Thoth distribution@thoth.pub 20260404T004622

urn:uuid:b3383824-ca4b-48d5-b60f-7ceb3d7012ab 03 01 01 thoth-work-id urn:uuid:a5a08fcc-4060-4738-abe7-c93ec292e390 01 thoth-publication-id urn:uuid:b3383824-ca4b-48d5-b60f-7ceb3d7012ab 15 9781805114383 03 9781805114383 06 10.11647/OBP.0434 13 2023513492 23 1478292248 00 BC 10 01 254 mm 01 25.4 cm 01 10 in 02 178 mm 02 17.8 cm 02 7.01 in 03 18 mm 03 1.8 cm 03 0.71 in 08 509 gr 08 17.9544 oz Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ 10 01 Series ID 85c48355-467d-436d-90c9-fe97626c22c8 02 23996676 01 Series URL https://www.openbookpublishers.com/series/2399-6676 03 13 01 02 Open Reports Series 01 01 Investing in the Structural Transformation 2024 European Public Investment Outlook 1 B01 21 000000019972716X Floriana Cerniglia Floriana Cerniglia Full Professor of Economics 40 03h7r5v07 Università Cattolica del Sacro Cuore Floriana Cerniglia is a Full Professor of Economics at Università Cattolica del Sacro Cuore (Milan) and Director of CRANEC (Centro di ricerche in analisi economica e sviluppo economico internazionale). She is the Co-Editor-in-Chief of Economia Politica (Journal of Analytical and Institutional Economics). She received her PhD from the University of Warwick (UK) and her research interests are in public economics and in macroeconomic policies. She has published in leading international journals and she has coordinated and participated in a number of peer-reviewed research projects. 2 B01 21 0000000301214329 Francesco Saraceno Francesco Saraceno Deputy Department Director at OFCE 40 05fe7ax82 Sciences Po, Paris Francesco Saraceno is Deputy Department Director at OFCE, the research centre in economics at Sciences Po in Paris, and Professor of Practice at LEAP-Luiss, Rome. He holds PhDs in Economics from Columbia University and the Sapienza University of Rome. His research focuses on the relationship between inequality, macroeconomic performance, and European macroeconomic policies. From 2000 to 2002 he was a member of the Council of Economic Advisors for the Italian Prime Minister’s Office. He teaches international and European macroeconomics at Sciences Po, where he manages the Economics concentration of the Master’s in European Affairs, and in Rome (Luiss). He is Academic Director of the Sciences Po-Northwestern European Affairs Program. He advises the International Labour Organization (ILO) on macroeconomic policies for employment and participates in IMF training programmes on fiscal policy. 01 eng 00 210 03 09 44 11 10 10 BUS039000 B2 Economics 04 HD3616.E8 93 LBBM3 10 BUS051000 B2 European Studies 93 KCB 93 1D 10 BUS068000 B2 Politics and Sociology 10 BUS032000 10 POL024000 20 Public investment; Structural transformation; European economy; Fiscal policy; Sustainable growth 01 06 02 00 The fifth volume in the European Public Investment Outlook series explores how Europe can drive structural transformation through strategic public investment. Reflecting on the lessons from the 2008–2020 polycrisis and recent economic challenges, this timely book examines fiscal policy's role in both stabilization and long-term economic devel 03 00 The fifth volume in the European Public Investment Outlook series explores how Europe can drive structural transformation through strategic public investment. Reflecting on the lessons from the 2008–2020 polycrisis and recent economic challenges, this timely book examines fiscal policy's role in both stabilization and long-term economic development.Part I, ‘State of the Art’, reviews current public investment and industrial policies in major European economies, including France, Germany, Italy, and Spain. It provides detailed analyses of each country's approach to fostering structural transformation through public investment.Part II, ‘Challenges’, addresses the diverse obstacles and opportunities facing Europe’s industrial policy. It emphasizes a multidimensional strategy to overcome bottlenecks in key sectors and drive transformation. Topics include the role of industrial policy in the green transition, creating a cohesive strategy for Europe, enhancing economic security, trends in European Union defence spending, sustainable mobility, and financing structural investment beyond 2027.This volume is essential reading for researchers, economists, and policymakers focused on understanding and implementing effective public policy in Europe, and will further appeal to anyone interested in EU governance and public investment strategies more broadly. 30 00 The fifth volume in the European Public Investment Outlook series explores how Europe can drive structural transformation through strategic public investment. Reflecting on the lessons from the 2008–2020 polycrisis and recent economic challenges, this timely book examines fiscal policy's role in both stabilization and long-term economic development.Part I, ‘State of the Art’, reviews current public investment and industrial policies in major European economies, including France, Germany, Italy, and Spain. It provides detailed analyses of each country's approach to fostering structural transformation through public investment.Part II, ‘Challenges’, addresses the diverse obstacles and opportunities facing Europe’s industrial policy. It emphasizes a multidimensional strategy to overcome bottlenecks in key sectors and drive transformation. Topics include the role of industrial policy in the green transition, creating a cohesive strategy for Europe, enhancing economic security, trends in European Union defence spending, sustainable mobility, and financing structural investment beyond 2027.This volume is essential reading for researchers, economists, and policymakers focused on understanding and implementing effective public policy in Europe, and will further appeal to anyone interested in EU governance and public investment strategies more broadly. 04 00 List of Figures List of Tables Acknowledgements Preface Introduction PART I—STATE OF THE ART 1. Public Investment and Industrial Policy: A Case for More European Union Coordination 2. Public Investment and Industrial Policy in France 3. Germany: Additional Investment Needs Require Reform of the Debt Brake 4. Italy, NRRP, and Industrial Policy 5. Public Investment and Structural Transformation in Spain PART II—CHALLENGES 6. A New Industrial Policy as the Key to the Green Transition 7. A “True” Industrial Policy for Europe is a Technology and Innovation Policy 8. Industrial Policy and Security. The European Union and the Double Challenge: Strengthening Competitiveness and Enhancing Economic Security 9. Trends in Defence Spending in the European Union 10. Sustainable Mobility and Industrial Policy 11. Financing Structural Investment after 2027 Contributor Biographies 20 00 Open Access 01 00 03 02 https://books.openbookpublishers.com/10.11647/obp.0434_frontcover.jpg 1 03 06 10.11647/obp.0434.00 1 2 2 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 Preface 1 A01 21 0000000178327458 Alberto Quadrio Curzio Alberto Quadrio Curzio 2 A01 Xavier Ragot Xavier Ragot 01 eng 20 00 Open Access Alberto Quadrio Curzio Xavier Ragot; 2 03 06 10.11647/obp.0434.01 3 9 7 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 Introduction 1 A01 21 000000019972716X Floriana Cerniglia Floriana Cerniglia Full Professor of Economics 40 03h7r5v07 Università Cattolica del Sacro Cuore Floriana Cerniglia is a Full Professor of Economics at Università Cattolica del Sacro Cuore (Milan) and Director of CRANEC (Centro di ricerche in analisi economica e sviluppo economico internazionale). She is the Co-Editor-in-Chief of Economia Politica (Journal of Analytical and Institutional Economics). She received her PhD from the University of Warwick (UK) and her research interests are in public economics and in macroeconomic policies. She has published in leading international journals and she has coordinated and participated in a number of peer-reviewed research projects. 2 A01 21 0000000301214329 Francesco Saraceno Francesco Saraceno Deputy Department Director at OFCE 40 05fe7ax82 Sciences Po, Paris Francesco Saraceno is Deputy Department Director at OFCE, the research centre in economics at Sciences Po in Paris, and Professor of Practice at LEAP-Luiss, Rome. He holds PhDs in Economics from Columbia University and the Sapienza University of Rome. His research focuses on the relationship between inequality, macroeconomic performance, and European macroeconomic policies. From 2000 to 2002 he was a member of the Council of Economic Advisors for the Italian Prime Minister’s Office. He teaches international and European macroeconomics at Sciences Po, where he manages the Economics concentration of the Master’s in European Affairs, and in Rome (Luiss). He is Academic Director of the Sciences Po-Northwestern European Affairs Program. He advises the International Labour Organization (ILO) on macroeconomic policies for employment and participates in IMF training programmes on fiscal policy. 01 eng 20 00 Open Access Floriana Cerniglia Francesco Saraceno; 34 06 10.11647/obp.0328.08 34 01 Unstructured citation Blanchard, O. J. (2016) “Rethinking Macro Policy: Progress or Confusion?”, in O. J. Blanchard et al. (eds), Progress and Confusion: The State of Macroeconomic Policy, pp. 287–290. Cambridge, MA: MIT Press. 34 01 Unstructured citation Blot, C., J. Créel, H. Kempf, S. Levasseur, X. Ragot, and F. Saraceno (2024) “Sailing in All Weather Conditions the Next 25 Years: Challenges for the Euro”, Paper Presented at the European Parliament ECON Committee Monetary Dialogue, February, https://www.europarl.europa.eu/thinktank/en/document/IPOL_STU(2024)747835 34 06 10.11647/obp.0386.11 34 06 10.11647/obp.0328 34 06 10.11647/obp.0386 34 01 Unstructured citation Draghi, M. (2024) The Future of European Competitiveness. Brussels: European Commission, https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en 34 06 10.11647/obp.0280.07 34 06 10.11647/obp.0222.07 34 01 Unstructured citation Holston, K., T. Laubach, and J. C. Williams (2023) “Measuring the Natural Rate of Interest after COVID-19”, Federal Reserve Bank of New York Staff Report 1063 (June), https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr1063.pdf 34 01 Unstructured citation Lucas, R. E. (2003) “Macroeconomic Priorities”, American Economic Review 93(1): 1–14. 34 01 Unstructured citation Mazzucato, M. (2013) The Entrepreneurial State. London: Anthem Press. 34 01 Unstructured citation Platzer, J., and M. Peruffo (2022) “Secular Drivers of the Natural Rate of Interest in the United States: A Quantitative Evaluation”, IMF Working Papers 2022(030), https://www.imf.org/en/Publications/WP/Issues/2022/02/11/Secular-Drivers-of-the-Natural-Rate-of-Interest-in-the-United-States-A-Quantitative-512755 34 01 Unstructured citation Saraceno, F. (2023) Oltre Le Banche Centrali. Inflazione, Distribuzione e Politiche Economiche. Rome: Luiss University Press. 3 03 06 10.11647/obp.0434.02 13 30 18 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 1. Public Investment and Industrial Policy A Case for More European Union Coordination 1 A01 21 0000000269174194 Andrea Brasili Andrea Brasili Senior Economist 40 03zxry661 European Investment Bank Andrea Brasili is a Senior Economist at the EIB (Luxembourg) where his research interests are both micro (firm level) data analysis and macroeconomic developments, in particular those related to fiscal policy. He received his PhD in Public Economics from the University of Pavia (Italy). Before joining the EIB, he worked in the private sector (in Italian banks and asset management companies) as a research economist, whilst still collaborating with academia. 2 A01 21 000000016940380X Tuna Dökmeci Tuna Dökmeci PhD candidate in Economics 40 0031wrj91 European University Institute Tuna Dökmeci is a PhD candidate in Economics at European University Institute (Italy), and a trainee at the EIB (Luxembourg). Her research focuses on industrial policy, industrial organization, and competition policy. 3 A01 Atanas Kolev Atanas Kolev Principal Advisor at the Economics Department 40 03zxry661 European Investment Bank Atanas Kolev is Principal Advisor at the Economics Department of the EIB. He has worked on a wide range of topics related to investment and investment financing at the firm-, sector-, and economy-wide levels. He has been an organiser and contributor to the annual economics conference of the EIB on topics like economic and social cohesion, investment in the energy sector, adaptation to climate change, public investment, and infrastructure investment. Atanas Kolev is currently a coordinator, reviewer, and economics editor for the EIB Annual Investment Report. He holds an Economics PhD from Universitat Autònoma de Barcelona. 4 A01 21 0000000281939399 Debora Revoltella Debora Revoltella Director of the Economics Department 40 03zxry661 European Investment Bank Debora Revoltella has been Director of the Economics Department of the European Investment Bank since April 2011. The Department comprises thirty economists and provides economic analysis and studies to support the bank in defining its policies and strategies. Before joining the EIB, Debora worked for many years at CESEE, was head of the research department in COMIT, and later worked as Chief Economist for CESEE in UniCredit. Debora holds a PhD in Economics and has also worked as Adjunct Professor at Bocconi University. She is a member of the Steering Committees of the Vienna Initiative and CompNet, an alternate member of the Board of the Joint Vienna Institute, and a member of the boards of SUERF and the Euro 50 Group. 5 A01 21 0000000270067740 Jochen Schanz Jochen Schanz Senior Economist 40 03zxry661 European Investment Bank Jochen Schantz is Senior Economist at the European Investment Bank. After completing a PhD in game theory at the European University Institute, he worked at Lehman Brothers, the Bank of England, and the Bank for International Settlements on monetary and financial stability. At the European Investment Bank, he focuses on public investment and human capital. 6 A01 21 0009000575440400 Annamaria Tueske Annamaria Tueske Economist at the Economics Department 40 03zxry661 European Investment Bank Annamaria Tueske is an Economist at the Economics Department of the EIB. Her current work focuses on public investment, climate and energy economics and sustainable finance. Prior to joining the EIB, Annamaria worked at the University of Luxembourg, at the OECD and at the Fiscal Council of Hungary. Her academic training focused on industrial organization, networks, and transport economics, she graduated from the Toulouse School of Economics. 7 A01 21 0000000295108991 Wouter Van Der Wielen Wouter Van Der Wielen Economist in the Economics Department 40 03zxry661 European Investment Bank Wouter Van Der Wielen is an Economist in the Economics Department of the European Investment Bank (EIB). He is responsible for impact studies of public and private sector policy support schemes and contributes macroeconomic analyses to the EIB’s f lagship publications, such as the EIB Investment Report. Prior to joining the EIB, he worked as an economic analyst at the European Commission’s Joint Research Centre, where he was principally responsible for the research developing macro-fiscal models accounting for output and employment effects of fiscal reforms. His main areas of expertise are macroeconomics, fiscal policy and labour economics. He holds a PhD in Economics as well as an MSc of Advanced Studies in Economics from KU Leuven. 01 eng 03 00 Europe needs more investment. Speeding up the climate transition and relaunching EU innovation capabilities require special efforts. Coupled with strategic autonomy and the need to secure stable and clean energy sources, these issues highlight the increasing importance of European public goods (EPGs) and policies that extend beyond national boundaries, as they involve externalities and network effects. However, Europe’s current institutional structure and mechanisms may struggle to meet this challenge. This essay examines public investment trends in the EU, arguing that while public investments have increased, greater coordination and coherence are needed. Three critical axes are identified: the provision of EPGs, policy coordination at national levels, and sufficient funding. Improving the coordination of public investment, particularly in research and development (R&D) and the climate transition, is key to unlocking Europe’s full potential. This chapter emphasizes the importance of initiatives like Important Projects of Common European Interest (IPCEIs) in fostering collaboration across countries and sectors, but argues for expanded and more integrated efforts moving forward. 30 00 Europe needs more investment. Speeding up the climate transition and relaunching EU innovation capabilities require special efforts. Coupled with strategic autonomy and the need to secure stable and clean energy sources, these issues highlight the increasing importance of European public goods (EPGs) and policies that extend beyond national boundaries, as they involve externalities and network effects. However, Europe’s current institutional structure and mechanisms may struggle to meet this challenge. This essay examines public investment trends in the EU, arguing that while public investments have increased, greater coordination and coherence are needed. Three critical axes are identified: the provision of EPGs, policy coordination at national levels, and sufficient funding. Improving the coordination of public investment, particularly in research and development (R&D) and the climate transition, is key to unlocking Europe’s full potential. This chapter emphasizes the importance of initiatives like Important Projects of Common European Interest (IPCEIs) in fostering collaboration across countries and sectors, but argues for expanded and more integrated efforts moving forward. 20 00 Open Access Andrea Brasili Tuna Dokmeci Atanas Kolev Debora Revoltella Jochen Schanz Annamaria Tueske Wouter Van Der Wielen; 34 01 Unstructured citation Buti M., A. Coloccia, and M. Messori (2023) “European Public Goods”, June 9, CEPR, https://cepr.org/voxeu/columns/european-public-goods 34 01 Unstructured citation Bergeaud, A. (2024) “The Past Present and Future of EU Productivity”, Prepared for the ECB Central Banking Forum, July 2024, https://www.ecb.europa.eu/pub/pdf/sintra/ecb.forumcentbankpub2024_Bergeaud_paper.en.pdf 34 06 10.11647/obp.0386 34 01 Unstructured citation Demertzis, M., D. Pinkus, and N. Ruer (2024) “Accelerating Strategic Investment in the European Union beyond 2026”, Bruegel Report, January 24, https://www.bruegel.org/system/files/2024-01/Report 01 2024.pdf 34 01 Unstructured citation Draghi, M. (2023) “The Next Flight of the Bumblebee: The Path to Common Fiscal Policy in the Eurozone”, 15th Annual Feldstein Lecture at the NBER Summer Institute 2023 in Cambridge, October 10, NBER, https://www.nber.org/reporter/2023number3/next-flight-bumblebee-path-common-fiscal-policy-eurozone 34 01 Unstructured citation Draghi, M. (2024) The Future of European Competitiveness. Brussels: European Commission, https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en 34 01 Unstructured citation European Commission (2020) “A New Industrial Strategy for Europe”, COM(2020) 102, March 10, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52020DC0102 34 01 Unstructured citation European Commission (2021) “Updating the 2020 New Industrial Strategy: Building a stronger Single Market for Europe’s recovery”, SWD(2021) 352, May 5, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52021SC0352 34 01 Unstructured citation European Commission (2022) “Framework for State Aid for Research and Development and Innovation”, 2022/C 414/01, October 28, https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=OJ%3AC%3A2022%3A414%3AFULL#:~:text=This Framework provides guidance on,)(c) of the Treaty. 