Europe is losing ground in fierce global economic competition. Innovation is not reaching the market, investments remain unattractive, top talents seek higher wages abroad, flagship European industries are overtaken by global rivals, and productivity stays stubbornly low.
The growth trap Europe finds itself in results from a lack of demand and poor supply. Without the former, no entrepreneur will launch a new product; without the latter, no new markets will be created. To catch up internationally, Europe needs to stimulate the demand for, and supply of, new technologies. To do so, instead of generating new regulations or looking for fresh money, it must more effectively use the instruments it already has available.
European industrial alliances are a case in point. Their gathering of diverse industry players, from research organisations to start-ups and potential customers, forms the base of demand-supply dynamics that can couple creative spirit with marketability. They are Europe’s hidden industrial ecosystems. Since 2017, the EU has launched 11 such groupings, covering most of today’s areas of industrial competition, from raw materials to batteries, cloud technologies and small nuclear reactors. Yet they continue to underperform, with EU decision-makers overlooking their potential.
Today’s industrial alliances reflect Europe’s sluggish growth
On their terms, some alliances did succeed. Take the European Battery Alliance. It has generated over 180 projects in the EU and launched a Strategic Battery Materials Fund worth €500 million. Similarly, the Clean Hydrogen Alliance has secured two hydrogen Important Projects of Common European Interest worth €10.6 billion in public funding, which will be used to develop a pipeline of hydrogen projects across Europe. And yet these figures barely make a dent in Europe’s investment gaps.
The European Commission estimates the annual investment gap to be around €477 billion, lagging far behind the US in strategic funding. The EU primarily invests in mid-tech sectors, such as automotive, while allocating considerably less funding to software and other high-tech. The European budget for high-tech industries is much smaller than that of the US, and as a result, the returns on European investments are lower, leading to most venture capital and private equity funds shifting away from the region.
On top of funding troubles comes questionable EU governance. In the past few years, the EU has labelled almost everything strategic or critical, giving geopolitical meaning to a wide variety of products, in the more or less successful attempt to rally European troops around a “geopolitical Commission”. In so doing, it tried to stake out a position between the real competitors for global hegemony – Washington and Beijing – but the effect has been the geopoliticisation of economic matters. Industrial alliances are an apt illustration of this. Many of them have been in service of geoeconomic positioning, and yet failed at shedding light on what matters most for any economic outlook: growth.
How industrial alliances can drive Europe’s industrial catch-up
A healthy economy cannot exist without a solid government. But this doesn’t mean policymakers should create markets from nothing; rather, they must provide the framework for them to flourish. The EU must work to simplify its regulatory apparatus, make innovation-related cash more accessible, and guarantee productive intra- and infra-market demand-supply dynamics by creating a thriving ecosystem to foster them.
European industrial alliances can help with this. They include firms from every value chain and funding segment. Hence, they can play a role in consolidating the EU’s economic and market intelligence. Industry executives could use them to pitch needed policy input jointly. Policymakers could benefit by receiving feedback on preliminary policy ideas and adjusting the overall regulatory apparatus regarding innovation.
Moreover, the alliances can help better map Europe’s critical dependencies. International unfair competition is a problem, and supply chain security risks exist. Europe must be secure, and its geoeconomic progress is laudable, but better intelligence and public-private and private-private dialogue are required to pair intention with results. Information is power; information is trust. Without it, innovation can’t happen.
Further, industrial alliances can lead Europe’s drive for better financing and scaling. Given their varied membership, they can be vectors of investments and venture capital. The practice of mapping existing and available industrial projects in Europe should be extended to all alliances. This would help match investors and project owners and deliver public financing more effectively and efficiently.
At the same time, more recurrent networking events, platforms and project mappings should be used to encourage private equity. Large firms can leverage start-ups in their ecosystem to innovate their industrial processes and, in turn, help start-ups grow. The alliances can also facilitate the testing and experimentation of emerging technologies. The objective must be to facilitate risk-sharing mechanisms and ensure regular interactions within industries. Similar mechanisms could also attract foreign funds with more financial power. Europe cannot make the miracle alone; like-minded countries and foreign funds can help it catch up.
All in all, there is no single recipe for growth, but some ingredients are well known, including good universities, firms at different market stages, strong institutions and ecosystems tying these together.
Industrial alliances will not be a definitive solution, but their nature makes them the best place to start.
Riccardo Bosticco is a Junior Academic Fellow at the European Policy Centre.
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