Modern European industrial policy through challenges and reforms (I)

Industry is a key and important part of the EU and the member states growth: the sector includes tens of vital industries: in energy and aviation, construction and health, in motors and tourism, etc. Together with the twin transition through climate neutrality and digital economy, new European industrial strategy ensures increased role of industrial sectors in the states’ recovery and resilience. The first article describes the new industrial strategy in general; the second – deals with the states’ implementation efforts.

The European industrial sectors can lead the prosperous way in the new age of complex global challenges; with this in mind, the Commission and other EU institutions have prepared modern industrial strategy. Although growth in the EU is expected at 5%, 4.3% and 2.5% in 2021, 2022 and 2023, respectively, the twin ecological and digital transitions will affect every part of the EU’s economy, social changes and industrial sectors. The latter will require new impetuses, such as modern technologies, adequate investment and sufficient innovation to succeed. Only in this way numerous industrial sectors will be able to create new products and services, new markets and new business models; only in this way industrial growth will “shape new types of jobs”, new re-skilling and training.
Finally, “new industries” will entail a shift from linear production to a circular economy, as well as to new patterns in sustainability, pollution reduction and climate change actions. Thus, next five years will be decisive to set right and enabling conditions for industrial transition through global challenges and necessary reforms.
Even during the pandemic, some SMEs and family businesses were trying to accommodate and became innovation leaders both in Europe and the world.

European industrial strategy: main features
Presently, European industries are having rich in good traditions with constant innovation, which make the EU a global leader in many fields: from automotive to agro-food, from pharmacy to fashion. Hence, “made in Europe” has become both top quality label in the world and being a recognized global leader in green transition and carbon-neutral innovation. For example, during last two decades the EU states have produced over 60,000 high-value green inventions; this is more than any other global power, and six times more than China. Besides, about one fourth of industrial robots in the world are produced in Europe; together with the so-called collaborative robots, i.e. robots that do not replace workers on the production line, but enhance their skills. This kind of innovation will keep EU states competitive in modern world facing dramatic challenges.
The EU industrial strategy has included (since March 2021) several actions to support the green and digital transitions of the states; many of which have already adopted or launched the national plans; however, the pandemic has downgraded the speed and scale of this transformation.
At the heart of the EU’s strategy is the increased member states’ ability to take industrial sectors as active parts in the European twin transitions and driving regional competitiveness in the world. Thus, the strategy is not just a simply adaption to challenges; it has to be an accelerator and enabler of perspective changes and innovation. At the same time, the European industrial strategy is reflecting the EU’s values in social market economy’s traditions with diversity, talents, innovations and creative researches. Hence, the new version of the EU’s industrial policy is to be based on competition, open markets, world-leading research and technologies, as well as on strong European single market concepts, which is bringing down barriers and cutting red tape.
Main part of the strategy is aimed at accelerated recovery and resilience transition in the member states. The EU economy is rebounding from the pandemic recession: households responded to the improving epidemiological situation and the gradual relaxation of containment measures with a spending spree that propelled EU private consumption growth to about 3-3.5 percent at the end of 2021. The rebound of economic activity was broad-based, with all components of domestic demand contributing positively to the rebound in GDP by over 2 percent in the EU-27.
The supply side of the economy struggles to keep pace with the abrupt swings in the level and composition of global demand. This affects several key industries, including global logistics and the production of raw materials and microprocessors; sporadic localized pandemic-related lock-downs together with emerging labour shortages add to these disruptions.

Source: https://ec.europa.eu/info/business-economy-euro/economic-performance-and-forecasts/economic-forecasts/autumn-2021-economic-forecast_en

With the significant public and private investment, three main directions are “supporting” new strategy revealed by the Commission: a) strengthening the resilience of the EU “single market” components; b) supporting “open strategic autonomy’s” concept in the EU member states by combating dependence of resources, and c) supporting all sorts of business arrangements’ development within the known twin transitions, i.e. digital and climate.