34 01 Unstructured citation Fuest, C., and J. Pisani-Ferry (2019) “A Primer on Developing European Public Goods (A Report to Ministers Bruno Le Maire and Olaf Scholz)”, November 3, https://www.bruegel.org/sites/default/files/wp-content/uploads/2019/11/European-public-goods-primer.pdf 34 01 Unstructured citation Letta, E. (2024) Much More Than a Market, https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf 34 01 Unstructured citation Nicolaides, P. (2018) “State Aid and EU Funding: Are They Compatible?”, In-Depth Analysis Requested by the CONT Committee, Policy Department for Budgetary Affairs, April, https://www.europarl.europa.eu/cmsdata/142819/Briefing_State Aid and EU funding_Final.pdf 34 01 Unstructured citation Wyplosz, C. (2024) “Which European Public Goods?”, IPOL | Economic Governance and EMU Scrutiny Unit, March, https://www.europarl.europa.eu/RegData/etudes/IDAN/2024/755722/IPOL_IDA(2024)755722_EN.pdf 34 01 Unstructured citation Von der Leyen, U. (2024) “Statement at the European Parliament Plenary by President Ursula von der Leyen, Candidate for a Second Mandate 2024–2029”, European Commission, https://ec.europa.eu/commission/presscorner/detail/ov/STATEMENT_24_3871 4 03 06 10.11647/obp.0434.03 31 44 14 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 2. Public Investment and Industrial Policy in France 1 A01 21 0009000979785667 Vincent Charlet Vincent Charlet Vincent Charlet is the Executive Director of La Fabrique de l’industrie, a think tank he contributed to launch in 2011. Supported by the French manufacturers’ associations, co-chaired by Louis Gallois (former president of Stellantis, former CEO of Airbus Group) and Pierre-André de Chalendar (former CEO of Saint-Gobain), La Fabrique de l’industrie publishes robust studies on the performance, transformations, and assets of industrial companies and on the professional trajectories of their employees. After training as an engineer, Vincent Charlet devoted himself to the analysis of public systems and the management of change. He first participated in initiatives aimed at renovating the research and innovation system in France (evaluation, construction of indicators, foresight). He notably led the FutuRIS project, a prospective operation supported equally by major private R&D players, public research establishments. and the State, from 2006 to 2011. 2 A01 Mathieu Plane Mathieu Plane Deputy Director of the Analysis and Forecasting Department at the OFCE Research Center in Economics 40 05fe7ax82 Sciences Po, Paris Mathieu Plane is a Deputy Director of the Analysis and Forecasting Department at the OFCE Research Center in Economics, Sciences Po, Paris. He is in charge of economic forecasts for the French economy and works on economic policy issues. He teaches at Sciences Po, Paris and at the University of Paris Pantheon-Sorbonne. He was, in 2013–2014, economic advisor to the Ministers of Economy, Industry, and the Digital Sector. He has recently published, in collaboration with other authors of OFCE, 25 Years of Monetary Union: The Eurozone through Its Crises; Growth Up Against Fiscal Recovery: Economic Outlook for the French Economy 2024–2025, and French Economy 2025 by Éditions La Découverte, Repères collection. 3 A01 21 0000000301214329 Francesco Saraceno Francesco Saraceno Deputy Department Director at OFCE 40 05fe7ax82 Sciences Po, Paris Francesco Saraceno is Deputy Department Director at OFCE, the research centre in economics at Sciences Po in Paris, and Professor of Practice at LEAP-Luiss, Rome. He holds PhDs in Economics from Columbia University and the Sapienza University of Rome. His research focuses on the relationship between inequality, macroeconomic performance, and European macroeconomic policies. From 2000 to 2002 he was a member of the Council of Economic Advisors for the Italian Prime Minister’s Office. He teaches international and European macroeconomics at Sciences Po, where he manages the Economics concentration of the Master’s in European Affairs, and in Rome (Luiss). He is Academic Director of the Sciences Po-Northwestern European Affairs Program. He advises the International Labour Organization (ILO) on macroeconomic policies for employment and participates in IMF training programmes on fiscal policy. 01 eng 03 00 This chapter first traces the long-term evolution of public investment in France, noting how this is mostly channelled through local governments and how, while comparatively high with respect to other advanced economies, the public capital stock and the general government net wealth have been steadily decreasing since the Global Financial Crisis of 2008. After the COVID-19 shock, despite the 2021 “Plan de Relance” and the 2022 “Build the France of 2030” program, public investment has remained surprisingly flat. The chapter then discusses the recent evolutions in French industrial policy objectives. The Lisbon Strategy was centred on boosting productivity through innovation and climbing the value added ladder. The response to the crisis of 2008 marks a first change, with a strong emphasis on price competitiveness and cost reduction (including through corporate tax reduction). Since the early days of the pandemics, then, the notion of “industrial sovereignty” has very quickly eclipsed that of competitiveness, with policies aimed at reindustrialization especially in strategic sectors. The chapter concludes that these frequent changes indicate an excessive short-term focus among French policy makers, incompatible with managing long-term structural transformation. 30 00 This chapter first traces the long-term evolution of public investment in France, noting how this is mostly channelled through local governments and how, while comparatively high with respect to other advanced economies, the public capital stock and the general government net wealth have been steadily decreasing since the Global Financial Crisis of 2008. After the COVID-19 shock, despite the 2021 “Plan de Relance” and the 2022 “Build the France of 2030” program, public investment has remained surprisingly flat. The chapter then discusses the recent evolutions in French industrial policy objectives. The Lisbon Strategy was centred on boosting productivity through innovation and climbing the value added ladder. The response to the crisis of 2008 marks a first change, with a strong emphasis on price competitiveness and cost reduction (including through corporate tax reduction). Since the early days of the pandemics, then, the notion of “industrial sovereignty” has very quickly eclipsed that of competitiveness, with policies aimed at reindustrialization especially in strategic sectors. The chapter concludes that these frequent changes indicate an excessive short-term focus among French policy makers, incompatible with managing long-term structural transformation. 20 00 Open Access Vincent Charlet Mathieu Plane Francesco Saraceno 34 01 Unstructured citation Blot, C., J. Créel, H. Kempf, S. Levasseur, X. Ragot, and F. Saraceno (2024) “Sailing in All Weather Conditions the Next 25 Years: Challenges for the Euro”, Paper Prepared for the European Parliament ECON Committee Monetary Dialogue, February. 34 06 10.11647/obp.0222.01 34 01 Unstructured citation Charlet, V. (2024) Ce que l’industrie attend des banques. Paris: Presses des Mines. 34 01 Unstructured citation European Commission (2023) “EU Budget: Commission Proposes Strategic Technologies for Europe Platform (STEP) to Support European Leadership on Critical Technologies”, European Commission. 34 01 Unstructured citation Pisani-Ferry, J., and S. Mahfouz (2023) “Les Incidences Économiques de l’action Pour Le Climat”, May 22, France Strategie, Rapport à La Première Ministre, https://www.strategie.gouv.fr/publications/incidences-economiques-de-laction-climat 34 06 10.11647/obp.0280.02 34 01 Unstructured citation Von der Leyen, U. (2022) “State of the Union”, 14 September, European Commission, https://state-of-the-union.ec.europa.eu/state-union-2022_en 34 01 Unstructured citation White House (2023) Building a Clean Energy Economy: A Guidebook to the Inflation Reduction Act’s Investments in Clean Energy and Climate Action. Washington, DC: The White House, https://www.whitehouse.gov/wp-content/uploads/2022/12/Inflation-Reduction-Act-Guidebook.pdf 5 03 06 10.11647/obp.0434.04 45 58 14 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 3. Germany Additional Investment Needs Require Reform of the Debt Brake 1 A01 Katja Rietzler Katja Rietzler Head of the Unit of Fiscal Policy at the Macroeconomic Policy Institute (IMK) 40 022b5tw91 Hans-Böckler Foundation Katja Rietzler is Head of the Unit of Fiscal Policy at the Macroeconomic Policy Institute (IMK), part of the Hans-Böckler Foundation. She holds a PhD from the Freie Universität, Berlin. Among other topics, her research focuses on fiscal issues of the municipalities, the German tax-system, public investment needs, and fiscal rules. In addition, she is a member of the IMK’s modelling team. As an expert she regularly participates in parliamentary hearings on issues such as tax legislation, annual budgets, or the debt brake and its implementation. 2 A01 Andrew Watt Andrew Watt General Director 40 00r5yyv69 European Trade Union Institute Andrew Watt is General Director, European Trade Union Institute (ETUI), and former Head of the Unit of European Economic Policy at the Macroeconomic Policy Institute (IMK), part of the Hans-Böckler Foundation. He holds a PhD from the University of Hamburg. His main research fields are European economic and employment policy and comparative political economy, with a particular interest in the interaction between wage-setting and macroeconomic policy. Recent work has focused on reform of the economic governance of the euro area, emphasizing the need to coordinate monetary, fiscal, and wage policy in order to achieve balanced growth and favourable employment outcomes. He has served as advisor to numerous European and national institutions, including the European. 01 eng 03 00 In recent quarters, German public investment has increased slightly in real terms. However, this development is driven largely by special effects such as the reclassification of public transport companies and increased military spending. Additional investment needs are estimated to be as high as 1.4% of GDP, and cannot be met without a substantial reform of the debt brake. Economists have recently come up with numerous reform proposals, but there is still no political majority for a reform. While European fiscal rules do not require much f iscal tightening in Germany, they do constrain the use of credit to finance the necessary additional public investment. Instead of a big push, the more likely scenario is continued incremental progress, or “muddling through”. 30 00 In recent quarters, German public investment has increased slightly in real terms. However, this development is driven largely by special effects such as the reclassification of public transport companies and increased military spending. Additional investment needs are estimated to be as high as 1.4% of GDP, and cannot be met without a substantial reform of the debt brake. Economists have recently come up with numerous reform proposals, but there is still no political majority for a reform. While European fiscal rules do not require much f iscal tightening in Germany, they do constrain the use of credit to finance the necessary additional public investment. Instead of a big push, the more likely scenario is continued incremental progress, or “muddling through”. 20 00 Open Access Katja Rietzler Andrew Watt; 34 01 Unstructured citation Bardt, H., S. Dullien, M. Hüther, and K. Rietzler (2020) “For a Sound Fiscal Policy: Enabling Public Investment”, IMK Report 152e, March, https://www.imk-boeckler.de/fpdf/HBS-007619/p_imk_report_152e_2020.pdf 34 01 Unstructured citation Braun, H. (2021). “Das ist der Plan für Deutschland nach Corona”, Handelsblatt, January 26, https://www.handelsblatt.com/meinung/gastbeitraege/gastkommentar-das-ist-der-plan-fuer-deutschland-nach-corona/26850508.html 34 01 Unstructured citation Bundesministerium der Finanzen, BMF (2024a) “Vorläufiger Abschluss des Bundeshaushalts 2023”, Monatsbericht des BMF, January, https://www.bundesfinanzministerium.de/Monatsberichte/2024/01/Inhalte/Kapitel-3-Analysen/3-2-vorlaeufiger-abschluss-bundeshaushalt-2023.html 34 01 Unstructured citation Bundesministerium der Finanzen, BMF (2024b) “Abweichungen des Ergebnisses der Steuerschätzung Oktober 2024 vom Ergebnis der Steuerschätzung Mai 2024 ”, Anlage 2 zu Pressemitteilung 15 des BMF, https://www.bundesfinanzministerium.de/Content/DE/Downloads/Steuern/ergebnis-167-steuerschaetzung-02.pdf?__blob=publicationFile&v=6 34 01 Unstructured citation Bundesrechnungshof (2023) “Bericht nach § 88 Absatz 2 BHO an das Bundesministerium der Finanzen zur Steuerung und Kontrolle der Umsetzung des Deutschen Aufbau- und Resilienzplans”, Bonn, December 8, https://www.bundesrechnungshof.de/SharedDocs/Downloads/DE/Berichte/2024/umsetzung-darp-volltext.pdf?__blob=publicationFile&v=3 34 01 Unstructured citation Darvas, Z., L. Welslau, and J. Zettelmeyer (2024) “The Implications of the European Union’s New Fiscal Rules”, Policy Brief 10/24, https://www.bruegel.org/system/files/2024-07/PB 10 2024.pdf 34 01 Unstructured citation Dullien, S., T. Bauermann, L. Endres, A. Herzog-Stein, K. Rietzler, and S. Tober (2024a) “Schuldenbremse reformieren, Transformation beschleunigen. Wirtschaftspolitische Herausforderungen 2024”, IMK Report 187, January, https://www.econstor.eu/bitstream/10419/283062/1/p-imk-report-187-2024.pdf 34 01 Unstructured citation Dullien, S., S. Gerards-Iglesias, M. Hüther, and K. Rietzler (2024b) “Herausforderungen für die Schuldenbremse. Investitionsbedarfe in der Infrastruktur und für die Transformation”, IMK Policy Brief 168, https://econpapers.repec.org/paper/imkpbrief/168-2024.htm 34 06 10.11647/obp.0222.03 34 01 Unstructured citation Deutsche Bundesbank (2022) “Die Schuldenbremse des Bundes: Möglichkeiten einer stabilitätsorientierten Weiterentwicklung”, Deutsche Bundesbank, Monatsbericht, April. 34 01 Unstructured citation European Commission (2024a) “European Economic Forecast Spring 2024’, Institutional Paper 286, May, https://economy-finance.ec.europa.eu/document/download/c63e0da2-c6d6-4d13-8dcb-646b0d1927a4_en?filename=ip286_en.pdf 34 01 Unstructured citation European Commission (2024b) “2024 Country Report – Germany”, Commission Staff Working Document, SWD(2024) 605, June 19, https://economy-finance.ec.europa.eu/document/download/0826d6c6-4c97-44be-8b9e-1a0b5c4361c8_en?filename=SWD_2024_605_1_EN_Germany.pdf 34 01 Unstructured citation Fuest, C., M. Hüther, and J. Südekum (2024) “Folgen des Verfassungsurteils: Investitionen schützen. Vorteile eines Sondervermögens”, Frankfurter Allgemeine Zeitung, January 12, https://www.faz.net/aktuell/wirtschaft/folgen-des-haushaltsurteils-investitionen-schuetzen-19440915.html 34 01 Unstructured citation Hentze, T., and B. Kauder (2024) “Reformansätze für die Schuldenbremse”, ifo Schnelldienst 2/2024, 13–15, https://www.ifo.de/DocDL/sd-2024-02-haushaltspolitik-reform-schuldenbremse.pdf 34 01 Unstructured citation Hüther, M. (2024) “Ein gesamtstaatlicher »Transformations- und Infrastrukturfonds« zur Stabilisierung der Schuldenbremse”, Wirtschaftsdienst 104(1): 14–20. 34 01 Unstructured citation International Monetary Fund, IMF (2023) “Germany. Staff Report for the 2023 Article IV Consultation”, June 28, IFO, https://www.imf.org/-/media/Files/Publications/CR/2023/English/1DEUEA2023001.ashx 34 01 Unstructured citation Paetz, C., and S. Watzka (2024) “The New Fiscal Rules: Another Round of Austerity for Europe?”, IMK Policy Brief 176. 34 01 Unstructured citation Raffer, C., and H. Scheller (2024) KfW Kommunalpanel 2024. Frankfurt am Main: Kreditanstalt für Wiederaufbau, https://www.kfw.de/PDF/Download-Center/Konzernthemen/Research/PDF-Dokumente-KfW-Kommunalpanel/KfW-Kommunalpanel-2024.pdf 34 06 10.11647/obp.0280.03 34 06 10.11647/obp.0328.03 34 06 10.11647/obp.0386.03 34 01 Unstructured citation Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, SVR (2024) “Die Schuldenbremse nach dem BVerfG-Urteil: Flexibilität erhöhen – Stabilität wahren”, Policy Brief 1/2024, https://www.sachverstaendigenrat-wirtschaft.de/fileadmin/dateiablage/PolicyBrief/pb2024/Policy_Brief_2024_01.pdf 34 01 Unstructured citation Wissenschaftlicher Beirat beim BMWK (2023) Finanzierung von Staatsaufgaben: Herausforderungen und Empfehlungen für eine nachhaltige Finanzpolitik, Gutachten des Wissenschaftlichen Beirats beim Bundesministerium für Wirtschaft und Klimaschutz (BMWK). Berlin: BMWK, https://www.bmwk.de/Redaktion/DE/Publikationen/Ministerium/Veroeffentlichung-Wissenschaftlicher-Beirat/gutachten-wissenschaftlicher-beirat-finanzierung-von-staatsaufgaben.pdf?__blob=publicationFile&v=14 6 03 06 10.11647/obp.0434.05 59 76 18 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 4. Italy, NRRP, and Industrial Policy 1 A01 21 0000000302218057 Giovanni Barbieri Giovanni Barbieri Research Fellow at CRANEC (Centro di ricerche in analisi economica e sviluppo economico internazionale—Research Center in Economic Analysis and International Economic Development) 40 03h7r5v07 Università Cattolica del Sacro Cuore Giovanni Barbieri is a Research Fellow at CRANEC at Università Cattolica del Sacro Cuore. He holds a PhD in Institutions and Policies (2017, Università Cattolica del Sacro Cuore, Milano). He was previously Adjunct Professor of History of International and Commercial Institutions at the University of Palermo (DEMS) and Visiting Scholar at Scuola Normale’s ‘Istituto Ciampi’ in Florence (2022). His main expertises are International Relations Theory and International Political Economy (IPE). 2 A01 21 000000019972716X Floriana Cerniglia Floriana Cerniglia Full Professor of Economics 40 03h7r5v07 Università Cattolica del Sacro Cuore Floriana Cerniglia is a Full Professor of Economics at Università Cattolica del Sacro Cuore (Milan) and Director of CRANEC (Centro di ricerche in analisi economica e sviluppo economico internazionale). She is the Co-Editor-in-Chief of Economia Politica (Journal of Analytical and Institutional Economics). She received her PhD from the University of Warwick (UK) and her research interests are in public economics and in macroeconomic policies. She has published in leading international journals and she has coordinated and participated in a number of peer-reviewed research projects. 3 A01 Franco Mosconi Franco Mosconi Jean Monnet Professor of Industrial Economics 40 02k7wn190 Università di Parma Franco Mosconi is the Jean Monnet Professor of Industrial Economics at the University of Parma. He is a columnist for the Corriere di Bologna, the Bologna-based daily newspaper of Corriere della Sera. His research areas include European industrial policy and Industrial districts and clusters, topics on which he has extensively published in both national and international literature. 01 eng 03 00 This chapter assesses the National Recovery and Resilience Plan (NRRP) as an industrial policy tool within the Next Generation EU framework, despite limited explicit reference to an industrial strategy. The NRRP emerges during a unique moment for the European Union (EU), characterized by the suspension of the Stability and Growth Pact and the relaxation of state aid restrictions, which have collectively expanded public intervention opportunities. This marks a significant shift from the post-1990s ideological emphasis on competition over state involvement, particularly in Italy, where reductions in capital expenditure since 2009 have constrained public infrastructure and private investment. This chapter delves into the current landscape highlighting the potential for a more effective approach to industrial strategy using public investment. By focusing on “Mission 1” (Competitiveness) and “Mission 4” (Education and Research), the chapter aims to elucidate the NRRP’s industrial policy direction including reinforcing the special economic zones (SEZs) established in 2017. 30 00 This chapter assesses the National Recovery and Resilience Plan (NRRP) as an industrial policy tool within the Next Generation EU framework, despite limited explicit reference to an industrial strategy. The NRRP emerges during a unique moment for the European Union (EU), characterized by the suspension of the Stability and Growth Pact and the relaxation of state aid restrictions, which have collectively expanded public intervention opportunities. This marks a significant shift from the post-1990s ideological emphasis on competition over state involvement, particularly in Italy, where reductions in capital expenditure since 2009 have constrained public infrastructure and private investment. This chapter delves into the current landscape highlighting the potential for a more effective approach to industrial strategy using public investment. By focusing on “Mission 1” (Competitiveness) and “Mission 4” (Education and Research), the chapter aims to elucidate the NRRP’s industrial policy direction including reinforcing the special economic zones (SEZs) established in 2017. 20 00 Open Access Giovanni Barbieri Floriana Cerniglia Franco Mosconi; 34 06 10.1007/s10842-019-00322-3 34 01 Unstructured citation Andreoni, A. (2017) “Strategies for Emerging Technologies and Strategic Sectors: Evidence from OECD Countries and Some Critical Reflections on the Italian Case”, L’Industria. Rivista di Economia e Politica Industriale 1: 3–14, https://doi.org/10.1430/87136 34 01 Unstructured citation Barbieri, G., and S. J. Gahn (2023) “Le piattaforme tecno-scientifiche europee: sviluppi recenti in Italia”, in A. Quadrio Curzio, A. Silvani, M. Fortis, and F. Cerniglia (eds) (2023) Le piattaforme tecnico-scientifiche in Europa. Ricerca, economia, innovazione. Bologna: Il Mulino, Collana Fondazione Edison, pp. 297–318. 