What “North Star” for EU industrial policy?.
Date: 2024-04-12
Institutions: Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs
Subjects: EU industrial policy, EU strategy, UNO, agreement (EU), decision (EU), economic growth, economic model, economic transition, risk management, single market, sustainable development

 
 
 
 
The views expressed in this paper are solely those of the author  

and cannot be attributed to the European Commission 

EUROPEAN COMMISSION 

Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs 
Directorate A – Strategy & Economic Analysis 
Unit A1 – Chief Economist Unit 

E-mail: GROW-A1@ec.europa.eu 

European Commission 
B-1049 Brussels 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
What “North Star” 

for  

EU industrial policy? 

Single Market Economics Briefs 

Andrea Renda  
CEPS, Director of Research 

 
 
 
 
 
 
 
 
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This document has been prepared for the European Commission however, it reflects the views only of the authors, and the 
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PDF  

ISBN 978-92-68-14490-9 

ISSN 2811-6925 

Doi: 10.2873/691596 

ET-BD-24-003-EN-N 

Manuscript completed in April 2024 

1st edition 

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What “North Star” for EU industrial policy? 

Andrea Renda1 

CEPS, Director of Research 

The past decades have marked a gradual shift towards greater reliance on goal-based strategies, 
also due to the reckoning of significant limits in the neoclassical economics model of GDP growth. 
This led policymakers and experts to look for a more multi-dimensional measures of progress, 
with an agenda focused on a medium-term vision for society, the economy and the environment. 
At the EU level, the transition towards goal-based agendas became evident with the launch of the 
decade-long  Lisbon  strategy  in  2000,  and  later  with  the  Europe  2020  strategy.  The  global 
agreement  on  the  Sustainable  Development  Goals  in  2015  brought  new  momentum  for  goal-
based strategies. The need to go beyond GDP was endorsed i.a. by the UN Secretary General’s 
Report  on  “Our  Common  Agenda”,  and  by  the  Think7  Communiqué  under  the  G7  Japanese 
Presidency in April 2023. That said, the ongoing debate on “beyond growth”, while fully aligned 
on the need to go beyond GDP, has not converged on a univocal alternative framework. And in 
the meanwhile, new priorities have emerged from the COVID-19 pandemic and the threat of war 
in Europe in the near future.  

The current European Commission is a perfect example of this impasse. The initial commitment 
to the SDGs shown in 2020 has gradually waned; and recent speeches by Ursula von der Leyen 
were much more focused on competitiveness and security than they were on sustainability. In 
industrial policy, in 2020 the Commission focused on “competitive sustainability”, centred around 
four dimensions (environment, productivity, macroeconomic stability and fairness); one year later 
the  agenda  shifted  to  “sustainable  competitiveness”;  and  then  went  back,  at  least  in  some 
documents, to competitive sustainability. Eventually, the 2023 State of the Union speech marked 
a shift towards an unqualified “competitiveness” goal, a topic that will form the subject of an ad 
hoc study entrusted to Mario Draghi.  

This  situation  was  complicated  by  geo-political,  risk-  and  security-related  goals  that  started 
massively affecting the EU’s agenda. The pandemic, the war in Ukraine and the need to reduce 
energy dependencies led the EU to introduce new goals that significantly guided EU actions over 
the past three years. A potential trade-off has emerged between the pursuit of an open strategic 
autonomy policy and the quest for sustainable competitiveness. This is apparent if one considers 
that the four axes of sustainable competitiveness include openness to trade, a goal that is not 
fully  compatible  with  current  approaches  to  strategic  autonomy.  Later,  the  quest  for  economic 
security led the Commission to implicitly demote sustainability, replacing it with a strong emphasis 
on security. Much in the same vein, the Commission recently developed a plan to reduce external 

1  This  essay  was  prepared  under the  economic  advisory  programme  of  DG  GROW of  the  European Commission  – the  2023  DG 
GROW fellowship Programme. The opinions are those of the author and should not be considered as representative of the European 
Commission’s official position. 

5 

 
 
 
                                                           
dependencies, and seek leadership in critical technologies that will drive the future of innovation 
and industrial leadership.  

Against  this  background,  it  appears  quite  clear  that  the  stated  ultimate  goals  of  the  EU,  have 
constantly changed over the past four years, and so has the related narrative, and the agendas 
and priorities pursued by EU institutions. But just as sailors cannot easily find their direction if their 
reference point keeps shifting, here too it is unlikely that the EU, given a plethora of alternative 
North Stars, could find its way into a desirable and meaningful goal-based strategy. 