Source: https://ec.europa.eu/info/strategy/priorities-2019-2024/europe-fit-digital-age/european-industrial-strategy_en

Other strategy directions shall be mentioned as well:
= As to climate-neutrality efforts, all industrial value chains, including energy-intensive sectors, will have a key role to play; they will all have to work on reducing their own carbon footprints but also accelerate the transition by providing affordable, clean technology solutions and by developing new business models, while adopting latest environmental standards for the customers’ benefit.
= In the EU’s digital future, the states have to enhance its industrial capacity in critical digital infrastructure. The successful roll-out of highly secured and state-of-the-art 5G network will be a major enabler for future digital services and be at the heart of the industrial data wave. The member states must now invest in ICT, if they want to be frontrunners in the 6G networks.
In the entrepreneurial spirit of new industrial strategy, Europe must pool its strengths to do collectively what states alone cannot do; recent examples have shown the potential and the value of this approach. Thus, the EU is now home to one of the top three fastest supercomputers in the world and has reversed a downward trend in micro-electronics.
= In order to make Europe more competitive, the states must learn the lessons of the pandemic crisis which has led to an unprecedented disruption of the EU’s single market: queues of trucks formed at EU’s internal borders, exports of vital products from one state to another were prohibited or restricted and cross-border workers sometimes got stuck in a limbo…
Since the beginning of the pandemic, the EU has taken a number of measures to address these disruptions, including efforts to lift about 30 percent of export restrictions and creating “green lanes” at national border-crossings and coordinating national measures on border controls.
= In preparing for future crises, some additional measures have been taken in EU: among the most vital are structural reforms, the EU’s Single Market Emergency Instrument to ensure free movement of goods, services and people, with greater transparency and coordination. The “instrument” is aimed to “fast-track” decisions whenever a critical situation emerges.
Source: Commission President opening speech at EU’s “industrial days” in February 2021: https://ec.europa.eu/commission/presscorner/detail/fr/speech_21_745

= Another aspect in the European industrial strategy is the sector’s dependency on certain raw materials delivered only from a handful of producers, mainly from abroad. This has been particularly evident during the covid-pandemic, when the EU had to produce billions of doses of specific vaccines. E.g. a bottleneck was linked to just two synthetic molecules: the pharmaceutical companies were saying that if they have had just 250 grams more of these molecules, they could produce one million more doses of vaccine. Besides, green and digital technologies currently depend on a number of scarce raw materials; the EU states are importing lithium for electric cars, platinum to produce clean hydrogen, and silicon metal for solar panels, to name a few. The “industrial problem” is that about 98 percent of the needed rare earth elements for the European industry is coming from a single supplier – China; the situation is definitely unsustainable and the EU must diversify these global supply chains. At the same time, the member states must invest in circular technologies that re-use resources instead of constantly extracting them. This is the aim of the European action plan on “Critical Raw Materials” and an established “European Raw Materials Alliance”.

Additional efforts in a “renewed” industrial strategy
In March 2021, just some days before the regional covid-lockdown, the EU institutions adopted a new industry’s strategy, which is designed to ensure that industry can lead the twin green and digital transition. The pandemic has changed both the speed and the scale of the strategy’s implementation; thus the states need to take more efforts in optimal transformation.
Modern challenges move fast together with geopolitics and global competition models never seen before: e.g. with supply chains disrupted and the dependencies exposed; some industries suffer while others thrive thanks to a new model of cross-sector and public-private partnerships. Several countries in the world are witnessing the beginning of a global process towards recovery and resilience which is going to define main developments in the next decade.
Numerous factors are, actually involved in a new industrial strategy; most important and urgent industrial “projects” of common European interest can be seen in the EU’s strategy priorities: https://ec.europa.eu/info/strategy/priorities-2019-2024/europe-fit-digital-age/european-industrial-strategy/depth-reviews-strategic-areas-europes-interests_en

A vital strategy’s component is a combination of the achievements in new technologies with increasing innovation: to accomplish it the member states need to harness the potential of the digital transition and make industry a key player in that process. There are 14 “recognised” industrial sectors defined in the EU’s industrial development nomenclature: aerospace and defence, agro-food, construction, cultural and creative industries, digital, electronics, energy intensive industries, energy-renewables, health, mobility (in transport- automotive and proximity), social economy and civil security, retail and whole-sale trade, textile and tourism. These sectors and more are transforming the whole strategy into the EU-wide complex approach with almost all spheres of socio-economic development involved.
Besides, there are some specific industrial-type projects, which can drive industrial innovation and the digital transition: e.g. the so-called cloud technology. The EU is already developing a GAIA-X cloud model supported by the NextGenerationEU funds to develop programs for using and safely storing and sharing data. These technologies will drive the decarbonisation of the national economies and help creating new markets for low-emission technologies and energy-intensive industries. While combating pandemic crisis, the EU and the states have explored new ways of working with “renovated” industrial sectors in coordination among states.
More on industrial transformation in: https://s3platform.jrc.ec.europa.eu/documents/20125/262781/Lorena%20Lonita%2014%20July%20Industrial%20transitions%20JRC%20Industrial%20.pdf/f8b7279c-35b0-ad09-9435-86de70be260f?version=1.1&t=1619520637174