34 06 10.11647/obp.0328.04 34 01 Unstructured citation Barbieri, G., F. Cerniglia, and F. Mosconi (2024) “Italy and Industrial Policy at the Time of the NRRP”, CRANEC Working Paper 01/2024, https://centridiricerca.unicatt.it/cranec-home-pubblicazioni-22134 34 06 10.1080/09538259.2024.2368210 34 01 Unstructured citation Barbini, M., et al. (2024) “L’anno della crescita differenziata. Le regioni italiane nel 202”, Informazioni Svimez 4. 34 01 Unstructured citation Bianchi, P., and S. Labory (2016) Towards a New Industrial Policy. Milan: McGraw-Hill Education. 34 01 Unstructured citation Bratta, B., et al. (2020) “The Impact of Digitalization Policies. Evidence from Italy’s Hyper-depreciation of Industry 4.0 Investments”, Ministero dell’Economia e delle Finanze, DF Working Paper 20, https://www.finanze.gov.it/export/sites/finanze/.galleries/Documenti/Varie/dfwp6-1_ultimo.pdf 34 01 Unstructured citation Buba, J., and M. D. Wong (2017) Special Economic Zones: An Operational Review of their Impacts. Washington, DC: World Bank Group. 34 01 Unstructured citation Capriati, M., M. Deleidi, and G. Viesti (2022) “Che impatto macroeconomico può avere il PNRR nel Mezzogiorno?”, Menabò 174, https://eticaeconomia.it/che-impatto-macroeconomico-puo-avere-il-pnrr-nel-mezzogiorno/ 34 06 10.11647/obp.0328 34 01 Unstructured citation Cerniglia, F., A. Silvani, and A. Quadrio Curzio (2023) “La ricerca del Centro Cranec dell’Università Cattolica”, in A. Quadrio Curzio, A. Silvani, M. Fortis, and F. Cerniglia (eds), Le piattaforme tecnico-scientifiche in Europa. Ricerca, economia, innovazione. Bologna: Il Mulino, Collana Fondazione Edison, pp. 263–277. 34 01 Unstructured citation Chiapperini, C., and G. Viesti (2024) “Il PNRR e i divari territoriali”, Menabò 210, https://eticaeconomia.it/il-pnrr-e-i-divari-territoriali/ 34 01 Unstructured citation Coco, G. (2020) “Investimenti, disintermediazione, capacità: come superare la retorica delle politiche per il Mezzogiorno”, in G. Coco, and C. De Vincenti (eds), Una questione nazionale. Il Mezzogiorno da “problema” a “opportunità”. Bologna: Il Mulino, pp. 203-226 34 01 Unstructured citation Coco, G., and A. Lepore (2018) “Per un nuovo modello di intervento pubblico nel Mezzogiorno”, in G. Coco and A. Lepore (eds), Il risveglio del Mezzogiorno. Nuove politiche per lo sviluppo. Bari: Laterza, pp. 175-196 34 01 Unstructured citation Di Tommaso, M. R., L. Rubini, E. Barbieri, and C. Pollio (2024) Industry Organization and Industrial Policy. Production and Innovation, Development and Public Interest. Bologna: Il Mulino. 34 01 Unstructured citation Draghi, M. (2024) The Future of European Competitiveness. Brussels: European Commission, https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en 34 01 Unstructured citation European Commission (2005) “Implementing the Community Lisbon Programme: A Policy Framework to Strengthen EU Manufacturing—Towards a More Integrated Approach for Industrial Policy”, COM(2005) 464, October 5, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A52005DC0474 34 01 Unstructured citation European Commission (2012) “A Stronger European Industry for Growth and Economic Recovery Industrial Policy Communication Update”, COM(2012) 582, October 10, https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2012:0582:FIN:EN:PDF 34 01 Unstructured citation European Commission (2014) “For a European Industrial Renaissance”, COM(2014) 14, January 22, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52014DC0014&from=ET 34 01 Unstructured citation European Commission (2017) “Investing in a Smart, Innovative and Sustainable Industry: A Renewed EU Industrial Policy Strategy”, COM(2017) 479, September 13, https://eur-lex.europa.eu/resource.html?uri=cellar:c8b9aac5-9861-11e7-b92d-01aa75ed71a1.0001.02/DOC_1&format=PDF 34 01 Unstructured citation European Commission: Directorate-General for Research and Innovation and M. Mazzucato (2018) Mission-oriented Research & Innovation in the European Union—A Problem-solving Approach to Fuel Innovation-led Growth. Brussels: Publications Office, https://data.europa.eu/doi/10.2777/360325 34 01 Unstructured citation European Commission (2020) “A New Industrial Strategy for Europe”, COM(2020) 102, March 10, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52020DC0102 34 01 Unstructured citation European Commission (2021a) “Communication from the Commission. Criteria for the Analysis of the Compatibility with the Internal Market of State Aid to Promote the Execution of Important Projects of Common European Interest”, 2021/C 528/02, December 30, https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52021XC1230(02) 34 01 Unstructured citation European Commission (2021b) “Communication from the Commission on a New Funding Strategy to Finance NextGenerationEU”, COM(2021) 250, April 14, https://commission.europa.eu/document/download/a42a05ab-e656-4cf4-9d0b-b4d2825618ee_en?filename=com2021_250_en_act_part1_v3.pdf 34 01 Unstructured citation European Commission (2022) “A Chips Act for Europe”, COM(2022) 45, February 8, https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX%3A52022DC0045#:~:text=The EU Chips Act proposes,to future supply chain disruptions 34 01 Unstructured citation Governo Italiano (2021) Italia Domani: Piano Nazionale di Ripresa e Resilienza, https://www.italiadomani.gov.it/content/sogei-ng/it/it/home.html 34 01 Unstructured citation Guerrieri, P., and P. C. Padoan (2024) Sovereign Europe. An Agenda for Europe in a Fragmented Global Economy. Brookfield, VT: Edward Elgar. 34 01 Unstructured citation Jacquemin, A. (1987) The New Industrial Organization: Market Forces and Strategic Behaviour. Cambridge, MA: The MIT Press. 34 01 Unstructured citation Junker, J. C. (2017) “State of the Union Address”, Brussels, September 13, https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_17_3165 34 06 10.1146/annurev-economics-081023-024638 34 01 Unstructured citation Letta, E. (2024) Much More Than a Market, https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf 34 01 Unstructured citation Lucchese, M., and M. Pianta (2021) “Il Piano Nazionale di Ripresa e Resilienza in una prospettiva di politica industriale”, Moneta e Credito 74(294): 177–190. 34 01 Unstructured citation Ministero dell’Università e della Ricerca (2022) “NRRP, MUR: l’impatto della conoscenza grazie a un nuovo modo di fare ricerca e innovazione”, MUR, June 26, https://www.mur.gov.it/it/news/martedi-28062022/pnrr-mur-limpatto-della-conoscenza-grazie-un-nuovo-modo-di-fare-ricerca-e 34 01 Unstructured citation Ministero per gli Affari Europei (2023) “Terza relazione sullo stato di attuazione del Piano Nazionale di Ripresa e Resilienza”, June 20, Italia Domani, https://www.italiadomani.gov.it/content/sogei-ng/it/it/strumenti/documenti/archivio-documenti/terza-relazione-al-parlamento-sullo-stato-di-attuazione-del-pian.html 34 01 Unstructured citation Ministero per gli Affari Europei (2024) “Quarta relazione sullo stato di attuazione del Piano Nazionale di Ripresa e Resilienza”, https://www.affarieuropei.gov.it/media/7411/iv_relazione_al_parlamento_sezi.pdf 34 01 Unstructured citation Ministero per gli Affari Europei (2024) “Quinta relazione sullo stato di attuazione del Piano Nazionale di Ripresa e Resilienza”, Nota sintetica. https://www.affarieuropei.gov.it/media/7594/quinta_relazione_nota_sintetica.pdf 34 01 Unstructured citation Mosconi, F. (2015) The New European Industrial Policy. Global Competitiveness and the Manufacturing Renaissance. New York: Routledge. 34 01 Unstructured citation Mosconi, F. (2022) “European Industrial Policy from 2000 to 2020”, in J. C. Christophe Defraigne, J. Wouters, E. Traversa, and D. Zurstrassen (eds), EU Industrial Policy in the Multipolar Economy. Brookfield, VT: Edward Elgar, pp. 173-209 34 01 Unstructured citation Nisticò, R., and F. Prota (2023) “Sviluppo industriale per poli? Le zone economiche speciali in Italia e nel NRRP”, Stato e mercato 2: 227–263, https://dx.doi.org/10.1425/108269 34 06 10.1177/0486613420938207 34 06 10.1093/icc/dtz075 34 01 Unstructured citation Pianta, M. (2021) “La politica industriale al tempo del PNRR”, il Mulino 2: 152–162, https://doi.org/10.1402/101106 34 01 Unstructured citation Presidenza del Consiglio dei Ministri (2022) “Seconda relazione istruttoria sul rispetto del vincolo di destinazione alle regioni del Mezzogiorno di almeno il 40 per cento delle risorse allocabili territorialmente”, June 30, Dipartimento per le Politiche di Coesione, https://politichecoesione.governo.it/media/2954/seconda-relazione-destinazione-mezzogiorno-risorse-pnrr_dati-al-30_06_2022.pdf 34 01 Unstructured citation Prodi, R. (2003) “Industrial Policy in an Enlarged Europe, Speech Delivered at the Conference Industrial Policy in an Enlarged Europe by the President of the European Commission”, Speech Given in Brussels, January 21. 34 01 Unstructured citation PWC (2024) Dalle Zone Economiche Speciali regionali e interregionali alla ZES unica, https://www.pwc.com/it/it/assets/docs/pwc-dalle-ZES-regionali-e-interregionali-alla-ZES-unica.pdf 34 01 Unstructured citation Quadrio Curzio, A., A. Silvani, M. Fortis, and F. Cerniglia (2023) (eds) Le piattaforme tecnico-scientifiche in Europa. Ricerca, economia, innovazione. Bologna: Il Mulino, Collana Fondazione Edison. 34 01 Unstructured citation Resta, F. (2023) “Università e impresa: dal PNRR nuove reti per la ricerca”, in A. Quadrio Curzio A., A. Silvani, and F. Cerniglia (eds), Le piattaforme tecnico-scientifiche in Europa. Ricerca, economia, innovazione. Bologna: Il Mulino, Collana Fondazione Edison, pp. 64–75. 34 01 Unstructured citation Rodrik, D. (2004) “Industrial Policy for the Twenty-First Century”, John F. Kennedy School of Government, Cambridge, MA, September, https://drodrik.scholar.harvard.edu/files/dani-rodrik/files/industrial-policy-twenty-first-century.pdf 34 01 Unstructured citation Viesti, G. (2023) Riuscirà il PNRR a rilanciare l’Italia?. Rome: Donzelli editore. 34 01 Unstructured citation Viesti, G. (2024) “La ZES unica: dal mito alla dura realtà”, Menabò 208, https://eticaeconomia.it/la-zes-unica-dal-mito-alla-dura-realta/ 34 01 Unstructured citation von der Leyen, U. (2019a) “Speech by President-elect von der Leyen in the European Parliament Plenary on the Occasion of the Presentation of her College of Commissioners and their Programme”, Strasbourg, November 27. 34 01 Unstructured citation von der Leyen, U. (2019b) “A Union that Strives for More. My Agenda for Europe, by Candidate for President of the European Commission 2019–2024”, Strasbourg, July 16. 34 01 Unstructured citation White House (2022) Inflation Reduction Act Guidebook. Washington, DC: White House, https://www.whitehouse.gov/cleanenergy/inflation-reduction-act-guidebook/ 7 03 06 10.11647/obp.0434.06 77 95 19 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 5. Public Investment and Structural Transformation in Spain 1 A01 21 0000000328013447 Ignacio Alvarez Ignacio Alvarez Associate Professor of Applied Economics 40 01cby8j38 Universidad Autónoma de Madrid Ignacio Alvarez was the Secretary of State for Social Rights of the Government of Spain between January 2020 and November 2023. He holds a PhD in International Economics from the University Complutense of Madrid. He is currently Associate Professor of Applied Economics at the Autonomous University of Madrid. He has also worked as a Research Associate at the Complutense Institute of International Studies (ICEI), Visiting Professor of Labor Economics at the Spanish National University of Distance Education (UNED) and Assistant Professor at the University of Valladolid. He has been visiting researcher at the University Paris VII-Denis Diderot, at the Lisbon School of Economics and Management and at the University of South-Eastern Norway, and has participated in several European Union research projects (“Inclusive Growth through Wage Coordination”; “Collectively Agreed Wages in the New European Economic Governance”; “Collectively Agreed Wages in Europe”), as well as in several national projects. His research currently focuses on the study of the relationship between income distribution, demand, and economic growth. His academic articles have been published, among other journals, in the Socio-Economic Review, Cambridge Journal of Economics, Structural Change and Economic Dynamics, Review of Keynesian Economics, Work, Employment and Society, International Labour Review, and the Journal of Post Keynesian Economics. 2 A01 21 0000000222181004 Jorge Uxó Jorge Uxó Associate Professor of Applied Economics 40 02p0gd045 Universidad Complutense de Madrid Jorge Uxó has a PhD in Economics by the University Complutense of Madrid. He is currently Associate Professor of Applied Economics at the Complutense University of Madrid and Vice-President of the Spanish Productivity Board. He has been visiting researcher at the University of Coimbra (Centre for Social Studies), University of Alcalá and the European Trade Union Institute (ETUI) and has participated in European Union and national research projects, mainly focused on Macroeconomics and Economic Policy in Spain and the EMU and Post Keynesian Economics. His academic articles have been published, among other journals, in Cambridge Journal of Economics, Structural Change and Economic Dynamics, Review of Keynesian Economics, Review of Political Economy, International Labour Review, Journal of Post Keynesian Economics, Applied Economics or Metroeconomica. 01 eng 03 00 During the decade of 2010–2019, public investment experienced a profound decline in Spain, because of the fiscal austerity policies implemented during the Great Recession. Even with the recovery of economic growth starting in 2015, public investment did not improve and the net capital stock decreased. The COVID-19 pandemic introduced an important change in trend, with a general turnaround in fiscal policies accompanying the disbursement of Next Generation EU funds. These European Union funds will allow the implementation of an industrial transformation strategy focused on key specific sectors with high pulling power and strong multiplier effects. 30 00 During the decade of 2010–2019, public investment experienced a profound decline in Spain, because of the fiscal austerity policies implemented during the Great Recession. Even with the recovery of economic growth starting in 2015, public investment did not improve and the net capital stock decreased. The COVID-19 pandemic introduced an important change in trend, with a general turnaround in fiscal policies accompanying the disbursement of Next Generation EU funds. These European Union funds will allow the implementation of an industrial transformation strategy focused on key specific sectors with high pulling power and strong multiplier effects. 20 00 Open Access Ignacio Álvarez Jorge Uxó; 34 01 Unstructured citation Auerbach, A., and Y. Gorodnichenko (2012) “Fiscal Multipliers in Recession and Expansion”, NBER Working Paper 17447, National Bureau of Economic Research, Cambridge, Massachusetts. 34 01 Unstructured citation Bouabdallah, O. Dorrucci, E. Hoendervangers, L. and Nerlich, C. (2024) “Mind the Gap: Europe’s Strategic Investment Needs and How to Support Them”, The ECB Blog, 27 June, https://www.ecb.europa.eu/press/blog/date/2024/html/ecb.blog240627~2e939aa430.en.html 34 01 Unstructured citation Consejo Económico y Social (2020) La inversión pública en España: situación actual y prioridades estratégicas, Colección Informes, Número 01/2020, Consejo Económico y Social. 34 01 Unstructured citation Darvas, Z., L. Welslau, and J. Zettelmeyer (2024) “Incorporating the Impact of Social Investments and Reforms in the EU’s New Fiscal Framework”, Bruegel Working Paper 07/2024, https://www.bruegel.org/working-paper/incorporating-impact-social-investments-and-reforms-european-unions-new-fiscal 34 01 Unstructured citation Di Bucchianico, S., (2019) “A Bit of Keynesian Debt-to-GDP Arithmetic for Deficit-capped Countries”, Bulletin of Political Economy 13(1): 55–83. 34 01 Unstructured citation Fatas, A., and Mihov, I. (2009) “Why Fiscal Stimulus Is Likely to Work”, International Finance 12(1): 57–73 34 01 Unstructured citation Fernández-Cerezo, A., E. Moral-Benito, and J. Quintana (2023) “The Recovery, Transformation and Resilience Plan and its Macroeconomic Impact from a Sectoral Standpoint”, Economic Bulletin, Bank of Spain, 2023/Q1, https://repositorio.bde.es/bitstream/123456789/29539/1/be2301-art12e.pdf 34 06 10.1111/joes.12241 34 01 Unstructured citation Fundación BBVA-IVIE (2019) El stock de capital en España y sus comunidades autónomas. Evolución de la edad media de las inversiones y envejecimiento del capital, Fundación BBVA-IVIE. 34 01 Unstructured citation Gobierno de España (2023) Plan de Recuperación, Transformación y Resiliencia. IV Informe de Ejecución del Plan de Recuperación, Gobierno de España, December. 34 01 Unstructured citation International Monetary Fund (2014) “Is It Time for an Infrastructure Push? The Macroeconomic Effects of Public Investment”, in World Economic Outlook, October 2014: Legacies, Clouds, Uncertainties. Washington, DC: International Monetary Fund, pp. 75–112. 34 06 10.4337/ejeep.2023.0115 34 01 Unstructured citation Motyovszki, G., P. Pfeiffer, and J. Veld (2024) “The Implications of Public Investment for Debt Sustainability”, Discussion Paper 204 (June), Directorate-General for Economic and Financial Affairs, European Commission, https://economy-finance.ec.europa.eu/system/files/2024-06/dp204_en.pdf 34 01 Unstructured citation Pérez, F., and J. F. de Guevara (eds) (2024) El stock de capital en España y sus Comunidades Autónomas 1995-2023. Cambios recientes en la composición de la inversión y en las respuestas a la crisis, Documentos de Trabajo 1-2024, Fundación BBVA. 34 01 Unstructured citation Rosnick, D., and M. Weibstrot (2015) “Has Austerity Worked in Spain?”, Center for Economic and Policy Research, https://cepr.net/documents/Spain-2015-12.pdf 34 06 10.1016/j.strueco.2024.03.005 8 03 06 10.11647/obp.0434.07 99 108 10 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 6. A New Industrial Policy as the Key to the Green Transition 1 A01 Karl Aiginger Karl Aiginger Professor 40 03yn8s215 Vienna University of Economics and Business Honorary Professor 40 052r2xn60 Johannes Kepler University of Linz Karl Aiginger was born in Vienna on October 23, 1948. He is director of the Policy Crossover Center: Vienna—Europe (www.euiopaplattform.at). He is Professor at the Vienna University of Economics and Business and is an Honorary Professor at the University of Linz. He is Editor-in-Chief of the Journal of Industry, Competition and Trade (JICT). He has been the Director of the Austrian Institute of Economic Research (WIFO) from 2005 to 2016 and Coordinator of the research project “New Dynamics for Europe: Reaping the Benefits of Socio-ecological Transition”—WWWforEurope (http://Synthesis-Report-Part-I.foreurope.eu). He had temporary commitments at Stanford University, MIT, UCLA, and at the University of Changsha (Hunan, China). His research foci are industrial economics, competitiveness, and strategies of firms, regions and countries. The Policy Crossover Center published studies on “More or Less Europe”, Europe taking the lead in responsible globalization, and a European partnership policy with the South and the East. 01 eng 03 00 The world is changing quickly. The former Soviet Union is gone and its successor, Russia, is seeking to reclaim parts of Soviet territory using military force. The United States (US) as a sole remaining superpower cannot take the lead, due to populism, failed democracy, and a lack of resilience. China is on the rise, but autocratic, longing for resources and facing a declining population. Europe is less dynamic and innovative, not yet seen as unified with common goals. New middle powers are gaining shares in production, but are themselves very different. The problems the world faces are changing: peace is no longer guaranteed, global warming is accelerating, poverty is on the decline but re emerging in other ways, and migration policy is becoming more and more important. The green transition may be an engine of change and new dynamics, but there are also many backlashes. In this situation, a new industrial policy is needed—one very different from that of the past. We begin by describing the past policy as an isolated policy, along with the questions of whether such a policy is needed in a capitalistic economy and whether it should focus on “important sectors” (the sectoral or French approach) or “important activities” (the horizonal or German approach). We then turn to the increasing importance of international exports/ investments and the necessity for a green transition, but also new forms of protectionism and backlashes. This chapter builds on Aiginger and Rodrik (2020) with respect to “industrial policy for the 21st century”, as well as on Aiginger and Ketels (2024) for its “reloading” after the most recent changes in the policy environment. 