Europe’s choice: paving the way for a future industrial policy 

The  real  question  that  emerges  is  thus:  can  Europe  pursue  an  economic  security/strategic 
autonomy  agenda,  while  at  the  same  time  decarbonising  its  economy  and  achieving  global 
competitiveness? Faced with the end of easy choices, and the dawn of the poly-crisis age, the 
EU  must  address  several  outstanding  challenges,  as  well  as  unresolved  dilemmas.  The 
realisation of the distributional impacts of the Green Deal across the EU territory (see Rodriguez-
Pose and Bartalucci 2023) was made vividly clear by the protests of the small farmers in the major 
European capitals, including Brussels, at the beginning of 2024. The need to support Ukraine’s 
defence against Russia and future accession to the EU, with estimated costs of €110–€136 billion 
to the seven-year EU budget, potentially conflicts with the need to set aside resources for the twin 
transition, an endeavour that, as recently observed by Mario Draghi, may require own resources 
at the EU level for at least 500 billion Euros a year. 

In the coming months, and throughout the election period in mid-2024, EU leaders will have to 
take  a  stance  on  many  issues,  including  how  to  make  sense  of  the  “twin  transition”;  how  to 
incorporate  sustainability,  resilience  and  good  jobs  in  a  process  of  systemic  industrial 
transformation, by embracing an Industry 5.0 approach; how to use conditionalities in a possible, 
future pan-European industrial policy; what will be the role and configuration of the Single Market, 
and what possible “third way” could be pursued between a purely market-based view, and the 
relaxation of state aids rules; and how to incorporate in EU industrial policy territorial specificities 
and impacts to ensure a balanced transition towards the well-being of all citizens, as well as a 
good  matching  of  technological  specialisation  and  relatedness  with  available  skills  and  local 
needs. 

Future EU industrial policy should thus incorporate at least the following four elements: (i) a clear 
distinction  between  intermediate  and  ultimate  goals  (the  latter  possibly  being  based  on 
sustainable  development  or  “people,  planet  and  prosperity”  pillars);  (ii)  a  foresight-based 
approach,  aimed  at  incorporating  uncertainty,  leveraging  risk  management  and  stress-testing 
strategies and pathways for enhanced resilience, especially of supply chains; (iii) a poly-centric 
governance approach, based on a granular understanding of the differences and technological 
relatedness  across  European  regions,  and  aimed  at  clearing  specific  paths  for  large-scale 
industrial investment; and (iv) a human-centric, resilient and sustainable approach to systemic 
industrial  transformation  in  the  formulation  of  transition  pathways,  turning  them  into  concrete 
“transformation  pathways”  and  including,  crucially,  the  “good  jobs”  and  “economic  security” 
dimensions. 

6 

 
A  six-step  approach  to  the  systemic  transformation  of 
European industry 

Figure  1  below  shows  a  possible  6-step  approach  to  a  future  EU  industrial  policy.  The  figure 
sketches a framework that goes from the entry into office of the next Commission in late 2024 to 
the end of the following decade. More specifically, the steps are described below. 

Step 1.  Selection of the final goals. In this phase, EU policymakers will have to choose the so-
called North Star, ideally aligned with “people, planet and prosperity”, and certainly going 
beyond  the  goal  of  maximising  GDP  growth,  or  competitiveness.  These  goals  should 
also be fully mainstreamed in the multi-level governance of the EU, and namely in the 
European semester, in cohesion policy, as well as in trade policy, large-scale spending 
programmes and Single Market policies. Ideally, they should be spelled out both for 2030 
(end of the legislature) and for 2040 (longer term). Even more ideally, they should be 
discussed with a large group of stakeholders. 

Step 2.  Backcasting  and  alternative  futures.  The  final  goals  selected  in  Step  1  must  be 
analysed in terms of their feasibility under a variety of alternative future scenarios. These 
should account for macro trends, horizon scanning of future technologies, and modelling 
of future unlikely and unforeseen shocks. One key question is how to avoid worst-case 
scenarios, and whether to pay extra attention to possible moves that make the worst-
case scenario more plausible. Backcasting implies that policymakers ask themselves the 
following sets of questions: What societal and economic changes may lead Europe to 
achieve its final goals? What intermediate goals would be necessary? What policies and 
investment programmes are likely to make goal achievement more likely? Which ones 
are most likely to shield Europe from unforeseen shocks? In answering these questions, 
policymakers may want to adopt a mission-oriented approach, which implies a portfolio 
of policies with enhanced attention to the possibility to course-correct these policies over 
time. 

