There Can Be No Business as Usual for European Industry

Judith Kirton-Darling

By Judith Kirton-Darling

BRUSSELS – A month before the European Parliament elections, manyof Europe’s industriesare fightingto survive. But rather than make the difficult decisions needed to reverse the European Union’s industrial decline, leaders have often settled for the status quo. Somepopulist leaderseven oppose plans to modernizeEurope’sindustrial base – effectively deceiving the public in the process.

Europe’s manufacturingsector hasfaced a series of unprecedented challenges in recent years. The COVID-19 pandemic and the Ukraine war laid bare Europe’s reliance on others for critical goods anddealt serious blows to manufacturing bydisrupting supply chains and triggering energy and cost-of-living crises.

The embrace of short-termism by corporations – reflected in their preferencefor dividends and share buybacks overreinvestment of profits – has further undermined the EU manufacturing sector’s dynamism and resilience. Compounding all these challenges is the biggest crisis of them all – climate change – which isgenerating rapidly increasing financial and human costs.

The impact on European industry is already apparent. In 2022, the EU’s trade deficit reached a staggering€432 billion ($465 billion), driven by both higher spending on energy imports andmanufacturing losses linked to the energy crisis.In February 2024, industrial production fell by 6.4% in the euro area and by 5.4% in the EU year on year.

Unless the EU reverses its industrial decline, Europeans couldend upwithout industries that have, for decades, providedquality jobs to countless workers, who gained not only economic security, but also a sense of purpose, community, and identity. And it is not at all clear how that void would be filled.

The world’s other major economic powers are already committed toindustrial modernization. Two decades of aggressive industrial strategy have given China a dominant position in most of the clean-technology supply chains. Recently, the United States has responded with an industrial policy of its own, theCHIPS and Science Act and theInflation Reduction Act (IRA). If European industries are to remain competitive in this environment – and if Europe is to achieve its goal of “strategic autonomy” –the EU will have to follow suit.

The good news is that we already have a roadmap for sustainable industrial modernization: the European Green Deal, a wide-rangingset of policies aimed at transforming the EU into a modern, resource-efficient, and competitive economy.Unfortunately,it hardly represents aneasy fix, and we are a long way from delivering on it.Toget there, European policymakers will have todeliver unprecedented levels of investment fast and ensure that industries and workers in all member states are included.

The Green Deal’s investment demands are considerable. With electricity consumption projected to rise by around 60% by 2030, the European Commission estimates that€584 billionwill be needed this decade to modernize our grid alone. This calls for a comprehensive EU-wide investment strategy that bothsustains existing heavy industry and incentivizes clean-tech innovation.

For nearly 20 years,the EU has favored the emissions-trading “stick” over carrots, or positive incentives for decarbonization. To be sure, the European Emissions Trading System – which effectively establishes a carbon price by forcing companies to acquire enough permits, or “allowances,” to cover their carbon dioxide emissions – has helped to curbemissions fromelectricity generation.But it has also increasedpressureon European industry’s competitiveness – pressure that the IRA is now compounding.

Europe has attempted to ease that pressure through carbon border taxes and foreign subsidy regulation. But these are partial measures. EU leadersmust gomuch further, devisinga broader industrial strategy that both addresses investment shortfalls and mitigates the risks associated with theproduction ofmore expensive net-zero goods in a fiercely competitive global market.

Unfortunately, the EU’s new fiscal rules – agreed by the European Parliament and Council in February – will undermine the bloc’s ability to invest in green technology and industrial upgrading, anddeepen disparities among member states.According to research by the European Trade Union Confederation, only three countries (Denmark, Ireland, and Sweden) can meet their social- and green-investment needs under the EU’s new fiscal rules. To bridge the gap across the rest of the EU, an additional €300-420 billion annually will be needed. If that funding is not delivered, the EU’s internal market risks fragmentation, which would accelerate deindustrialization.

Moreover, support for working communities – provided throughstrong social conditionalities on all public-funding, public-procurement, and lead-market initiatives – is needed to boost economic growth, cre innovative solutions, not more of the same failed policies. Approaches like austerity, labor-market flexibilization, and privatization will only exacerbate the problems we face.

Similarly, short-sighted populism is no substitute for theholistic industrial strategy Europe needs to match those of its competitors – an approach that accounts for all dimensions of the challenges ahead. For example, a one-dimensional focus on strict environmental criteriarisks producing unaffordable green products, which would stall progress in electric vehicles and other critical industries.

The choices we make in the coming years will determine whether Europeanindustry – integral to the EU’s social fabric – has a long-termfuture. That is why the next European Parliament must make implementing a renewed European Green Deal, complemented byinitiatives to bolster industry and attractbroad public support, a top priority.

Judith Kirton-Darling is General Secretary of the European trade union IndustriAll.

Copyright: Project Syndicate, 2024.

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