30 00 The world is changing quickly. The former Soviet Union is gone and its successor, Russia, is seeking to reclaim parts of Soviet territory using military force. The United States (US) as a sole remaining superpower cannot take the lead, due to populism, failed democracy, and a lack of resilience. China is on the rise, but autocratic, longing for resources and facing a declining population. Europe is less dynamic and innovative, not yet seen as unified with common goals. New middle powers are gaining shares in production, but are themselves very different. The problems the world faces are changing: peace is no longer guaranteed, global warming is accelerating, poverty is on the decline but re emerging in other ways, and migration policy is becoming more and more important. The green transition may be an engine of change and new dynamics, but there are also many backlashes. In this situation, a new industrial policy is needed—one very different from that of the past. We begin by describing the past policy as an isolated policy, along with the questions of whether such a policy is needed in a capitalistic economy and whether it should focus on “important sectors” (the sectoral or French approach) or “important activities” (the horizonal or German approach). We then turn to the increasing importance of international exports/ investments and the necessity for a green transition, but also new forms of protectionism and backlashes. This chapter builds on Aiginger and Rodrik (2020) with respect to “industrial policy for the 21st century”, as well as on Aiginger and Ketels (2024) for its “reloading” after the most recent changes in the policy environment. 20 00 Open Access Karl Aiginger 34 01 Unstructured citation Acemoglu D. (2023) “Letter from America: When Industry Means Hard Work”, Royal Economic Society, https://res.org.uk/newsletter/letter-from-america-when-industry-means-hard-work/ 34 06 10.1007/s10842-024-00415-8 34 06 10.1007/s10842-019-00322-3 34 06 10.1080/02692170601005507 34 01 Unstructured citation Austin, B., E. Glaeser, and L. Summers (2018) “Saving the Heartland: Place-based Policies in 21st Century America. Brookings Papers of Economic Activity”, Brookings, https://www.brookings.edu/articles/saving-the-heartland-place-based-policies-in-21st-century-america/ 34 06 10.1353/eca.2022.0005 34 01 Unstructured citation Aiyar, S., and A. Ilyna (2023) “Geoeconomic Fragmentation and the Future of Multilateralism”, IMF Staff Discussion Notes 2023(001), https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2023/01/11/Geo-Economic-Fragmentation-and-the-Future-of-Multilateralism-527266 34 01 Unstructured citation Birdsall, N. M., J. E. L. Campos, C. S. Kim, W. M. Corden, L. MacDonald, H. Pack, J. Page, R. Sabor, and J. E. Stiglitz (1993) The East Asian Miracle: Economic Growth and Public Policy: Main Report (English). A World Bank Policy Research Report. Washington, DC: World Bank Group, http://documents.worldbank.org/curated/en/975081468244550798/Main-report 34 01 Unstructured citation Chang, H. J. (2002) Kicking Away the Ladder: Development Strategy in Historical Perspective. London: Anthem Press. 34 06 10.3386/w17842 34 01 Unstructured citation Draghi, M. (2024) The Future of European Competitiveness. Brussels: European Commission, https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en 34 01 Unstructured citation Economist, The (2024) “Can India, Indonesia, and Saudi Arabia be the Next Great Economies”, The Economist, 4 January, https://www.economist.com/leaders/2024/01/04/can-india-indonesia-and-saudi-arabia-be-the-next-great-economies 34 01 Unstructured citation Gil, I. S., and M. Raiser (2012) Golden Growth: Restoring the Lustre of the European Economic Model. Washington, DC: World Bank Group. 34 01 Unstructured citation Irwin, D. A. (2020) “The Washington Consensus Stands Test of Time Better than Populist Policies”, 4 December, Peterson Institute for International Economics, https://www.piie.com/blogs/realtime-economics/washington-consensus-stands-test-time-better-populist-policies 34 06 10.1051/shsconf/202317602009 34 01 Unstructured citation Javorcik, B. S., L. Kitzmueller, H. Schweiger, and M. A. Yildirim (2023) “Economic Costs of Friend-shoring”, CID Faculty Working Paper 422, https://growthlab.hks.harvard.edu/publications/economic-costs-friend-shoring 34 06 10.1146/annurev-economics-081023-024638 34 01 Unstructured citation Kelsey, T. (2023) “When Missions Fail: Lessons in ‘High Technology’ from Post-War Britain”, Blavatnik School of Government Working Paper 2023–056, https://www.bsg.ox.ac.uk/sites/default/files/2023-12/BSG-WP%E2%80%932023-056-When-Missions-Fail.pdf 34 01 Unstructured citation Ketels, C., and E. Duch (2022) “Industrial Policy in a New Global Reality: Towards a More Location- and Sector-Driven Approach”, Private Sector Development Blog, 11 July, https://blogs.worldbank.org/psd/industrial-policy-new-global-reality-towards-more-location-and-sector-driven-approach 34 01 Unstructured citation Ketels. C., M. E. Porter, and A. Kapoor (2022) Competitiveness Roadmap for India @ 100. Delhi: Economic Advisory Council of the Prime Minister, https://www.hbs.edu/ris/Publication%20Files/Report_Competitiveness_Roadmap-25_August_2022_Web_Version_690d1fab-dce8-48a0-8cd5-6d6a63a6d5eb.pdf 34 01 Unstructured citation Kose, M. A, and F. Ohnsorge (2023) Falling Long Term Growth Prospects: Trends, Expectations, and Policies. Washington, DC: World Bank, https://openknowledge.worldbank.org/handle/10986/39497 34 06 10.2307/j.ctvc776tv 34 01 Unstructured citation Mazzucato, M. (2021) Mission Economy: A Moonshot Guide to Changing Capitalism. London: Allen Lane. 34 01 Unstructured citation Nayyar, D., and G. Nayyar (2024) “Made in India: Industrial Policy in a Changing World”, Journal of Industry, Competition and Trade 24(1): 13. 34 06 10.1007/s10842-024-00420-x 34 01 Unstructured citation Rodrik, D. (2015) “Premature Deindustrialization”, NBER Working Paper 20935, https://www.nber.org/system/files/working_papers/w20935/w20935.pdf 34 01 Unstructured citation Rodrik, D., and J. Stiglitz (2024) “A New Growth Strategy for Developing Nations”, Harvard, https://drodrik.scholar.harvard.edu/sites/scholar.harvard.edu/files/dani-rodrik/files/a_new_growth_strategy_for_developing_nations.pdf 34 06 10.1007/s10842-024-00418-5 34 01 Unstructured citation Yellen, J. (2022) “Remarks at Microsoft in New Delhi”, US Department of the Treasury, 11 November, https://home.treasury.gov/news/press-releases/jy1096 9 03 06 10.11647/obp.0434.08 109 134 26 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 7. A “True” Industrial Policy for Europe Is a Technology and Innovation Policy 1 A01 Reda Cherif Reda Cherif Senior Economist 40 05m4rmw09 International Monetary Fund Affiliated Researcher at the Bennett Institute for Public Policy 40 013meh722 University of Cambridge Senior Research Advisor at the Center of Technology and Industrialization for Development (TIDE) 40 052gg0110 University of Oxford Reda Cherif is a Senior Economist at the International Monetary Fund (IMF), an Affiliated Researcher at the Bennett Institute for Public Policy at the University of Cambridge, a Senior Research Advisor at the Center of Technology and Industrialization for Development (TIDE), University of Oxford, and a Fellow at the Royal Society for the Arts. He joined the IMF in 2008, as part of the Economist Program, and worked in several departments: in the Fiscal Affairs Department, where he was an economist on the Gabon program; in the Middle East and Central Asia Department, where he covered Saudi Arabia, Qatar and Bahrain; and in the African Department, where he worked in the Regional Studies Division, issuing analytical work on trade, competition and oil economies. He has published numerous articles on the energy transition, public debt dynamics, commodity exporters, development, industrial policy, growth, and innovation. His work was published in the Journal of Development Economics and World Development among others, and it was featured in the Economist, Financial Times and National Geographic. He is the co-editor, with Fuad Hasanov and Min Zhu, of Breaking the Oil Spell, a book studying economic diversification in oil exporters. Reda holds an MSc in Economics from the London School of Economics and a PhD in Economics from the University of Chicago. 2 A01 21 0000000220234547 Fuad Hasanov Fuad Hasanov Senior Economist 40 05m4rmw09 International Monetary Fund Adjunct Professor of Economics 40 05vzafd60 Georgetown University Affiliated Researcher at the Bennett Institute for Public Policy 40 013meh722 University of Cambridge Fuad Hasanov is a Senior Economist at the International Monetary Fund (IMF), an Adjunct Professor of Economics at Georgetown University, an Affiliated Researcher at the Bennett Institute for Public Policy at the University of Cambridge, and a Senior Research Advisor at the Technology and Industrialization for Development (TIDE) Centre at the University of Oxford. Before joining the IMF in 2007, Fuad was an Assistant Professor of Economics at Oakland University in Rochester, Michigan. His recent research focuses on natural resources, growth and innovation, and industrial policy. He is the co-editor, with Reda Cherif and Min Zhu, of Breaking the Oil Spell that examines economic diversification in oil-exporting countries. Fuad received a PhD, MS, and BA in economics from the University of Texas at Austin. 3 A01 21 0000000219794731 Xun Li Xun Li Research Analyst 40 05m4rmw09 International Monetary Fund Xun Li is a Research Analyst at the International Monetary Fund (IMF). At the IMF, Xun has contributed to surveillance and policy formulation to promote sustainable economic growth in Europe. Xun holds a Master in Public Administration from Columbia University School of International and Public Affairs, specializing in renewable energy financial modeling and energy and environmental economic analysis. 01 eng 03 00 Since the Global Financial Crisis of 2008, the “core” European countries have been losing their competitive edge in global markets for sophisticated products such as electronics and green transportation and power technologies, while also missing out on the earlier revolution in information and communication technology (ICT). Meanwhile, the “periphery” European countries have been slowing down and, in pre-crisis years, have mostly channelled their investment into non-tradable industries, concentrating their resources in relatively lower productivity and lower skill activities. The slowdown in growth and convergence highlights the need to reignite productivity and economic dynamism. Lessons from the Asian economic miracles and Europe’s own growth experience suggest the importance of developing sophisticated sectors. The development of these sectors is riddled with both government and market failures, requiring adequate policies to tackle them. We argue that a “true” industrial policy for Europe is a technology and innovation policy (TIP) that focuses on correcting market failures to spur innovation, scale up, and support production networks in sophisticated industries across Europe while reorienting the engines of growth of “periphery” economies toward sophisticated sectors and their complex value chains. TIP’s guiding principles are a focus on global markets, competition, and a strict accountability framework, where the “hard” tools such as tariffs and subsidies may not be necessary and may be potentially counterproductive. 30 00 Since the Global Financial Crisis of 2008, the “core” European countries have been losing their competitive edge in global markets for sophisticated products such as electronics and green transportation and power technologies, while also missing out on the earlier revolution in information and communication technology (ICT). Meanwhile, the “periphery” European countries have been slowing down and, in pre-crisis years, have mostly channelled their investment into non-tradable industries, concentrating their resources in relatively lower productivity and lower skill activities. The slowdown in growth and convergence highlights the need to reignite productivity and economic dynamism. Lessons from the Asian economic miracles and Europe’s own growth experience suggest the importance of developing sophisticated sectors. The development of these sectors is riddled with both government and market failures, requiring adequate policies to tackle them. We argue that a “true” industrial policy for Europe is a technology and innovation policy (TIP) that focuses on correcting market failures to spur innovation, scale up, and support production networks in sophisticated industries across Europe while reorienting the engines of growth of “periphery” economies toward sophisticated sectors and their complex value chains. TIP’s guiding principles are a focus on global markets, competition, and a strict accountability framework, where the “hard” tools such as tariffs and subsidies may not be necessary and may be potentially counterproductive. 20 00 Open Access Reda Cherif Fuad Hasanov Xun Li; 34 01 Unstructured citation Adler, D. (2021) “Inside Operation Warp Speed: A New Model for Industrial Policy”, American Affairs V(2): 3–32, https://americanaffairsjournal.org/2021/05/inside-operation-warp-speed-a-new-model-for-industrial-policy/ 34 01 Unstructured citation Aghion, P. (2016) “Growth Policy Design for Middle-Income Countries”, in R. Cherif, F. Hasanov, and M. Zhu (eds), Breaking the Oil Spell: The Gulf Falcons’ Path to Diversification. Washington, DC: International Monetary Fund, pp. 117–130. 34 01 Unstructured citation Aghion, P., R. Cherif, and F. Hasanov (2022) “Competition and Innovation”, in V. Cerra, B. Eichengreen, A. El-Ganainy, and M. Schindler (eds), How To Achieve Inclusive Growth. Oxford: Oxford University Press, pp. 212–237. 34 01 Unstructured citation Arnold, N., G. Claveres, and J. Frie (2024) “Stepping Up Venture Capital to Finance Innovation in Europe”, IMF Working Paper 24/146. 34 01 Unstructured citation Atlas of Economic Complexity, The (2024) Harvard University, Growth Lab, https://atlas.cid.harvard.edu. 34 01 Unstructured citation Bergeaud, A. (2024) “The Past, Present, and Future of European Productivity”, Working Paper, ECB Forum on Central Banking, July 1–3, https://www.ecb.europa.eu/pub/pdf/sintra/ecb.forumcentbankpub2024_Bergeaud_paper.en.pdf 34 01 Unstructured citation Ali-Yrkkö, J., R. Cherif, F. Hasanov, N. Kuosmanen, and M. Pajarinen (2021) “Knowledge Spillovers from Superstar Tech-Firms: The Case of Nokia”, IMF Working Paper 2021/258, https://www.imf.org/en/Publications/WP/Issues/2021/10/29/Knowledge-Spillovers-From-Superstar-Tech-Firms-The-Case-of-Nokia-501347 34 01 Unstructured citation Cherif, R., and F. Hasanov (2018) “Public Debt Dynamics: The Effects of Austerity, Inflation, and Growth Shocks”, Empirical Economics 54(3): 1087–1105. 34 01 Unstructured citation Cherif, R., and F. Hasanov (2019a) “Return of the Policy That Shall Not Be Named: Principles of Industrial Policy”, IMF Working Paper 2019/74, https://www.imf.org/en/Publications/WP/Issues/2019/03/26/The-Return-of-the-Policy-That-Shall-Not-Be-Named-Principles-of-Industrial-Policy-46710 34 01 Unstructured citation Cherif, R., and F. Hasanov (2019b) “Principles of True Industrial Policy”, Journal of Globalization and Development 10(1): 1–22. 34 01 Unstructured citation Cherif, R., and F. Hasanov (2019c) “The Leap of the Tiger: Escaping the Middle‐income Trap to the Technological Frontier”, Global Policy 10(4): 497–511. 34 01 Unstructured citation Cherif, R., and F. Hasanov (2024) “The Pitfalls of Protectionism: Import Substitution vs. Export-Oriented Industrial Policy”, Journal of Industry, Competition and Trade 24(1): 1–34. 34 01 Unstructured citation Cherif, R., F. Hasanov, and A. Pande (2017) “Riding the Energy Transition: Oil Beyond 2040”, IMF Working Paper 2017/120, https://www.imf.org/en/Publications/WP/Issues/2017/05/22/Riding-the-Energy-Transition-Oil-Beyond-2040-44932 34 01 Unstructured citation Cherif, R., F. Hasanov, and A. Pande (2021) “Riding the Energy Transition: Oil beyond 2040”, Asian Economic Policy Review 16(1): 117–137. 34 01 Unstructured citation Cherif, R., F. Hasanov, and M. Sarsenbayev (2024) “Call of Duty: Industrial Policy for Post-Oil Era”, IMF Working Paper 2024/74. https://www.imf.org/en/Publications/WP/Issues/2024/03/29/Call-of-Duty-Industrial-Policy-for-the-Post-Oil-Era-546941 34 01 Unstructured citation Cherif, R., F. Hasanov, and P. Aghion (2023) “Fair and Inclusive Markets: Why Dynamism Matters”, IMF Working Paper 2021/29, https://www.imf.org/en/Publications/WP/Issues/2021/02/06/Fair-and-Inclusive-Markets-Why-Dynamism-Matters-50052 34 01 Unstructured citation Cherif, R., F. Hasanov, and M. Zhu (2021) “The Electric Vehicle Revolution Goes Global”, August 30, Project Syndicate, https://www.project-syndicate.org/commentary/electirc-vehicles-in-developing-and-emerging-economies-by-reda-cherif-et-al-2021-08 34 01 Unstructured citation Draghi, M. (2024a) “Radical Change—Is What Is Needed”, Speech at the High-level Conference on the European Pillar of Social Rights, Brussels, April 16, https://geopolitique.eu/en/2024/04/16/radical-change-is-what-is-needed/ 34 01 Unstructured citation Draghi, M. (2024b) The Future of European Competitiveness. Brussels: European Commission, https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en 34 01 Unstructured citation Duchatel, M. (2022) “Semiconductors in Europe: The Return of Industrial Policy” Institut Montaigne, Policy Paper, https://www.institutmontaigne.org/ressources/pdfs/publications/europe-new-geopolitics-technology-1.pdf 34 01 Unstructured citation European Commission (2024) “Euro Area Competitiveness: Opportunities and Value Added of a European Industrial Policy. A Note to the Eurogroup for June 20, 2024 Meeting”, https://www.consilium.europa.eu/media/dfcjg0yd/com-note-ea-competitiveness-industrial-policy.pdf 34 01 Unstructured citation Evans, P. (1995) Embedded Autonomy: States and Industrial Transformation. Princeton, NJ: Princeton University Press. 34 01 Unstructured citation Fortune (1998) “The World’s Largest Corporations”, 138(3): F1–F10. 34 01 Unstructured citation Fortune (2010) “Global 500”, 162(2): 153–F7. 34 01 Unstructured citation Fortune (2015) “Global 500”, 172(2): F1–F6. 34 01 Unstructured citation Fuest, C., D. Gros, P. Mengel, G. Presidente, and J. 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Xu (2023) “Competition, Open Innovation, and Growth Challenges in the Semiconductor Industry: The Case of Europe’s Clusters”, Science and Public Policy 50: 531–547. 34 01 Unstructured citation IMF (2024a) “Euro Area Policies—2024 Annual Consultation”, IMF Country Report 24/248, https://www.imf.org/en/Publications/CR/Issues/2024/07/29/Euro-Area-Policies-2024-Annual-Consultation-Press-Release-Staff-Report-and-Statement-by-the-552578 34 01 Unstructured citation IMF (2024b) “Soft Landing in Crosswinds for a Lasting Recovery”, IMF Regional Economic Outlook, April, https://www.imf.org/en/Publications/REO/EU/Issues/2024/04/05/regional-economic-outlook-europe-april-2024 34 01 Unstructured citation Kleinhans, J.-P. (2024) “The Missing Strategy in Europe’s Chip Ambitions”, July, interface, https://www.interface-eu.org/publications/europe-semiconductor-strategy 34 01 Unstructured citation Kleinhans, J.-P., and N. Baisakova (2020) “The Global Semiconductor Value Chain: A Technology Primer for Policymakers”, October, Stiftung Neue Verantwortung Policy Paper. 34 01 Unstructured citation Letta, E. (2024) Much More Than a Market, https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf 34 01 Unstructured citation Mazzucato, M. (2013) The Entrepreneurial State: Debunking Public vs. Private Sector Myths. New York: Public Affairs. 34 01 Unstructured citation Pisano, G., and W. Shih (2012) Producing Prosperity: Why America Needs a Manufacturing Renaissance. Cambridge, MA: Harvard Business Review Press. 34 01 Unstructured citation SIA (2024) “Semiconductor Industry Association Factbook”, SIA, https://www.semiconductors.org/resources/factbook/ 34 06 10.7312/stig15214 10 03 06 10.11647/obp.0434.09 135 148 14 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 8. Industrial Policy and Security The European Union and the Double Challenge: Strengthening Competitiveness and Enhancing Economic Security 1 A01 Paolo Guerrieri Paolo Guerrieri Visiting Professor at PSIA, Paris School of International Affairs 40 05fe7ax82 Sciences Po, Paris Paolo Guerrieri is Visiting Professor at PSIA, Paris School of International Affairs, Sciences Po, Paris. He was Professor of Economics at the University of Rome “La Sapienza” and Visiting Professor at the College of Europe, Bruges (Belgium) and the USD Business School, University of San Diego, California. 