EU industrial policy between crises and the twin transition

In the context of the twin (digital and green) transition, this paper first describes the impact of the exceptional shocks on growth and external competitiveness of the EU industrial sector since 2020. It then takes stock of the industrial policy instruments and initiatives undertaken by the EU in order to counteract these crises and to rise up to the ongoing structural transformation. Being a supporting competence of the EU, industrial policy consists both of national and EU measures. We document how industrial policy-related State Aid, based on national resources and objectives, is the largest instrument by funding, while the amount of resources assigned to EU-level instruments (including Horizon Europe, the Important Projects of Common European Interest and InvestEU) is far more limited. The paper also underscores the greater emphasis in the recent approach of EU industrial policy on 'vertical' measures, by analysing four sectoral initiatives on critical raw materials, clean technologies, chips and defence. Overall, an effective EU industrial policy requires a collaborative approach, coordinated strategies and adequate, targeted and conditional funding, to boost competitiveness and mitigate the risk of widening divergence across Member States.