahead and slash the web of red tape said to ensnare entrepreneurs, or is it in reality introducing still more regulation?
The answer to each of these questions is “yes”.
Europe wants to have its cake and eat it because it is squeezed between conflicting pressures.
Dealing with the impacts of Chinese exports and U.S. tariffs is an urgent priority, but so too is renewing the Single Market drive in earnest and pressing ahead with the Green Deal to address climate change.
Thus chaos looms.
Reconciling the policies to confront these disparate challenges makes for confused politics, so it’s increasingly hard to discern a coherent approach from either the European Commission or member governments.
The problems pouring in on European policymakers constitute a perfect storm of unknowns.
Is the EU’s waning competitiveness and threatened de-industrialisation best tackled by a “Buy European” strategy, or would this protectionism compromise the EU’s efforts to complete at long last the genuinely open internal market in goods and services?
The flurry of urgent EU initiatives aimed at these difficulties has ambitious deadlines.
Commission President Ursula von der Leyen set 2028 for abolishing internal barriers to trade and procurement contracts while also creating a Single Capital Market for investors.
These are the goals identified in high-profile reports by former Italian prime ministers Mario Draghi and Enrico Letta, who both complain that little has yet been accomplished.
As champions of free trade, they may well share the doubts of those who mistrust the EU’s plan to shore up manufacturing.
The “Made in Europe” thinking is enshrined in the proposed Industrial Accelerator Act, which proposes local content targets in strategic sectors like renewables and automotive and digital technologies.
Criticisms that it is essentially protectionist have prompted the Commission to suggest opening it to some 40 non-EU “trusted” partners, providing they reciprocate.
Meanwhile, the scheme’s targeted 2029 introduction seems optimistic.
European leaders’ slow progress on these key policies contrasts with the speed of economic decline.
Research by McKinsey analysts points to a dramatic widening between U.S. and EU living standards unless there’s a decisive shift to boost productivity.
They calculate that the present per capita GDP gap between Germany and the U.S. of $29 000 could increase to $48 000 by 2033 if Europe continues to stagnate economically.
Proponents of a more interventionist EU industrial policy believe the tide could be turned by funnelling government subsidies and public procurement contracts into a high-technology catch-up system.
Foreign investors in Europe would also be pressured to transfer jealously guarded intellectual property, abandon tax avoidance loopholes, and employ more people locally.
Productivity growth is essential.
It has flatlined in Europe for 20 years, whereas in the U.S., much cheaper energy and the stimulus of digital innovation are boosting average output per hour by 2% a year, more than double the EU figure.
Whether any of the policies aimed at solving Europe’s problems can deliver comparable productivity improvements is an open question.
Opponents of Made in Europe’s protectionist elements argue that instead of bringing national industries closer together, it will aggravate intra-EU frictions; northern European companies reportedly fear their cutting-edge market advantages would be blunted.
Globally, there is the even greater risk of the EU’s clout as the world’s biggest trading bloc being eroded if it erects new barriers.
In the immediate short term, Europe’s economic and industrial policy conundrums boil down to a dilemma over the transatlantic relationship.
The Trump administration’s hostility to the EU, notably its unpredictable barrage of tariffs, has made retaliation a political necessity.
European public opinion is clearly tiring of conciliation with Washington.
But EU policymakers know they cannot imperil the transatlantic economy that was worth almost $10tn last year, not just in trade and services but through cross-investments in factories, retailing, and financial holdings.
The industrial policies under discussion in Brussels must avoid provoking American wrath.
The EU is far from alone in having to face a welter of fast-moving challenges, but it is worryingly ill-suited to dealing with them.
Its consensus methods of decision-making are both a strength and a weakness.
Greater speed is needed in this era of lightning technological change, and also a far more strategic approach with a policy framework that assembles the, different and rival, problem areas into a coherent whole.
When Ursula von der Leyen steps down in late 2029, she will want to point to a legacy of promise, not disappointment.
Now in her seventh year at the helm of the EU’s executive, she cannot yet point to a substantial achievement akin to Jacques Delors’.
It’s time she advanced a “Big Idea” to address the plethora of economic problems.
*The views expressed in this Frankly Speaking op-ed reflect those of the author and not of Friends of Europe.
*This article first appeared on the Friends of Europe website and is reproduced with kind permission.
*The views expressed by the author of this article, Giles Merritt, are not necessarily those of The Bulrushes