2 A01 Pier Carlo Padoan Pier Carlo Padoan Full Professor of Economics retired 40 02be6w209 Sapienza University of Rome Pier Carlo Padoan who has been Italian Minister of Economy and Finance and Member of the Chamber of Deputies of the Italian Republic, is Chairman of UniCredit since April 2021. He is Full Professor of Economics retired at the La Sapienza University of Rome. He is currently Vice President of Istituto Affari Internazionali, Board member of the Institute of International Finance, a member of the Luiss Institute for European Analysis and Policy, and a member of the BoD and Executive Committee of ABI. In 2021 he was also appointed member of the Board of Istituto Luigi Einaudi and of the Committee for Corporate Governance of Borsa Italiana. He is currently a member of the European Financial Services Round Table, and of the Executive Committee of Assonime. In May 2022 he became Chairperson of the High Level Group on Financing Sustainability Transition, which is part of the High Level Groups on EU Policy and Innovation. He has been Deputy Secretary General and Chief Economist of OECD and Executive Director of the International Monetary Fund. He has held academic positions at the University of Rome, College of Europe (Bruges and Warsaw), Université Libre de Bruxelles, University of Urbino, Universidad de la Plata, Chulalongkorn University and University of Tokyo. 01 eng 03 00 This chapter argues that the European Union’s (EU) dual challenge— enhancing both competitiveness and economic security—must form the core of its open strategic autonomy framework, which integrates national security considerations with economic policy. The chapter explores the vulnerabilities and strengths of the EU’s industrial and technological strategies, emphasizing the need for deeper European integration and more robust governance to meet these challenges. Central to this effort is the provision of European public goods (EPGs), such as climate policy, energy security, and technological development, which require stronger EU-level governance and financial resources. To ensure long-term resilience and relevance in a fragmented world, Europe must undertake a profound restructuring of its economic governance and enhance its strategic autonomy. 30 00 This chapter argues that the European Union’s (EU) dual challenge— enhancing both competitiveness and economic security—must form the core of its open strategic autonomy framework, which integrates national security considerations with economic policy. The chapter explores the vulnerabilities and strengths of the EU’s industrial and technological strategies, emphasizing the need for deeper European integration and more robust governance to meet these challenges. Central to this effort is the provision of European public goods (EPGs), such as climate policy, energy security, and technological development, which require stronger EU-level governance and financial resources. To ensure long-term resilience and relevance in a fragmented world, Europe must undertake a profound restructuring of its economic governance and enhance its strategic autonomy. 20 00 Open Access Paolo Guerrieri Pier Carlo Padoan; 34 01 Unstructured citation Aghion, P. (2023) “An Innovation-Driven Industrial Policy for Europe” in S. Tagliapietra and R. Veugelers (eds), Sparking Europe’s New Industrial Revolution: A Policy for Net Zero, Growth and Resilience. Brussels: Bruegel, pp. 29–41, https://www.bruegel.org/sites/default/files/private/2023-08/Bruegel Blueprint 33_chapter 2.pdf 34 06 10.1007/s11135-023-01685-w 34 01 Unstructured citation Beaucillon, C., and S. Poli (2023) “Special Focus on EU Strategic Autonomy and Technological Sovereignty: An Introduction”, European Papers 8(2): 411–416, https://www.europeanpapers.eu/en/europeanforum/special-focus-eu-strategic-autonomy-and-technological-sovereignty-introduction 34 01 Unstructured citation Bergsten, C. F. (2022) The United States vs China: The Quest for Global Economic Leadership. New York: Polity Books. 34 01 Unstructured citation Bontadini, F., V. Meliciani, M. Savona, and A. Wikierman (2023) “Nearshoring, Global Value Chains’ Structure and Volatility”, LEAP Working Papers 8/23, https://leap.luiss.it/wp-content/uploads/2023/09/WP8.23-Nearshoring-global-value-chains-structure-and-volatility2.pdf 34 01 Unstructured citation Buti, M., A. Coloccia, and M. Messori (2023) “European Public Goods”, June 9, CEPR, https://cepr.org/voxeu/columns/european-public-goods 34 01 Unstructured citation Dadush, U. (2022) “Is the Post-War Trading System Ending?”, Policy Contribution 04/2022: 1–12, https://www.bruegel.org/sites/default/files/wp-content/uploads/2022/02/PC-04.pdf 34 01 Unstructured citation European Commission (2020) “European Raw Materials Alliance (ERMA)”, European Commission, https://single-market-economy.ec.europa.eu/industry/industrial-alliances/european-raw-materials-alliance_en 34 01 Unstructured citation European Commission (2021) “Trade Policy Review: An Open, Sustainable and Assertive Trade Policy”, COM(2021) 66, February 18, https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A52021DC0066 34 01 Unstructured citation European Commission (2023a) “A Green Deal Industrial Plan for the Net-Zero Age”, COM(2023) 62, February 1, https:// eur-lex.europa.eu/legal-content/EN/ TXT/HTML/?uri=CELEX:52023DC0062 34 01 Unstructured citation European Commission (2023b) “Joint Communication to the European Parliament, the European Council and the Council on ‘European Economic Security Strategy’, JOIN(2023) 20, June 20, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52023JC0020 34 01 Unstructured citation European Commission (2023c) “Joint Communication to the European Parliament and the European Council on ‘A Secure and Sustainable Supply of Critical Raw Materials in Support of the Twin Transition”, COM(2023) 165, March 16, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM%3A2023%3A165%3AFIN 34 01 Unstructured citation European Commission (2024) “Communication from the Commission to the European Parliament and the European Council on Advancing European Economic Security: An Introduction to Five New Initiatives”, COM(2024) 22, January 24, https://commission.europa.eu/system/files/2024-01/Communication on European economic security.pdf 34 06 10.1162/isec_a_00351 34 01 Unstructured citation Georgieva, K., G. Gopinath, and C. Pazarbasioglu (2022) “Why We Must Resist Geoeconomic Fragmentation and How”, IMF Blog, May 22, https://www.imf.org/en/Blogs/Articles/2022/05/22/blog-why-we-must-resist-geoeconomic-fragmentation 34 01 Unstructured citation Guerrieri, P., and P. C. Padoan (2020) L’economia europea. Tra crisi e rilancio. Bologna: il Mulino. 34 01 Unstructured citation Guerrieri, P., and P. C. Padoan (2024) Sovereign Europe. An Agenda for Europe in a Fragmented Global Economy. Brookfield, VT: Edward Elgar. 34 01 Unstructured citation Hoekman, B. M., and L. Puccio (2019) “EU Trade Policy: Challenges and Opportunities”, RSC Policy Papers 6, https://hdl.handle.net/1814/61589 34 01 Unstructured citation IMF (2022) “Geo-Economic Puzzle: Policy Making in a More Fragmented World”, Finance and Development 59(2). 34 01 Unstructured citation IMF (2023) “Geoeconomic Fragmentation: What’s at Stake for the EU”, IMF Working Papers 245, https://www.imf.org/en/Publications/WP/Issues/2023/11/29/Geoeconomic-Fragmentation-Whats-at-Stake-for-the-EU-541864 34 06 10.1017/s0020818320000636 34 06 10.1080/09692290.2023.2211281 34 06 10.1111/jcms.12932 34 06 10.1111/jcms.13428 34 06 10.1111/1758-5899.13303 34 01 Unstructured citation Sullivan, J. (2023) “Renewing American Economic Leadership”, Speech Given at Brookings Institution, Washington DC, April 27. 34 01 Unstructured citation Tagliapietra, S., and R. Veugelers (eds) (2023) Sparking Europe’s New Industrial Revolution: A Policy for Net Zero, Growth and Resilience. Brussels: Bruegel. 34 01 Unstructured citation Tamma, P. (2020) “Europe Wants ‘Strategic Autonomy’. It Just Has to Decide What That Means”, October 15, POLITICO, https://www.politico.eu/article/europe-trade-wants-strategic-autonomy-decide-what-means/ 34 01 Unstructured citation Tocci, N. (2021) “European Strategic Autonomy: What It Is, Why We Need It, How to Achieve It”, Istituto Affari Internazionali, https://www.iai.it/sites/default/files/9788893681780.pdf 34 06 10.1111/jcms.13366 34 01 Unstructured citation Zuleeg, F. (2023) “Economic Security: A New EU Paradigm?”, Discussion Paper, European Policy Centre, June 8, https://www.epc.eu/en/publications/Economic-security-A-new-EU-paradigm~516bc0 11 03 06 10.11647/obp.0434.10 149 168 20 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 9. Trends in Defence Spending in the European Union 1 A01 21 0000000177063868 Alessandra Cepparulo Alessandra Cepparulo Alessandra Cepparulo obtained her PhD in Political Economics at Sapienza University of Roma. She worked, as a post-doctoral researcher, at different universities in Italy and abroad and as a researcher, in several projects involving Italian national authorities and in international context. She is a Public Economist, whose research interests cover a wide set of issues: public finance and fiscal rules, forecast errors, quality of public expenditures, public investments and PPPs. She is currently working at the European Commission, DG ECFIN, in the unit responsible of fiscal policy and fiscal surveillance. 2 A01 21 0000000153508834 Paolo Pasimeni Paolo Pasimeni Senior Associate Researcher at the Brussels School of Governance 40 006e5kg04 Vrije Universiteit Brussel Paolo Pasimeni is Deputy Chief Economist at the European Commission, DG Internal Market and Industry, and Senior Associate Researcher at the Brussels School of Governance of the Vrije Universiteit Brussel (VUB). Specialized in international macroeconomics, his main field of expertise is the macroeconomic analysis of the single market and of the economic and monetary union (EMU). Expert on monetary, f iscal and structural policies, he has been working on the proposals for EMU reform, in particular on the design of a stabilization capacity. He has also worked on labour market analysis, as well as on the conception of the EU multi-annual budget. Personal webpage: https://brussels-school.be/team/paolo-pasimeni 01 eng 03 00 After more than sixty years of peace, in 2022 Europe has faced a watershed moment in its security, which is leading to higher and more integrated defence spending in the European Union (EU). This article uses new sources of data to illustrate the evolution of defence spending in the EU and its composition. It also looks at the articulation of responsibilities for defence spending in a multi-level governance system, such as the EU. The institutional evolution of defence policy in the EU tries to build on a progressive convergence of foreign policy objectives and points towards some concentration of defence spending at the supra-national level. The key question for the future is to what extent this convergence will hold and to what extent it will be reflected in new provisions for defence in the common budget. 30 00 After more than sixty years of peace, in 2022 Europe has faced a watershed moment in its security, which is leading to higher and more integrated defence spending in the European Union (EU). This article uses new sources of data to illustrate the evolution of defence spending in the EU and its composition. It also looks at the articulation of responsibilities for defence spending in a multi-level governance system, such as the EU. The institutional evolution of defence policy in the EU tries to build on a progressive convergence of foreign policy objectives and points towards some concentration of defence spending at the supra-national level. The key question for the future is to what extent this convergence will hold and to what extent it will be reflected in new provisions for defence in the common budget. 20 00 Open Access Alessandra Cepparulo Paolo Pasimeni; 34 06 10.1016/j.ejpoleco.2012.07.002 34 06 10.1007/s11127-008-9324-8 34 01 Unstructured citation Antolin-Diaz, J., and P. Surico (2022) “The Long-Run Effects of Government Spending”, CEPR Discussion Paper 17433. 34 01 Unstructured citation Benoit, E. (1978) “Growth and Defense in Developing Countries”, Economic Development and Cultural Change 26(2): 271–280. 34 06 10.1080/14751798.2017.1311039 34 06 10.1017/s1755773921000102 34 01 Unstructured citation Becker, J., and J. P. Dunne (2021) “Military Spending Composition and Economic Growth”, Defence and Peace Economics 34(3): 259–271. 34 06 10.1177/00223433231215785 34 01 Unstructured citation Buti, M., and G. Papaconstantinou (2022) “European Public Goods: How Can We Supply More?”, Policy Brief 3, Luiss School of European Political Economy, https://leap.luiss.it/wp-content/uploads/2022/06/PB3.22-European-Public-Goods.-How-can-we-supply-more.pdf 34 01 Unstructured citation Cepparulo, A., and P. Pasimeni (2024) “Defence Spending in the European Union” Discussion Paper 199, European Commission, https://economy-finance.ec.europa.eu/publications/defence-spending-european-union_en 34 06 10.1007/s00181-017-1300-z 34 01 Unstructured citation Ciaffi, G., M. Deleidi, and M. Mazzucato (2024) “Measuring the Macroeconomic Responses to Public Investment in Innovation: Evidence from OECD Countries”. Industrial and Corporate Change 33(2): 363–382. 34 01 Unstructured citation Council of the European Union (7371/22) “A Strategic Compass for Security and Defence—For a European Union that Protects its Citizens, Values and Interests and Contributes to International Peace and Security”. 34 01 Unstructured citation Council Decision (CFSP) (2017) “Council Decision 2017/2315 of 11 December 2017”, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32017D2315&from=EN 34 01 Unstructured citation Deleidi, M., and M. Mazzucato (2019) “Mission-Oriented Innovation Policies: A Theoretical and Empirical Assessment for the US Economy”, Departmental Working Papers of Economics - University ‘Roma Tre’ 0248, Department of Economics - University Roma Tre. 34 06 10.1016/j.respol.2020.104151 34 01 Unstructured citation Draghi, M. (2024a) The Future of European Competitiveness. Part A: A Competitiveness Strategy for Europe. Brussels: European Commission. 34 01 Unstructured citation Draghi, M. (2024b) The Future of European Competitiveness. Part B: In-depth Analysis and Recommendations. Brussels: European Commission. 34 01 Unstructured citation Dunne, J. P., R. Smith, and D. Willenbockel (2005) “Models of Military Expenditure and Growth: A Critical Review”, Defence and Peace Economics 16(6): 449–460. 34 06 10.15355/epsj.11.2.50 34 06 10.1080/10242694.2019.1636182 34 01 Unstructured citation European Commission (2017) JOIN. 41 Final Improving Military Mobility in the European Union. Brussels: European Commission. 34 01 Unstructured citation European Commission (2018) JOIN. 5 Final On the Action Plan on Military Mobility. Brussels: European Commission. 34 01 Unstructured citation European Commission (2022a) JOIN. 48 Action Plan on Military Mobility 2.0. Brussels: European Commission. 34 01 Unstructured citation European Commission (2022b) JOIN. 24 Final On the Defence Investment Gaps Analysis and Way Forward. Brussels: European Commission. 34 01 Unstructured citation European Commission (2024) JOIN. 10 Final A New European Defence Industrial Strategy: Achieving EU Readiness through a Responsive and Resilient European Defence Industry. Brussels: European Commission. 34 01 Unstructured citation European Council (1999a) “Declaration of the European Council on Strengthening the Common European Security and Defence”, European Council, Cologne 3–4 June 1999, https://www.europarl.europa.eu/summits/kol1_en.htm 34 01 Unstructured citation European Council (1999b) “Presidency Conclusions”, Helsinki European Council, 10–11 December 1999, https://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/ACFA4C.htm 34 01 Unstructured citation European Council (March 2024) “Conclusions—21 and 22 March 2024”, https://www.consilium.europa.eu/media/70880/euco-conclusions-2122032024.pdf 34 01 Unstructured citation EDA (2018) Factsheet: Capability Development Plan. Brussels: EDA, https://eda.europa.eu/publications-and-data/factsheets/factsheet-capability-development-plan 34 01 Unstructured citation EDA (2021) Annual Report. Brussels: EDA. 34 01 Unstructured citation EDA (2022) 2022 Coordinated Annual Review on Defence Report. Brussels: EDA. 34 01 Unstructured citation EDA (2023) Annual Report. Brussels: EDA. 34 01 Unstructured citation EU (2014) “The Mechanism for Financing Military Operations (Athena). Summaries of EU Legislation”, https://eur-lex.europa.eu/EN/legal-content/summary/the-mechanism-for-financing-military-operations-athena.html 34 06 10.1080/07036337.2023.2183395 34 01 Unstructured citation Fuest, C., and J. Pisani-Ferry (2019) “A Primer on Developing European Public Goods”, EconPol Policy Report 16(3), https://www.econstor.eu/bitstream/10419/219519/1/econpol-pol-report-16.pdf 34 06 10.1080/07036337.2023.2239998 34 01 Unstructured citation Letta, E. (2024) Much More Than a Market, https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf 34 01 Unstructured citation Malizard, J. (2015) “Does Military Expenditure Crowd Out Private Investment? A Disaggregated Perspective for the Case of France”, Economic Modelling 46: 44–52. 34 01 Unstructured citation Mazur, S. (2021) “Security and Defence Heading 5 of the 2021–2027 MFF”, Briefing 2021–2027 MFF, European Parliamentary Research Service, https://www.europarl.europa.eu/RegData/etudes/BRIE/2021/690545/EPRS_BRI(2021)690545_EN.pdf 34 01 Unstructured citation Mazzucato, M. (2013) The Entrepreneurial State: Debunking Public vs Private Sector Myths. London: Anthem Press. 34 01 Unstructured citation Mazzucato, M. (2018) “Mission-oriented Innovation Policies: Challenges and Opportunities”, Industrial and Corporate Change 27(5): 803–815. 34 01 Unstructured citation Moretti, E., C. Steinwender, and J. Van Reenen (2023) “The Intellectual Spoils of War? Defense R&D, Productivity, and International Spillovers”, Review of Economics and Statistics, 1–46. 34 06 10.1016/s0169-7218(10)02013-7 34 01 Unstructured citation Musgrave, R. A. (1939) “The Nature of Budgetary Balance and the Case for the Capital Budget”, American Economic Review 29(2): 260–271. 34 01 Unstructured citation NATO. (2014). Wales Summit Declaration Issued by the Heads of State and Government Participating in the Meeting of the North Atlantic Council in Wales, https://www.nato.int/cps/en/natohq/official_texts_112964.htm 34 01 Unstructured citation Oates, W. E. (1999) “An Essay on Fiscal Federalism”, Journal of Economic Literature 37(3): 1120–1149. 34 01 Unstructured citation Oates, W. E. (2005) “Toward a Second-Generation Theory of Fiscal Federalism”, International Tax and Public Finance 12: 349–373. 34 01 Unstructured citation Pivetti, M. (1989) “Military Expenditure and Economic Analysis: A Review Article”, Contributions to Political Economy 8(1): 55–67. 34 01 Unstructured citation Pivetti, M. (1992) “Military Spending as a Burden on Growth: an ‘Underconsumptionist’ Critique”, Cambridge Journal of Economics 16(4): 373–384. 34 01 Unstructured citation Smith, R. P., and P. Dunne (1994) “Is Military Spending a Burden? A Marxo-Marginalist Response to Pivetti”, Cambridge Journal of Economics 18(5): 515–521. 34 06 10.1080/10242694.2022.2091191 34 01 Unstructured citation Wyplosz, C. (2016) “The Six Flaws of the Eurozone”, Economic Policy 31(87): 559–606. 34 06 10.1177/0022343318808841 12 03 06 10.11647/obp.0434.11 169 180 12 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 10. Sustainable Mobility and Industrial Policy 1 A01 21 0000000227486472 Dario Guarascio Dario Guarascio Associate Professor of Economic Policy at the Department of Economics and Law 40 02be6w209 Sapienza University of Rome Dario Guarascio is Associate Professor of Economic Policy at the Department of Economics and Law—Sapienza University of Rome—and external affiliate of the Sant’Anna School of Advanced Studies in Pisa and of the National Institute for Public Policy Analysis (INAPP). Dario’s research covers economics of innovation, digitalization and labour markets, European economy, and industrial policy. He is Associate Editor of the journals Structural Change and Economic Dynamics, Journal of Industrial and Business Economics, and Economia & Lavoro and former member of the Commissions of the Ministry of Labour and Social Policy for the reform of social security. 