SMEs are playing a vital role in industrial strategy: as a primary vehicle of innovation in the various development sectors, SMEs (in a horizontal manner) shall be stripped from all un-necessary regulatory burdens. New strategy’s actions will strongly benefit SMEs and start-ups through reducing supply dependencies and accelerated green and digital transitions. The strategy also includes measures to assist SMEs as increased resilience, combating late payments and supporting solvency. SMEs have felt the negative effects of pandemic: about 60 percent of European SMEs reported a fall during 2020-21 and employment decreased by about 1, 4 million. While the impact of the crisis varies across states, sectors and companies, there are some key issues highlighted by the crisis: a) states’ borders restricted free movement of people, goods and services, b) global supply chains affecting availability of essential products are interrupted, and c) consumers’ demands were disrupted. Source: https://ec.europa.eu/info/strategy/priorities-2019-2024/europe-fit-digital-age/european-industrial-strategy_en

Building European industrial alliances
The idea of “industrial alliances” is to make the state’s public sectors join their forces with the industrial sectors. This kind of cooperation is already proving to be incredibly powerful in some industrial sectors: e.g. a “battery alliance” already makes a very good start; Europe will need more batteries to reach the goal of climate neutrality. Besides, the EU market for batteries will be worth quart a billion euros already by 2025.
However, the EU states still generally rely on batteries that are entirely or partially made abroad, often with unreliable environmental standards. The “European Battery Alliance” has brought together over 500 industries, research centers and investors with a substantial support from the EU institutions: e.g. at the end of 2021, the Commission approved almost € 3 billion in new public investment. Due to this alliance, the most innovative, long-lasting and clean batteries for electric cars will be soon made in Europe; these common investments in batteries could create one million new jobs already by the end of 2022.
Public-private investment in industrial alliances and partnerships, started presently, like e.g. in batteries, raw materials and clean hydrogen will pave the way to solving urgent European tasks. The same approach is used in launching the EU’s “pact for skills”: in the post-pandemic, millions of European workers changed their workplaces; most had to learn how to work remotely. At the same time, most businesses had to move whole or part of their operations online. The “pact for skills” represent an example for cooperation of European industries with trade unions, chambers of commerce and employment agencies; in this way the states can join forces and investment to provide many workers with skills they need to succeed in evolving labour markets. With the right approach, the EU green and digital transitions will benefit not only young professionals in the most cutting-edge businesses but also workers of all ages, in all industries and in all EU states.
The member states’ governances shall work “for industries and with industries”; to accomplish the goal, the EU’s idea of “Industry Days” supported by the NextGenerationEU program is becoming important for working together, discussing the ways forward (e.g. for the Pact for Skills) and charting the future of industrial alliances. General reference: https://ec.europa.eu/commission/presscorner/detail/en/IP_21_7141

Financial institutions in support for the strategy
With the NextGenerationEU program, the member states are having a historic opportunity to provide public funding for implementing industrial strategy; however, both the EU and the states have to make the right choices. For example, the EU and the states need to invest into European high-speed internet infrastructure to bring “gigabit-internet” to every factory to support industrial automation where needed and/or help SMEs using technology to speed up production, cut costs and reach new markets.
Public investment is not going to be efficient alone: it has to cope with the private investors. However, the latter needs assurance and confidence to invest in new technologies, in new production processes and in new skills followed by changing workforce. Thus, the EU is going to set common, clear and predictable rules for investors in the member states, particularly for green investment and sustainable finance. With this in mind, the Commission has initiated “taxonomy” for green investment and a green bond standard; during 2022 it will present more detailed rules to help investors finance the European transition towards carbon neutrality.
Other EU institutions and bodies are active in strategy’s implementation:
= The European Investment Bank (EIB) is the Long-term Financing Institution of the European Union whose shareholders are its Member States. The EIB provides long-term financing for viable investment projects to contribute to the achievement of EU policy objectives.
= The EIB Group has recently adopted its ‘Climate Bank Roadmap’ to fulfill its ambitious program to support investments in climate action and environmental sustainability worth €1 trillion in the decade ending in 2030 and to provide more than 50% of EIB financing for climate action and environmental sustainability from now until 2025. Also, as part of the Roadmap, since the beginning of 2021 all new EIB Group operations will be in line with the objectives and principles of the Paris Agreement.
= The European Fund for Strategic Investments (EFSI) is the main pillar of the Investment Plan for Europe’s plan. It provides guarantees of first losses, which makes it possible for the EIB to invest in more projects that often carry a higher risk. The projects and agreements approved for funding under the EFSI have so far mobilized €546 million in investments, of which a quarter is earmarked for research, development and innovation projects.

 

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