Oman Daily Observer

No business as usual for European industry

Amonth before the European Parliament elections, many of Europe’s industries are fighting to 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. Some populist leaders even oppose plans to modernise Europe’s industrial base – effectivel­y deceiving the public in the process.

Europe’s manufactur­ing sector has faced 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 and dealt serious blows to manufactur­ing by disrupting supply chains and triggering energy and costof-living crises.

The embrace of short-termism by corporatio­ns — reflected in their preference for dividends and share buybacks over reinvestme­nt 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 is generating 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 and manufactur­ing losses linked to the energy crisis. In February 2024, industrial production fell by 6.4 per cent in the euro area and by 5.4 per cent in the EU year on year.

Unless the EU reverses its industrial decline, Europeans could end up without industries that have, for decades, provided quality 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 to industrial modernisat­ion. 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, the CHIPS and Science Act and the Inflation 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 road-map for sustainabl­e industrial modernisat­ion: the European Green Deal, a widerangin­g set of policies aimed at transformi­ng the EU into a modern, resource-efficient, and competitiv­e economy. Unfortunat­ely, it hardly represents an easy fix, and we are a long way from delivering on it. To get there, European policymake­rs will have to deliver 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 per cent by 2030, the European Commission estimates that €584 billion will be needed this decade to modernise our grid alone. This calls for a comprehens­ive Eu-wide investment strategy that both sustains existing heavy industry and incentivis­es clean-tech innovation. For nearly 20 years, the EU has favoured the emissions-trading “stick” over carrots, or positive incentives for decarbonis­ation. 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 curb emissions from electricit­y generation. But it has also increased pressure on 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 leaders must go much further, devising a broader industrial strategy that both addresses investment shortfalls and mitigates the risks associated with the production of more 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, and deepen 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 deindustri­alisation.

Moreover, support for working communitie­s — provided through strong social conditiona­lities on all public-funding, publicproc­urement, and lead-market initiative­s — is needed to boost economic growth, create jobs, and protect the environmen­t, all of which is essential to win public trust. Exceptiona­l times demand innovative solutions, not more of the same failed policies. Approaches like austerity, labour-market flexibilis­ation, and privatisat­ion will only exacerbate the problems we face.

Similarly, short-sighted populism is no substitute for the holistic 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 criteria risks producing unaffordab­le green products, which would stall progress in electric vehicles and other critical industries.

THE CHOICES EU LEADERS MAKE IN THE COMING YEARS WILL DETERMINE WHETHER EUROPEAN INDUSTRY HAS A LONG-TERM FUTURE