2 A01 21 0000000188615090 Annamaria Simonazzi Annamaria Simonazzi Former Professor of Political Economy 40 02be6w209 Sapienza University of Rome Annamaria Simonazzi is Former Professor of Political Economy at La Sapienza University of Rome and Cnel Expert Advisor in the X Council. She is President of the Giacomo Brodolini Foundation, Managing Director of Economia & Lavoro and member of the editorial board of the web magazine www.inGenere.it. She has published widely on European macroeconomic issues, industrial policy, employment, welfare, and gender economics. 01 eng 03 00 Focusing on the automotive industry, this chapter addresses the problem of Europe’s vulnerability (e.g., import dependency, technological backwardness in key domains) and the hypothesis of the obsolescence of its growth and production model. First, we analyze the evolution of the Sino-German relationships highlighting the emergence of two divergent trajectories: while a well-tailored combination of industrial and trade policies allowed China to become the leader in electric vehicle (EV) production, the German development model, mostly driven by the choices of key carmakers, slowed innovation, fostered fragmentation within the European Union (EU) and created the conditions for the current vulnerability. Second, we identify the key elements— i.e., increasing demand for affordable EVs, investments in infrastructure for the provision of public goods, building-up a European Directorate for Resource Security—of a European industrial policy for sustainable mobility which may help achieve the multiple goals of decarbonizing the economy, increasing resilience, and reducing inequalities between and within countries. 30 00 Focusing on the automotive industry, this chapter addresses the problem of Europe’s vulnerability (e.g., import dependency, technological backwardness in key domains) and the hypothesis of the obsolescence of its growth and production model. First, we analyze the evolution of the Sino-German relationships highlighting the emergence of two divergent trajectories: while a well-tailored combination of industrial and trade policies allowed China to become the leader in electric vehicle (EV) production, the German development model, mostly driven by the choices of key carmakers, slowed innovation, fostered fragmentation within the European Union (EU) and created the conditions for the current vulnerability. Second, we identify the key elements— i.e., increasing demand for affordable EVs, investments in infrastructure for the provision of public goods, building-up a European Directorate for Resource Security—of a European industrial policy for sustainable mobility which may help achieve the multiple goals of decarbonizing the economy, increasing resilience, and reducing inequalities between and within countries. 20 00 Open Access Dario Guarascio Annamaria Simonazzi; 34 01 Unstructured citation Alim, A. N., P. Nilsson, and P. Campbell (2024) “Volkswagen Considers Partnership to Produce Mass Market Electric Vehicles”, March 13, Financial Times, https://www.ft.com/content/0985f16c-105c-4b62-aa80-3658fa9b629a 34 01 Unstructured citation Alim, A. M., and S. Jones (2024) “German Companies’ Dependence on China Will Last Decades, Warns Siemens”, 14 April, Financial Times, https://www.ft.com/content/e8634f5c-5a28-4741-a13d-024665456f43? 34 01 Unstructured citation Autor, D. H, D. Dorn, and G. H. Hanson (2016) “The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade”, BNER 21906. 34 01 Unstructured citation Baqaee, D., J. Hinz, B. Moll, M. Schularick, F. A. Teti, J. Wanner, and S. Yang (2024) “What If? The Effects of a Hard Decoupling from China on the German Economy”, Kiel Policy Brief 170. 34 06 10.1111/jcms.13599 34 01 Unstructured citation Beattie, A. (2024) “Europe’s New Anti-subsidy Weapon Is Powerful but Hard to Control: The EU Foreign Subsidies Regulation Is Looking to Score Some Notable Hits”, 9 May, Financial Times, https://www.ft.com/content/db880189-6556-427d-9c80-b4af3c8917d2? 34 01 Unstructured citation Celi, G., A. Ginzburg, D. Guarascio, and A. Simonazzi (2018) Crisis in the European Monetary Union. Oxford: Routledge. 34 01 Unstructured citation Celi, G., D. Guarascio, J. Reljic, A. Simonazzi, and F. Zezza (2022) “The Asymmetric Impact of War: Resilience, Vulnerability and Implications for EU Policy”, Intereconomics 57(3): 141–147. 34 01 Unstructured citation De Cecco, M. (1978) “Il sistema monetario internazionale”, in M. Carmagnani and A. Vercelli (eds.), Economia e storia. Florence: La Nuova Italia, pp. 810–830. 34 01 Unstructured citation De Quant, S., S. Tordoir, and S. Vallée (2024) “Caught in Geopolitical Fragmentation: How to De-risk Germany’s Economic Model”, Working Paper 02/2024. 34 01 Unstructured citation Deutsche Bundesbank (2024) “Risks Facing Germany as a Result of its Economic Ties with China”, Monthly Report, January. 34 06 10.1177/10245294231207990 34 01 Unstructured citation Guarascio, D., J. Reljic, G. Cucignatto, G. Celi, and A. Simonazzi (2024) “Between Scylla and Charybdis. Long-term Drivers of EU Structural Vulnerability, Review of Keynesian Economics 12(4): forthcoming. 34 01 Unstructured citation Hvistendahl, M., J. Ewing, and J. Liu (2024) “A Pivot to China Saved Elon Musk. It also Binds Him to Beijing”, 27 March, New York Times, https://www.nytimes.com/2024/03/27/world/asia/elon-musk-tesla-china.html 34 01 Unstructured citation Janeway, W.H. (2024) “Is Techno-Monopoly Inevitable?”, 5 April, Project Syndicate, https://www.project-syndicate.org/onpoint/us-big-tech-monopolies-market-power-from-key-innovations-by-william-h-janeway-2024-04 34 01 Unstructured citation Li, G., and P. Campbell (2024) “BYD Loses EV Throne to Tesla as Sales slip”, 2 April, Financial Times, https://www.ft.com/content/4f1a2188-ced0-4018-998d-5148209a5f5e 34 01 Unstructured citation Matthes, J. (2023) “Entwicklung des Konkurrenzdrucks durch China auf dem EU-Markt: Update einer Vorläuferstudie” [Evoluzione della pressione competitiva della Cina sul mercato UE], IW-Report 39/2023. 34 01 Unstructured citation McMorrow, R., and G. Li (2024) “The Steve Jobs of China Turns Car Salesman. in Xiaomi’s EV Evolution”, 5 April, Financial Times, https://www.ft.com/content/f0664662-ea9f-4bd6-a5c1-6c76c99b6ccd 34 01 Unstructured citation Moscoso, L., and I. Stoyanova (2024) “The Foreign Subsidies Regulation—100 Days Since the Start of the Notification Obligation for Concentrations”, Competition FSR Brief 1, https://competition-policy.ec.europa.eu/document/download/22197012-2036-4b1e-8b02-0eb8b2d6e666_en?filename=kdar24001enn_competition_FSR_brief_1_2024_100-days-of-FSR-notification-obligation.pdf 34 01 Unstructured citation Nilsson, P. (2024) “German Car Parts Suppliers Plan Job Cuts amid Costly EV Transition”, 18 January, Financial Times, https://www.ft.com/content/40585c6c-741c-4450-8f06-8d367839594c 34 06 10.2139/ssrn.4304165 34 01 Unstructured citation Pavlinek, P. (2023) “Transition of the Automotive Industry towards Electric Vehicle Production in the East European Integrated Periphery”, Empirica 50: 35–73. 34 01 Unstructured citation Russo, M., F. Alboni, J. C. Sanginés, M. De Domenico, G. Mangioni, S. Righi, and A. Simonazzi (2023) “Regionalisation and Cross-region Integration. Twin Dynamics in the Automotive International Trade Networks”, Structural Change and Economic Dynamics 67: 98–114. 34 01 Unstructured citation Sandbu, M. (2022) “Europe Is Learning that You Can’t Separate Trade and Politics”, 6 November, Financial Times, https://www.ft.com/content/a1b97de4-b366-4a0e-aa58-93a6b6fa8b2a 34 01 Unstructured citation Simonazzi, A., J. Carreto Sanginés, and M. Russo (2022) “The World to Come: Key Challenges for the Automotive Industry”, Economia & Lavoro 56(1): 7–23. 34 01 Unstructured citation Szalavetz, A. (2022) “Transition to Electric Vehicles in Hungary: A Devastating Crisis or Business as Usual?”, Technological Forecasting and Social Change 184: 122029. 34 01 Unstructured citation Weissmann, J. (2016) “Did Donald Trump Win the Election Because of Trade? A New Study Suggests It Helped”, 2 December, Slate, https://slate.com/business/2016/12/study-suggests-job-losses-to-china-helped-donald-trump-win-the-election.html 34 01 Unstructured citation White, E., M. Pooler, A. A. Lakshmi, and C. Murray (2024) “China’s Plan to Sell Cheap EVs to the Rest of the World”, 5 June, Financial Times, https://www.ft.com/content/c77fefa3-7f47-429b-8149-50aa60f39498?emailId=edd2675d-ec77-423b-89f1-680005d5b02d&segmentId=22011ee7-%E2%80%A61/16 13 03 06 10.11647/obp.0434.12 181 186 6 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 11. Financing Structural Investment after 2027 1 A01 Sophie Barbier Sophie Barbier Sophie Barbier is the Head of European Affairs at the French Caisse des Dépôts (CDC) Group. She graduated from the National School of Administration (ENA) and completed a Master’s degree in Economics from the Ecole Normale Supérieure de Cachan and Nanterre University. Previously, she worked at the Forecasting Department in the French Ministry for Finance and in the Asset-Liability Team in CDC. She is currently involved in the implementation of EU programs within CDC, such as the InvestEU program and the blending instrument under the Connecting Europe Facility. 2 A01 Helmut von Glasenapp Helmut von Glasenapp Helmut von Glasenapp studied business administration in Germany, after an apprenticeship in banking. He gained his first business experience with Treuhandanstalt, the former privatization agency in the eastern part of Germany. In 1993 he joined KfW in the Berlin office. From 1997 until 2005, he invested on behalf of KfW in Venture Capital and Private Equity Funds and managed a part of the innovation financing division of KfW Frankfurt. In 2005 he was asked to assist the European Commission as a Seconded National Expert notably to prepare an Equity Promotional Programme for SMEs. In 2007 he continued in Brussels as head of the KfW Liaison Office to the European Union before he was appointed as member of the EU Task Force for Greece of the European Commission until 2015. He joined the Brussels based Secretariat General of the European Long Term Investors Association in 2016 and was elected as ELTI Secretary General in October 2016. 01 eng 03 00 An investment can be described as structural if it contributes to financing the structural transformation of the economy and thus making it sustainably competitive. Experience shows that private investments alone are not sufficient due to externalities associated with this type of investment. A mixed public and private financing method is essential and it will help to accelerate the transformation. The challenge of the next European Union (EU) Multiannual Financial Framework (“post-2027”) will be to promote the development of this f inancing method. In this respect, the European budget will have to rely on four pillars: prioritize and plan, activate expenditure, decentralize implementation and strengthen steering. It is on this basis that Europe will be able to finance its structural investments and achieve the structural transformation necessary to maintain and develop its long-term competitiveness within the framework of a new European Competitiveness Pact. 30 00 An investment can be described as structural if it contributes to financing the structural transformation of the economy and thus making it sustainably competitive. Experience shows that private investments alone are not sufficient due to externalities associated with this type of investment. A mixed public and private financing method is essential and it will help to accelerate the transformation. The challenge of the next European Union (EU) Multiannual Financial Framework (“post-2027”) will be to promote the development of this f inancing method. In this respect, the European budget will have to rely on four pillars: prioritize and plan, activate expenditure, decentralize implementation and strengthen steering. It is on this basis that Europe will be able to finance its structural investments and achieve the structural transformation necessary to maintain and develop its long-term competitiveness within the framework of a new European Competitiveness Pact. 20 00 Open Access Sophie Barbier Helmut von Glasenapp; 34 01 Unstructured citation Attali, B. (2022) “Investing for the Long Term, a Short-term Emergency (Some Food for Thought)”, Eltia, https://www.eltia.eu/images/20201210_texte_VF_EN_FINAL.pdf 34 01 Unstructured citation Attali, B. (2024) “Investing in the Future: Putting the Long Term at the Heart of our Decisions”, Report of the Commission, May, https://www.caissedesdepots.fr/en/news/investing-future-long-term-heart-decisions 34 01 Unstructured citation Confrontations Europe (2024) 30 idées pour 2030. Paris: Descartes et Cie. 34 01 Unstructured citation European Council (2024) “Conclusions”, April 17 and 18, https://www.consilium.europa.eu/media/m5jlwe0p/euco-conclusions-20240417-18-en.pdf 34 01 Unstructured citation European Long-Term Investors (2024) “Strategic Outlook—Activating the EU Budget for Long-term Needs”, Eltia, https://www.eltia.eu/images/2024_02_29_Strategic_outlook.pdf 34 01 Unstructured citation Letta, E. (2024) Much More Than a Market, https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf 34 01 Unstructured citation Meade J. E. (1952) “External Economies and Diseconomies in a Competitive Situation”, The Economic Journal, 62(245): 54–67. 01 URL https://www.openbookpublishers.com/ Open Book Publishers 01 Open Book Publishers 01 Publisher's website: home page https://www.openbookpublishers.com/ 02 Publisher's website: webpage for this title https://www.openbookpublishers.com/books/10.11647/OBP.0434 Cambridge, UK 04 01 20241211 Floriana Cerniglia Francesco Saraceno. Copyright of individual chapters are maintained by the chapter author(s). 02 WORLD 06 15 9781805114390 03 9781805114390 06 15 9781805114406 03 9781805114406 06 15 9781805114420 03 9781805114420 06 15 9781805114413 03 9781805114413 WORLD 09 Open Book Publishers 02 Publisher's website: webpage for this product https://www.openbookpublishers.com/books/10.11647/obp.0434 29 Publisher's website: download the title https://www.openbookpublishers.com/books/10.11647/obp.0434 20 08 20241211 02 55.95 AUD WORLD 02 62.95 CAD WORLD 02 34.95 EUR WORLD 02 28.95 GBP WORLD 02 42.95 USD WORLD urn:uuid:450c2e07-e82c-4158-b8d3-964b91a5033e 03 01 01 thoth-work-id urn:uuid:a5a08fcc-4060-4738-abe7-c93ec292e390 01 thoth-publication-id urn:uuid:450c2e07-e82c-4158-b8d3-964b91a5033e 15 9781805114390 03 9781805114390 06 10.11647/OBP.0434 13 2023513492 23 1478292248 00 BB 10 01 254 mm 01 25.4 cm 01 10 in 02 178 mm 02 17.8 cm 02 7.01 in 03 18 mm 03 1.8 cm 03 0.71 in 08 719 gr 08 25.362 oz Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ 10 01 Series ID 85c48355-467d-436d-90c9-fe97626c22c8 02 23996676 01 Series URL https://www.openbookpublishers.com/series/2399-6676 03 13 01 02 Open Reports Series 01 01 Investing in the Structural Transformation 2024 European Public Investment Outlook 1 B01 21 000000019972716X Floriana Cerniglia Floriana Cerniglia Full Professor of Economics 40 03h7r5v07 Università Cattolica del Sacro Cuore Floriana Cerniglia is a Full Professor of Economics at Università Cattolica del Sacro Cuore (Milan) and Director of CRANEC (Centro di ricerche in analisi economica e sviluppo economico internazionale). She is the Co-Editor-in-Chief of Economia Politica (Journal of Analytical and Institutional Economics). She received her PhD from the University of Warwick (UK) and her research interests are in public economics and in macroeconomic policies. She has published in leading international journals and she has coordinated and participated in a number of peer-reviewed research projects. 2 B01 21 0000000301214329 Francesco Saraceno Francesco Saraceno Deputy Department Director at OFCE 40 05fe7ax82 Sciences Po, Paris Francesco Saraceno is Deputy Department Director at OFCE, the research centre in economics at Sciences Po in Paris, and Professor of Practice at LEAP-Luiss, Rome. He holds PhDs in Economics from Columbia University and the Sapienza University of Rome. His research focuses on the relationship between inequality, macroeconomic performance, and European macroeconomic policies. From 2000 to 2002 he was a member of the Council of Economic Advisors for the Italian Prime Minister’s Office. He teaches international and European macroeconomics at Sciences Po, where he manages the Economics concentration of the Master’s in European Affairs, and in Rome (Luiss). He is Academic Director of the Sciences Po-Northwestern European Affairs Program. He advises the International Labour Organization (ILO) on macroeconomic policies for employment and participates in IMF training programmes on fiscal policy. 01 eng 00 210 03 09 44 11 10 10 BUS039000 B2 Economics 04 HD3616.E8 93 LBBM3 10 BUS051000 B2 European Studies 93 KCB 93 1D 10 BUS068000 B2 Politics and Sociology 10 BUS032000 10 POL024000 20 Public investment; Structural transformation; European economy; Fiscal policy; Sustainable growth 01 06 02 00 The fifth volume in the European Public Investment Outlook series explores how Europe can drive structural transformation through strategic public investment. Reflecting on the lessons from the 2008–2020 polycrisis and recent economic challenges, this timely book examines fiscal policy's role in both stabilization and long-term economic devel 03 00 The fifth volume in the European Public Investment Outlook series explores how Europe can drive structural transformation through strategic public investment. Reflecting on the lessons from the 2008–2020 polycrisis and recent economic challenges, this timely book examines fiscal policy's role in both stabilization and long-term economic development.Part I, ‘State of the Art’, reviews current public investment and industrial policies in major European economies, including France, Germany, Italy, and Spain. It provides detailed analyses of each country's approach to fostering structural transformation through public investment.Part II, ‘Challenges’, addresses the diverse obstacles and opportunities facing Europe’s industrial policy. It emphasizes a multidimensional strategy to overcome bottlenecks in key sectors and drive transformation. Topics include the role of industrial policy in the green transition, creating a cohesive strategy for Europe, enhancing economic security, trends in European Union defence spending, sustainable mobility, and financing structural investment beyond 2027.This volume is essential reading for researchers, economists, and policymakers focused on understanding and implementing effective public policy in Europe, and will further appeal to anyone interested in EU governance and public investment strategies more broadly. 30 00 The fifth volume in the European Public Investment Outlook series explores how Europe can drive structural transformation through strategic public investment. Reflecting on the lessons from the 2008–2020 polycrisis and recent economic challenges, this timely book examines fiscal policy's role in both stabilization and long-term economic development.Part I, ‘State of the Art’, reviews current public investment and industrial policies in major European economies, including France, Germany, Italy, and Spain. It provides detailed analyses of each country's approach to fostering structural transformation through public investment.Part II, ‘Challenges’, addresses the diverse obstacles and opportunities facing Europe’s industrial policy. It emphasizes a multidimensional strategy to overcome bottlenecks in key sectors and drive transformation. Topics include the role of industrial policy in the green transition, creating a cohesive strategy for Europe, enhancing economic security, trends in European Union defence spending, sustainable mobility, and financing structural investment beyond 2027.This volume is essential reading for researchers, economists, and policymakers focused on understanding and implementing effective public policy in Europe, and will further appeal to anyone interested in EU governance and public investment strategies more broadly. 