Step 3.  Setting the agenda and policy priorities. Step 2 should translate into a multi-annual 
policy  and  investment  programme,  aimed  at  realising  the  actions  identified  in  the 
backcasting.  The  Commission’s Work  Programme  should  mention  the  new  legislative 
and investment initiatives planned for the year ahead, and their link to the intermediate 
and final goals to  2030 and  2040. The  publication  of the Work Programme  should be 
accompanied  by  a  stocktaking  communication  on  the  progress  achieved  towards  the 
2030 goals. 

Step 4.  A  comprehensive,  poly-centric  R&I  and  industrial  policy  mix.  This  should  aim  at 
achieving  economic  security,  competitiveness,  sustainability  and  “good  jobs”,  to  be 
spelled out more concretely in the form of transformation pathways. It should include, at 
a  minimum:  (i)  A  new  pan-European  investment  programme  financed  with  own 
resources,  replicating  Next  Generation  EU  yet  with  the  aim  of  building  a  much  more 
consistent,  centrally  coordinated  and  locally  tailored  actions;  (ii)  a  reformed  better 
regulation  agenda  that  mainstreams  the  2030  goals  and  allows  for  stress-testing  and 

7 

 
experimentation; (iii) a Research and Innovation Framework Programme that is deeply 
coordinated  with  cohesion  policy  and  structural  funds;  (iv)  a  limited  number  of  EU-
funded,  large-scale  industrial  transformation  projects  accompanied  by  ad  hoc  fiscal 
measures,  tax  credits  and  simplified  permitting  arrangements;  (v)  a  regional/cohesion 
policy complementary to the EU-level measures, as well as by an in-depth analysis of 
the economic and technology specialisation of each region; and (vi) a new strategy for 
the restructuring and resilience of supply chains, based on evolving priorities related to 
enlargement and external action (e.g., the Global Gateway programme). 

Step 5.  Co-creation  and  implementation  of  systemic  transformation  pathways.  The 
horizontal  policies  described  above  should  translate  into  consistent  priorities  at  the 
ecosystem  level.  Transition  pathways  could  be  revamped  as  systemic  transformation 
pathways,  and  should  be  designed  based  in  a  way  that  leverages  the  (actual  and 
potential) economic and technology specialisation of the different regions of the EU. In 
this phase, particular attention should be devoted to the more foundational ecosystems, 
such as those for energy-intensive industries and for digital, in order to ensure that the 
twin transition contributes to meaningful and diffuse progress towards the 2030 goals, 
accounting  for  possible  shocks  along  the  way.  Systemic  transformation  pathways  will 
have to be expanded to gradually include also accession countries and possible non-EU 
countries that participate in key phases of an ecosystem’s value chains. 

Step 6.  Monitoring  and  possible  course-correction  towards  the  final  goals.  This  phase 
implies  the  selection  of  input,  output  outcome  and  impact  indicators;  as  well  as  the 
monitoring of such indicators against the goals to be achieved. In choosing the direction 
to  be  taken  by  systemic  transformation  pathways,  policymakers  will  adopt  a  mission-
oriented  approach,  as  well  as  a  risk  mitigation  approach,  which  prioritises  (all  other 
conditions being equal) those options that can be more easily course-corrected in case 
of shocks and unforeseen events. 

Figure 1 – A 6-step approach to EU industrial policy 

Source: author

8 

People, Planet and ProsperityIntermediate goalsEconomic security, competitiveness and well-being indicatorsSystemic Transformation pathwaysCo-designForesightStress-testStress-testStress-testStress-testBackcasting and alternative futuresEU agenda and priorities for systemic transfor-mationCompre-hensive, poly-centric R&I and industrial policy mixInput, output, outcome, impact indicatorsAlternative futures + megatrends + horizon scanning1235Mission-oriented innovation + regulation + tax credits + IPCEIs etc.Natural capitalHuman capitalSocial capital Economic capitalModeling + relatedness analysis + smart specialisationLegend:IndicatorsMonitoring and stress-testingPolicy instrumentsStrategic analysis46 
 
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DOI: 10.2873/691596 

DOI: 10.2873/691596 
ISBN: 978-92-68-14490-9