04 00 List of Figures List of Tables Acknowledgements Preface Introduction PART I—STATE OF THE ART 1. Public Investment and Industrial Policy: A Case for More European Union Coordination 2. Public Investment and Industrial Policy in France 3. Germany: Additional Investment Needs Require Reform of the Debt Brake 4. Italy, NRRP, and Industrial Policy 5. Public Investment and Structural Transformation in Spain PART II—CHALLENGES 6. A New Industrial Policy as the Key to the Green Transition 7. A “True” Industrial Policy for Europe is a Technology and Innovation Policy 8. Industrial Policy and Security. The European Union and the Double Challenge: Strengthening Competitiveness and Enhancing Economic Security 9. Trends in Defence Spending in the European Union 10. Sustainable Mobility and Industrial Policy 11. Financing Structural Investment after 2027 Contributor Biographies 20 00 Open Access 01 00 03 02 https://books.openbookpublishers.com/10.11647/obp.0434_frontcover.jpg 1 03 06 10.11647/obp.0434.00 1 2 2 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 Preface 1 A01 21 0000000178327458 Alberto Quadrio Curzio Alberto Quadrio Curzio 2 A01 Xavier Ragot Xavier Ragot 01 eng 20 00 Open Access Alberto Quadrio Curzio Xavier Ragot; 2 03 06 10.11647/obp.0434.01 3 9 7 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 Introduction 1 A01 21 000000019972716X Floriana Cerniglia Floriana Cerniglia Full Professor of Economics 40 03h7r5v07 Università Cattolica del Sacro Cuore Floriana Cerniglia is a Full Professor of Economics at Università Cattolica del Sacro Cuore (Milan) and Director of CRANEC (Centro di ricerche in analisi economica e sviluppo economico internazionale). She is the Co-Editor-in-Chief of Economia Politica (Journal of Analytical and Institutional Economics). She received her PhD from the University of Warwick (UK) and her research interests are in public economics and in macroeconomic policies. She has published in leading international journals and she has coordinated and participated in a number of peer-reviewed research projects. 2 A01 21 0000000301214329 Francesco Saraceno Francesco Saraceno Deputy Department Director at OFCE 40 05fe7ax82 Sciences Po, Paris Francesco Saraceno is Deputy Department Director at OFCE, the research centre in economics at Sciences Po in Paris, and Professor of Practice at LEAP-Luiss, Rome. He holds PhDs in Economics from Columbia University and the Sapienza University of Rome. His research focuses on the relationship between inequality, macroeconomic performance, and European macroeconomic policies. From 2000 to 2002 he was a member of the Council of Economic Advisors for the Italian Prime Minister’s Office. He teaches international and European macroeconomics at Sciences Po, where he manages the Economics concentration of the Master’s in European Affairs, and in Rome (Luiss). He is Academic Director of the Sciences Po-Northwestern European Affairs Program. He advises the International Labour Organization (ILO) on macroeconomic policies for employment and participates in IMF training programmes on fiscal policy. 01 eng 20 00 Open Access Floriana Cerniglia Francesco Saraceno; 34 06 10.11647/obp.0328.08 34 01 Unstructured citation Blanchard, O. J. (2016) “Rethinking Macro Policy: Progress or Confusion?”, in O. J. Blanchard et al. (eds), Progress and Confusion: The State of Macroeconomic Policy, pp. 287–290. Cambridge, MA: MIT Press. 34 01 Unstructured citation Blot, C., J. Créel, H. Kempf, S. Levasseur, X. Ragot, and F. Saraceno (2024) “Sailing in All Weather Conditions the Next 25 Years: Challenges for the Euro”, Paper Presented at the European Parliament ECON Committee Monetary Dialogue, February, https://www.europarl.europa.eu/thinktank/en/document/IPOL_STU(2024)747835 34 06 10.11647/obp.0386.11 34 06 10.11647/obp.0328 34 06 10.11647/obp.0386 34 01 Unstructured citation Draghi, M. (2024) The Future of European Competitiveness. Brussels: European Commission, https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en 34 06 10.11647/obp.0280.07 34 06 10.11647/obp.0222.07 34 01 Unstructured citation Holston, K., T. Laubach, and J. C. Williams (2023) “Measuring the Natural Rate of Interest after COVID-19”, Federal Reserve Bank of New York Staff Report 1063 (June), https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr1063.pdf 34 01 Unstructured citation Lucas, R. E. (2003) “Macroeconomic Priorities”, American Economic Review 93(1): 1–14. 34 01 Unstructured citation Mazzucato, M. (2013) The Entrepreneurial State. London: Anthem Press. 34 01 Unstructured citation Platzer, J., and M. Peruffo (2022) “Secular Drivers of the Natural Rate of Interest in the United States: A Quantitative Evaluation”, IMF Working Papers 2022(030), https://www.imf.org/en/Publications/WP/Issues/2022/02/11/Secular-Drivers-of-the-Natural-Rate-of-Interest-in-the-United-States-A-Quantitative-512755 34 01 Unstructured citation Saraceno, F. (2023) Oltre Le Banche Centrali. Inflazione, Distribuzione e Politiche Economiche. Rome: Luiss University Press. 3 03 06 10.11647/obp.0434.02 13 30 18 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 1. Public Investment and Industrial Policy A Case for More European Union Coordination 1 A01 21 0000000269174194 Andrea Brasili Andrea Brasili Senior Economist 40 03zxry661 European Investment Bank Andrea Brasili is a Senior Economist at the EIB (Luxembourg) where his research interests are both micro (firm level) data analysis and macroeconomic developments, in particular those related to fiscal policy. He received his PhD in Public Economics from the University of Pavia (Italy). Before joining the EIB, he worked in the private sector (in Italian banks and asset management companies) as a research economist, whilst still collaborating with academia. 2 A01 21 000000016940380X Tuna Dökmeci Tuna Dökmeci PhD candidate in Economics 40 0031wrj91 European University Institute Tuna Dökmeci is a PhD candidate in Economics at European University Institute (Italy), and a trainee at the EIB (Luxembourg). Her research focuses on industrial policy, industrial organization, and competition policy. 3 A01 Atanas Kolev Atanas Kolev Principal Advisor at the Economics Department 40 03zxry661 European Investment Bank Atanas Kolev is Principal Advisor at the Economics Department of the EIB. He has worked on a wide range of topics related to investment and investment financing at the firm-, sector-, and economy-wide levels. He has been an organiser and contributor to the annual economics conference of the EIB on topics like economic and social cohesion, investment in the energy sector, adaptation to climate change, public investment, and infrastructure investment. Atanas Kolev is currently a coordinator, reviewer, and economics editor for the EIB Annual Investment Report. He holds an Economics PhD from Universitat Autònoma de Barcelona. 4 A01 21 0000000281939399 Debora Revoltella Debora Revoltella Director of the Economics Department 40 03zxry661 European Investment Bank Debora Revoltella has been Director of the Economics Department of the European Investment Bank since April 2011. The Department comprises thirty economists and provides economic analysis and studies to support the bank in defining its policies and strategies. Before joining the EIB, Debora worked for many years at CESEE, was head of the research department in COMIT, and later worked as Chief Economist for CESEE in UniCredit. Debora holds a PhD in Economics and has also worked as Adjunct Professor at Bocconi University. She is a member of the Steering Committees of the Vienna Initiative and CompNet, an alternate member of the Board of the Joint Vienna Institute, and a member of the boards of SUERF and the Euro 50 Group. 5 A01 21 0000000270067740 Jochen Schanz Jochen Schanz Senior Economist 40 03zxry661 European Investment Bank Jochen Schantz is Senior Economist at the European Investment Bank. After completing a PhD in game theory at the European University Institute, he worked at Lehman Brothers, the Bank of England, and the Bank for International Settlements on monetary and financial stability. At the European Investment Bank, he focuses on public investment and human capital. 6 A01 21 0009000575440400 Annamaria Tueske Annamaria Tueske Economist at the Economics Department 40 03zxry661 European Investment Bank Annamaria Tueske is an Economist at the Economics Department of the EIB. Her current work focuses on public investment, climate and energy economics and sustainable finance. Prior to joining the EIB, Annamaria worked at the University of Luxembourg, at the OECD and at the Fiscal Council of Hungary. Her academic training focused on industrial organization, networks, and transport economics, she graduated from the Toulouse School of Economics. 7 A01 21 0000000295108991 Wouter Van Der Wielen Wouter Van Der Wielen Economist in the Economics Department 40 03zxry661 European Investment Bank Wouter Van Der Wielen is an Economist in the Economics Department of the European Investment Bank (EIB). He is responsible for impact studies of public and private sector policy support schemes and contributes macroeconomic analyses to the EIB’s f lagship publications, such as the EIB Investment Report. Prior to joining the EIB, he worked as an economic analyst at the European Commission’s Joint Research Centre, where he was principally responsible for the research developing macro-fiscal models accounting for output and employment effects of fiscal reforms. His main areas of expertise are macroeconomics, fiscal policy and labour economics. He holds a PhD in Economics as well as an MSc of Advanced Studies in Economics from KU Leuven. 01 eng 03 00 Europe needs more investment. Speeding up the climate transition and relaunching EU innovation capabilities require special efforts. Coupled with strategic autonomy and the need to secure stable and clean energy sources, these issues highlight the increasing importance of European public goods (EPGs) and policies that extend beyond national boundaries, as they involve externalities and network effects. However, Europe’s current institutional structure and mechanisms may struggle to meet this challenge. This essay examines public investment trends in the EU, arguing that while public investments have increased, greater coordination and coherence are needed. Three critical axes are identified: the provision of EPGs, policy coordination at national levels, and sufficient funding. Improving the coordination of public investment, particularly in research and development (R&D) and the climate transition, is key to unlocking Europe’s full potential. This chapter emphasizes the importance of initiatives like Important Projects of Common European Interest (IPCEIs) in fostering collaboration across countries and sectors, but argues for expanded and more integrated efforts moving forward. 30 00 Europe needs more investment. Speeding up the climate transition and relaunching EU innovation capabilities require special efforts. Coupled with strategic autonomy and the need to secure stable and clean energy sources, these issues highlight the increasing importance of European public goods (EPGs) and policies that extend beyond national boundaries, as they involve externalities and network effects. However, Europe’s current institutional structure and mechanisms may struggle to meet this challenge. This essay examines public investment trends in the EU, arguing that while public investments have increased, greater coordination and coherence are needed. Three critical axes are identified: the provision of EPGs, policy coordination at national levels, and sufficient funding. Improving the coordination of public investment, particularly in research and development (R&D) and the climate transition, is key to unlocking Europe’s full potential. This chapter emphasizes the importance of initiatives like Important Projects of Common European Interest (IPCEIs) in fostering collaboration across countries and sectors, but argues for expanded and more integrated efforts moving forward. 20 00 Open Access Andrea Brasili Tuna Dokmeci Atanas Kolev Debora Revoltella Jochen Schanz Annamaria Tueske Wouter Van Der Wielen; 34 01 Unstructured citation Buti M., A. Coloccia, and M. Messori (2023) “European Public Goods”, June 9, CEPR, https://cepr.org/voxeu/columns/european-public-goods 34 01 Unstructured citation Bergeaud, A. (2024) “The Past Present and Future of EU Productivity”, Prepared for the ECB Central Banking Forum, July 2024, https://www.ecb.europa.eu/pub/pdf/sintra/ecb.forumcentbankpub2024_Bergeaud_paper.en.pdf 34 06 10.11647/obp.0386 34 01 Unstructured citation Demertzis, M., D. Pinkus, and N. Ruer (2024) “Accelerating Strategic Investment in the European Union beyond 2026”, Bruegel Report, January 24, https://www.bruegel.org/system/files/2024-01/Report 01 2024.pdf 34 01 Unstructured citation Draghi, M. (2023) “The Next Flight of the Bumblebee: The Path to Common Fiscal Policy in the Eurozone”, 15th Annual Feldstein Lecture at the NBER Summer Institute 2023 in Cambridge, October 10, NBER, https://www.nber.org/reporter/2023number3/next-flight-bumblebee-path-common-fiscal-policy-eurozone 34 01 Unstructured citation Draghi, M. (2024) The Future of European Competitiveness. Brussels: European Commission, https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en 34 01 Unstructured citation European Commission (2020) “A New Industrial Strategy for Europe”, COM(2020) 102, March 10, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52020DC0102 34 01 Unstructured citation European Commission (2021) “Updating the 2020 New Industrial Strategy: Building a stronger Single Market for Europe’s recovery”, SWD(2021) 352, May 5, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52021SC0352 34 01 Unstructured citation European Commission (2022) “Framework for State Aid for Research and Development and Innovation”, 2022/C 414/01, October 28, https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=OJ%3AC%3A2022%3A414%3AFULL#:~:text=This Framework provides guidance on,)(c) of the Treaty. 34 01 Unstructured citation Fuest, C., and J. Pisani-Ferry (2019) “A Primer on Developing European Public Goods (A Report to Ministers Bruno Le Maire and Olaf Scholz)”, November 3, https://www.bruegel.org/sites/default/files/wp-content/uploads/2019/11/European-public-goods-primer.pdf 34 01 Unstructured citation Letta, E. (2024) Much More Than a Market, https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf 34 01 Unstructured citation Nicolaides, P. (2018) “State Aid and EU Funding: Are They Compatible?”, In-Depth Analysis Requested by the CONT Committee, Policy Department for Budgetary Affairs, April, https://www.europarl.europa.eu/cmsdata/142819/Briefing_State Aid and EU funding_Final.pdf 34 01 Unstructured citation Wyplosz, C. (2024) “Which European Public Goods?”, IPOL | Economic Governance and EMU Scrutiny Unit, March, https://www.europarl.europa.eu/RegData/etudes/IDAN/2024/755722/IPOL_IDA(2024)755722_EN.pdf 34 01 Unstructured citation Von der Leyen, U. (2024) “Statement at the European Parliament Plenary by President Ursula von der Leyen, Candidate for a Second Mandate 2024–2029”, European Commission, https://ec.europa.eu/commission/presscorner/detail/ov/STATEMENT_24_3871 4 03 06 10.11647/obp.0434.03 31 44 14 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 2. Public Investment and Industrial Policy in France 1 A01 21 0009000979785667 Vincent Charlet Vincent Charlet Vincent Charlet is the Executive Director of La Fabrique de l’industrie, a think tank he contributed to launch in 2011. Supported by the French manufacturers’ associations, co-chaired by Louis Gallois (former president of Stellantis, former CEO of Airbus Group) and Pierre-André de Chalendar (former CEO of Saint-Gobain), La Fabrique de l’industrie publishes robust studies on the performance, transformations, and assets of industrial companies and on the professional trajectories of their employees. After training as an engineer, Vincent Charlet devoted himself to the analysis of public systems and the management of change. He first participated in initiatives aimed at renovating the research and innovation system in France (evaluation, construction of indicators, foresight). He notably led the FutuRIS project, a prospective operation supported equally by major private R&D players, public research establishments. and the State, from 2006 to 2011. 2 A01 Mathieu Plane Mathieu Plane Deputy Director of the Analysis and Forecasting Department at the OFCE Research Center in Economics 40 05fe7ax82 Sciences Po, Paris Mathieu Plane is a Deputy Director of the Analysis and Forecasting Department at the OFCE Research Center in Economics, Sciences Po, Paris. He is in charge of economic forecasts for the French economy and works on economic policy issues. He teaches at Sciences Po, Paris and at the University of Paris Pantheon-Sorbonne. He was, in 2013–2014, economic advisor to the Ministers of Economy, Industry, and the Digital Sector. He has recently published, in collaboration with other authors of OFCE, 25 Years of Monetary Union: The Eurozone through Its Crises; Growth Up Against Fiscal Recovery: Economic Outlook for the French Economy 2024–2025, and French Economy 2025 by Éditions La Découverte, Repères collection. 3 A01 21 0000000301214329 Francesco Saraceno Francesco Saraceno Deputy Department Director at OFCE 40 05fe7ax82 Sciences Po, Paris Francesco Saraceno is Deputy Department Director at OFCE, the research centre in economics at Sciences Po in Paris, and Professor of Practice at LEAP-Luiss, Rome. He holds PhDs in Economics from Columbia University and the Sapienza University of Rome. His research focuses on the relationship between inequality, macroeconomic performance, and European macroeconomic policies. From 2000 to 2002 he was a member of the Council of Economic Advisors for the Italian Prime Minister’s Office. He teaches international and European macroeconomics at Sciences Po, where he manages the Economics concentration of the Master’s in European Affairs, and in Rome (Luiss). He is Academic Director of the Sciences Po-Northwestern European Affairs Program. He advises the International Labour Organization (ILO) on macroeconomic policies for employment and participates in IMF training programmes on fiscal policy. 01 eng 03 00 This chapter first traces the long-term evolution of public investment in France, noting how this is mostly channelled through local governments and how, while comparatively high with respect to other advanced economies, the public capital stock and the general government net wealth have been steadily decreasing since the Global Financial Crisis of 2008. After the COVID-19 shock, despite the 2021 “Plan de Relance” and the 2022 “Build the France of 2030” program, public investment has remained surprisingly flat. The chapter then discusses the recent evolutions in French industrial policy objectives. The Lisbon Strategy was centred on boosting productivity through innovation and climbing the value added ladder. The response to the crisis of 2008 marks a first change, with a strong emphasis on price competitiveness and cost reduction (including through corporate tax reduction). Since the early days of the pandemics, then, the notion of “industrial sovereignty” has very quickly eclipsed that of competitiveness, with policies aimed at reindustrialization especially in strategic sectors. The chapter concludes that these frequent changes indicate an excessive short-term focus among French policy makers, incompatible with managing long-term structural transformation. 30 00 This chapter first traces the long-term evolution of public investment in France, noting how this is mostly channelled through local governments and how, while comparatively high with respect to other advanced economies, the public capital stock and the general government net wealth have been steadily decreasing since the Global Financial Crisis of 2008. After the COVID-19 shock, despite the 2021 “Plan de Relance” and the 2022 “Build the France of 2030” program, public investment has remained surprisingly flat. The chapter then discusses the recent evolutions in French industrial policy objectives. The Lisbon Strategy was centred on boosting productivity through innovation and climbing the value added ladder. The response to the crisis of 2008 marks a first change, with a strong emphasis on price competitiveness and cost reduction (including through corporate tax reduction). Since the early days of the pandemics, then, the notion of “industrial sovereignty” has very quickly eclipsed that of competitiveness, with policies aimed at reindustrialization especially in strategic sectors. The chapter concludes that these frequent changes indicate an excessive short-term focus among French policy makers, incompatible with managing long-term structural transformation. 20 00 Open Access Vincent Charlet Mathieu Plane Francesco Saraceno 34 01 Unstructured citation Blot, C., J. Créel, H. Kempf, S. Levasseur, X. Ragot, and F. Saraceno (2024) “Sailing in All Weather Conditions the Next 25 Years: Challenges for the Euro”, Paper Prepared for the European Parliament ECON Committee Monetary Dialogue, February. 34 06 10.11647/obp.0222.01 34 01 Unstructured citation Charlet, V. (2024) Ce que l’industrie attend des banques. Paris: Presses des Mines. 34 01 Unstructured citation European Commission (2023) “EU Budget: Commission Proposes Strategic Technologies for Europe Platform (STEP) to Support European Leadership on Critical Technologies”, European Commission. 34 01 Unstructured citation Pisani-Ferry, J., and S. Mahfouz (2023) “Les Incidences Économiques de l’action Pour Le Climat”, May 22, France Strategie, Rapport à La Première Ministre, https://www.strategie.gouv.fr/publications/incidences-economiques-de-laction-climat 34 06 10.11647/obp.0280.02 34 01 Unstructured citation Von der Leyen, U. (2022) “State of the Union”, 14 September, European Commission, https://state-of-the-union.ec.europa.eu/state-union-2022_en 34 01 Unstructured citation White House (2023) Building a Clean Energy Economy: A Guidebook to the Inflation Reduction Act’s Investments in Clean Energy and Climate Action. Washington, DC: The White House, https://www.whitehouse.gov/wp-content/uploads/2022/12/Inflation-Reduction-Act-Guidebook.pdf 5 03 06 10.11647/obp.0434.04 45 58 14 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 3. Germany Additional Investment Needs Require Reform of the Debt Brake 1 A01 Katja Rietzler Katja Rietzler Head of the Unit of Fiscal Policy at the Macroeconomic Policy Institute (IMK) 40 022b5tw91 Hans-Böckler Foundation Katja Rietzler is Head of the Unit of Fiscal Policy at the Macroeconomic Policy Institute (IMK), part of the Hans-Böckler Foundation. She holds a PhD from the Freie Universität, Berlin. Among other topics, her research focuses on fiscal issues of the municipalities, the German tax-system, public investment needs, and fiscal rules. In addition, she is a member of the IMK’s modelling team. As an expert she regularly participates in parliamentary hearings on issues such as tax legislation, annual budgets, or the debt brake and its implementation. 2 A01 Andrew Watt Andrew Watt General Director 40 00r5yyv69 European Trade Union Institute Andrew Watt is General Director, European Trade Union Institute (ETUI), and former Head of the Unit of European Economic Policy at the Macroeconomic Policy Institute (IMK), part of the Hans-Böckler Foundation. He holds a PhD from the University of Hamburg. His main research fields are European economic and employment policy and comparative political economy, with a particular interest in the interaction between wage-setting and macroeconomic policy. Recent work has focused on reform of the economic governance of the euro area, emphasizing the need to coordinate monetary, fiscal, and wage policy in order to achieve balanced growth and favourable employment outcomes. He has served as advisor to numerous European and national institutions, including the European. 01 eng 03 00 In recent quarters, German public investment has increased slightly in real terms. However, this development is driven largely by special effects such as the reclassification of public transport companies and increased military spending. Additional investment needs are estimated to be as high as 1.4% of GDP, and cannot be met without a substantial reform of the debt brake. Economists have recently come up with numerous reform proposals, but there is still no political majority for a reform. While European fiscal rules do not require much f iscal tightening in Germany, they do constrain the use of credit to finance the necessary additional public investment. Instead of a big push, the more likely scenario is continued incremental progress, or “muddling through”. 30 00 In recent quarters, German public investment has increased slightly in real terms. However, this development is driven largely by special effects such as the reclassification of public transport companies and increased military spending. Additional investment needs are estimated to be as high as 1.4% of GDP, and cannot be met without a substantial reform of the debt brake. Economists have recently come up with numerous reform proposals, but there is still no political majority for a reform. While European fiscal rules do not require much f iscal tightening in Germany, they do constrain the use of credit to finance the necessary additional public investment. Instead of a big push, the more likely scenario is continued incremental progress, or “muddling through”. 20 00 Open Access Katja Rietzler Andrew Watt; 34 01 Unstructured citation Bardt, H., S. Dullien, M. Hüther, and K. Rietzler (2020) “For a Sound Fiscal Policy: Enabling Public Investment”, IMK Report 152e, March, https://www.imk-boeckler.de/fpdf/HBS-007619/p_imk_report_152e_2020.pdf 34 01 Unstructured citation Braun, H. (2021). “Das ist der Plan für Deutschland nach Corona”, Handelsblatt, January 26, https://www.handelsblatt.com/meinung/gastbeitraege/gastkommentar-das-ist-der-plan-fuer-deutschland-nach-corona/26850508.html 34 01 Unstructured citation Bundesministerium der Finanzen, BMF (2024a) “Vorläufiger Abschluss des Bundeshaushalts 2023”, Monatsbericht des BMF, January, https://www.bundesfinanzministerium.de/Monatsberichte/2024/01/Inhalte/Kapitel-3-Analysen/3-2-vorlaeufiger-abschluss-bundeshaushalt-2023.html 34 01 Unstructured citation Bundesministerium der Finanzen, BMF (2024b) “Abweichungen des Ergebnisses der Steuerschätzung Oktober 2024 vom Ergebnis der Steuerschätzung Mai 2024 ”, Anlage 2 zu Pressemitteilung 15 des BMF, https://www.bundesfinanzministerium.de/Content/DE/Downloads/Steuern/ergebnis-167-steuerschaetzung-02.pdf?__blob=publicationFile&v=6 34 01 Unstructured citation Bundesrechnungshof (2023) “Bericht nach § 88 Absatz 2 BHO an das Bundesministerium der Finanzen zur Steuerung und Kontrolle der Umsetzung des Deutschen Aufbau- und Resilienzplans”, Bonn, December 8, https://www.bundesrechnungshof.de/SharedDocs/Downloads/DE/Berichte/2024/umsetzung-darp-volltext.pdf?__blob=publicationFile&v=3 34 01 Unstructured citation Darvas, Z., L. Welslau, and J. Zettelmeyer (2024) “The Implications of the European Union’s New Fiscal Rules”, Policy Brief 10/24, https://www.bruegel.org/system/files/2024-07/PB 10 2024.pdf 34 01 Unstructured citation Dullien, S., T. Bauermann, L. Endres, A. Herzog-Stein, K. Rietzler, and S. Tober (2024a) “Schuldenbremse reformieren, Transformation beschleunigen. Wirtschaftspolitische Herausforderungen 2024”, IMK Report 187, January, https://www.econstor.eu/bitstream/10419/283062/1/p-imk-report-187-2024.pdf 34 01 Unstructured citation Dullien, S., S. Gerards-Iglesias, M. Hüther, and K. Rietzler (2024b) “Herausforderungen für die Schuldenbremse. Investitionsbedarfe in der Infrastruktur und für die Transformation”, IMK Policy Brief 168, https://econpapers.repec.org/paper/imkpbrief/168-2024.htm 34 06 10.11647/obp.0222.03 34 01 Unstructured citation Deutsche Bundesbank (2022) “Die Schuldenbremse des Bundes: Möglichkeiten einer stabilitätsorientierten Weiterentwicklung”, Deutsche Bundesbank, Monatsbericht, April. 34 01 Unstructured citation European Commission (2024a) “European Economic Forecast Spring 2024’, Institutional Paper 286, May, https://economy-finance.ec.europa.eu/document/download/c63e0da2-c6d6-4d13-8dcb-646b0d1927a4_en?filename=ip286_en.pdf 34 01 Unstructured citation European Commission (2024b) “2024 Country Report – Germany”, Commission Staff Working Document, SWD(2024) 605, June 19, https://economy-finance.ec.europa.eu/document/download/0826d6c6-4c97-44be-8b9e-1a0b5c4361c8_en?filename=SWD_2024_605_1_EN_Germany.pdf 34 01 Unstructured citation Fuest, C., M. Hüther, and J. Südekum (2024) “Folgen des Verfassungsurteils: Investitionen schützen. Vorteile eines Sondervermögens”, Frankfurter Allgemeine Zeitung, January 12, https://www.faz.net/aktuell/wirtschaft/folgen-des-haushaltsurteils-investitionen-schuetzen-19440915.html 34 01 Unstructured citation Hentze, T., and B. Kauder (2024) “Reformansätze für die Schuldenbremse”, ifo Schnelldienst 2/2024, 13–15, https://www.ifo.de/DocDL/sd-2024-02-haushaltspolitik-reform-schuldenbremse.pdf 34 01 Unstructured citation Hüther, M. (2024) “Ein gesamtstaatlicher »Transformations- und Infrastrukturfonds« zur Stabilisierung der Schuldenbremse”, Wirtschaftsdienst 104(1): 14–20. 34 01 Unstructured citation International Monetary Fund, IMF (2023) “Germany. Staff Report for the 2023 Article IV Consultation”, June 28, IFO, https://www.imf.org/-/media/Files/Publications/CR/2023/English/1DEUEA2023001.ashx 34 01 Unstructured citation Paetz, C., and S. Watzka (2024) “The New Fiscal Rules: Another Round of Austerity for Europe?”, IMK Policy Brief 176. 34 01 Unstructured citation Raffer, C., and H. Scheller (2024) KfW Kommunalpanel 2024. Frankfurt am Main: Kreditanstalt für Wiederaufbau, https://www.kfw.de/PDF/Download-Center/Konzernthemen/Research/PDF-Dokumente-KfW-Kommunalpanel/KfW-Kommunalpanel-2024.pdf 34 06 10.11647/obp.0280.03 34 06 10.11647/obp.0328.03 34 06 10.11647/obp.0386.03 34 01 Unstructured citation Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, SVR (2024) “Die Schuldenbremse nach dem BVerfG-Urteil: Flexibilität erhöhen – Stabilität wahren”, Policy Brief 1/2024, https://www.sachverstaendigenrat-wirtschaft.de/fileadmin/dateiablage/PolicyBrief/pb2024/Policy_Brief_2024_01.pdf 34 01 Unstructured citation Wissenschaftlicher Beirat beim BMWK (2023) Finanzierung von Staatsaufgaben: Herausforderungen und Empfehlungen für eine nachhaltige Finanzpolitik, Gutachten des Wissenschaftlichen Beirats beim Bundesministerium für Wirtschaft und Klimaschutz (BMWK). Berlin: BMWK, https://www.bmwk.de/Redaktion/DE/Publikationen/Ministerium/Veroeffentlichung-Wissenschaftlicher-Beirat/gutachten-wissenschaftlicher-beirat-finanzierung-von-staatsaufgaben.pdf?__blob=publicationFile&v=14 6 03 06 10.11647/obp.0434.05 59 76 18 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 4. Italy, NRRP, and Industrial Policy 1 A01 21 0000000302218057 Giovanni Barbieri Giovanni Barbieri Research Fellow at CRANEC (Centro di ricerche in analisi economica e sviluppo economico internazionale—Research Center in Economic Analysis and International Economic Development) 40 03h7r5v07 Università Cattolica del Sacro Cuore Giovanni Barbieri is a Research Fellow at CRANEC at Università Cattolica del Sacro Cuore. He holds a PhD in Institutions and Policies (2017, Università Cattolica del Sacro Cuore, Milano). He was previously Adjunct Professor of History of International and Commercial Institutions at the University of Palermo (DEMS) and Visiting Scholar at Scuola Normale’s ‘Istituto Ciampi’ in Florence (2022). His main expertises are International Relations Theory and International Political Economy (IPE). 2 A01 21 000000019972716X Floriana Cerniglia Floriana Cerniglia Full Professor of Economics 40 03h7r5v07 Università Cattolica del Sacro Cuore Floriana Cerniglia is a Full Professor of Economics at Università Cattolica del Sacro Cuore (Milan) and Director of CRANEC (Centro di ricerche in analisi economica e sviluppo economico internazionale). She is the Co-Editor-in-Chief of Economia Politica (Journal of Analytical and Institutional Economics). She received her PhD from the University of Warwick (UK) and her research interests are in public economics and in macroeconomic policies. She has published in leading international journals and she has coordinated and participated in a number of peer-reviewed research projects. 3 A01 Franco Mosconi Franco Mosconi Jean Monnet Professor of Industrial Economics 40 02k7wn190 Università di Parma Franco Mosconi is the Jean Monnet Professor of Industrial Economics at the University of Parma. He is a columnist for the Corriere di Bologna, the Bologna-based daily newspaper of Corriere della Sera. His research areas include European industrial policy and Industrial districts and clusters, topics on which he has extensively published in both national and international literature. 01 eng 03 00 This chapter assesses the National Recovery and Resilience Plan (NRRP) as an industrial policy tool within the Next Generation EU framework, despite limited explicit reference to an industrial strategy. The NRRP emerges during a unique moment for the European Union (EU), characterized by the suspension of the Stability and Growth Pact and the relaxation of state aid restrictions, which have collectively expanded public intervention opportunities. This marks a significant shift from the post-1990s ideological emphasis on competition over state involvement, particularly in Italy, where reductions in capital expenditure since 2009 have constrained public infrastructure and private investment. This chapter delves into the current landscape highlighting the potential for a more effective approach to industrial strategy using public investment. By focusing on “Mission 1” (Competitiveness) and “Mission 4” (Education and Research), the chapter aims to elucidate the NRRP’s industrial policy direction including reinforcing the special economic zones (SEZs) established in 2017. 30 00 This chapter assesses the National Recovery and Resilience Plan (NRRP) as an industrial policy tool within the Next Generation EU framework, despite limited explicit reference to an industrial strategy. The NRRP emerges during a unique moment for the European Union (EU), characterized by the suspension of the Stability and Growth Pact and the relaxation of state aid restrictions, which have collectively expanded public intervention opportunities. This marks a significant shift from the post-1990s ideological emphasis on competition over state involvement, particularly in Italy, where reductions in capital expenditure since 2009 have constrained public infrastructure and private investment. This chapter delves into the current landscape highlighting the potential for a more effective approach to industrial strategy using public investment. By focusing on “Mission 1” (Competitiveness) and “Mission 4” (Education and Research), the chapter aims to elucidate the NRRP’s industrial policy direction including reinforcing the special economic zones (SEZs) established in 2017. 20 00 Open Access Giovanni Barbieri Floriana Cerniglia Franco Mosconi; 34 06 10.1007/s10842-019-00322-3 34 01 Unstructured citation Andreoni, A. (2017) “Strategies for Emerging Technologies and Strategic Sectors: Evidence from OECD Countries and Some Critical Reflections on the Italian Case”, L’Industria. Rivista di Economia e Politica Industriale 1: 3–14, https://doi.org/10.1430/87136 34 01 Unstructured citation Barbieri, G., and S. J. Gahn (2023) “Le piattaforme tecno-scientifiche europee: sviluppi recenti in Italia”, in A. Quadrio Curzio, A. Silvani, M. Fortis, and F. Cerniglia (eds) (2023) Le piattaforme tecnico-scientifiche in Europa. Ricerca, economia, innovazione. Bologna: Il Mulino, Collana Fondazione Edison, pp. 297–318. 34 06 10.11647/obp.0328.04 34 01 Unstructured citation Barbieri, G., F. Cerniglia, and F. Mosconi (2024) “Italy and Industrial Policy at the Time of the NRRP”, CRANEC Working Paper 01/2024, https://centridiricerca.unicatt.it/cranec-home-pubblicazioni-22134 34 06 10.1080/09538259.2024.2368210 34 01 Unstructured citation Barbini, M., et al. (2024) “L’anno della crescita differenziata. Le regioni italiane nel 202”, Informazioni Svimez 4. 34 01 Unstructured citation Bianchi, P., and S. Labory (2016) Towards a New Industrial Policy. Milan: McGraw-Hill Education. 34 01 Unstructured citation Bratta, B., et al. (2020) “The Impact of Digitalization Policies. Evidence from Italy’s Hyper-depreciation of Industry 4.0 Investments”, Ministero dell’Economia e delle Finanze, DF Working Paper 20, https://www.finanze.gov.it/export/sites/finanze/.galleries/Documenti/Varie/dfwp6-1_ultimo.pdf 34 01 Unstructured citation Buba, J., and M. D. Wong (2017) Special Economic Zones: An Operational Review of their Impacts. Washington, DC: World Bank Group. 34 01 Unstructured citation Capriati, M., M. Deleidi, and G. Viesti (2022) “Che impatto macroeconomico può avere il PNRR nel Mezzogiorno?”, Menabò 174, https://eticaeconomia.it/che-impatto-macroeconomico-puo-avere-il-pnrr-nel-mezzogiorno/ 34 06 10.11647/obp.0328 34 01 Unstructured citation Cerniglia, F., A. Silvani, and A. Quadrio Curzio (2023) “La ricerca del Centro Cranec dell’Università Cattolica”, in A. Quadrio Curzio, A. Silvani, M. Fortis, and F. Cerniglia (eds), Le piattaforme tecnico-scientifiche in Europa. Ricerca, economia, innovazione. Bologna: Il Mulino, Collana Fondazione Edison, pp. 263–277. 34 01 Unstructured citation Chiapperini, C., and G. Viesti (2024) “Il PNRR e i divari territoriali”, Menabò 210, https://eticaeconomia.it/il-pnrr-e-i-divari-territoriali/ 34 01 Unstructured citation Coco, G. (2020) “Investimenti, disintermediazione, capacità: come superare la retorica delle politiche per il Mezzogiorno”, in G. Coco, and C. De Vincenti (eds), Una questione nazionale. Il Mezzogiorno da “problema” a “opportunità”. Bologna: Il Mulino, pp. 203-226 34 01 Unstructured citation Coco, G., and A. Lepore (2018) “Per un nuovo modello di intervento pubblico nel Mezzogiorno”, in G. Coco and A. Lepore (eds), Il risveglio del Mezzogiorno. Nuove politiche per lo sviluppo. Bari: Laterza, pp. 175-196 34 01 Unstructured citation Di Tommaso, M. R., L. Rubini, E. Barbieri, and C. Pollio (2024) Industry Organization and Industrial Policy. Production and Innovation, Development and Public Interest. Bologna: Il Mulino. 34 01 Unstructured citation Draghi, M. (2024) The Future of European Competitiveness. Brussels: European Commission, https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en 34 01 Unstructured citation European Commission (2005) “Implementing the Community Lisbon Programme: A Policy Framework to Strengthen EU Manufacturing—Towards a More Integrated Approach for Industrial Policy”, COM(2005) 464, October 5, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A52005DC0474 34 01 Unstructured citation European Commission (2012) “A Stronger European Industry for Growth and Economic Recovery Industrial Policy Communication Update”, COM(2012) 582, October 10, https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2012:0582:FIN:EN:PDF 34 01 Unstructured citation European Commission (2014) “For a European Industrial Renaissance”, COM(2014) 14, January 22, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52014DC0014&from=ET 34 01 Unstructured citation European Commission (2017) “Investing in a Smart, Innovative and Sustainable Industry: A Renewed EU Industrial Policy Strategy”, COM(2017) 479, September 13, https://eur-lex.europa.eu/resource.html?uri=cellar:c8b9aac5-9861-11e7-b92d-01aa75ed71a1.0001.02/DOC_1&format=PDF 34 01 Unstructured citation European Commission: Directorate-General for Research and Innovation and M. Mazzucato (2018) Mission-oriented Research & Innovation in the European Union—A Problem-solving Approach to Fuel Innovation-led Growth. Brussels: Publications Office, https://data.europa.eu/doi/10.2777/360325 34 01 Unstructured citation European Commission (2020) “A New Industrial Strategy for Europe”, COM(2020) 102, March 10, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52020DC0102 34 01 Unstructured citation European Commission (2021a) “Communication from the Commission. Criteria for the Analysis of the Compatibility with the Internal Market of State Aid to Promote the Execution of Important Projects of Common European Interest”, 2021/C 528/02, December 30, https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52021XC1230(02) 34 01 Unstructured citation European Commission (2021b) “Communication from the Commission on a New Funding Strategy to Finance NextGenerationEU”, COM(2021) 250, April 14, https://commission.europa.eu/document/download/a42a05ab-e656-4cf4-9d0b-b4d2825618ee_en?filename=com2021_250_en_act_part1_v3.pdf 34 01 Unstructured citation European Commission (2022) “A Chips Act for Europe”, COM(2022) 45, February 8, https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX%3A52022DC0045#:~:text=The EU Chips Act proposes,to future supply chain disruptions 34 01 Unstructured citation Governo Italiano (2021) Italia Domani: Piano Nazionale di Ripresa e Resilienza, https://www.italiadomani.gov.it/content/sogei-ng/it/it/home.html 34 01 Unstructured citation Guerrieri, P., and P. C. Padoan (2024) Sovereign Europe. An Agenda for Europe in a Fragmented Global Economy. Brookfield, VT: Edward Elgar. 34 01 Unstructured citation Jacquemin, A. (1987) The New Industrial Organization: Market Forces and Strategic Behaviour. Cambridge, MA: The MIT Press. 34 01 Unstructured citation Junker, J. C. (2017) “State of the Union Address”, Brussels, September 13, https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_17_3165 34 06 10.1146/annurev-economics-081023-024638 34 01 Unstructured citation Letta, E. (2024) Much More Than a Market, https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf 34 01 Unstructured citation Lucchese, M., and M. Pianta (2021) “Il Piano Nazionale di Ripresa e Resilienza in una prospettiva di politica industriale”, Moneta e Credito 74(294): 177–190. 34 01 Unstructured citation Ministero dell’Università e della Ricerca (2022) “NRRP, MUR: l’impatto della conoscenza grazie a un nuovo modo di fare ricerca e innovazione”, MUR, June 26, https://www.mur.gov.it/it/news/martedi-28062022/pnrr-mur-limpatto-della-conoscenza-grazie-un-nuovo-modo-di-fare-ricerca-e 34 01 Unstructured citation Ministero per gli Affari Europei (2023) “Terza relazione sullo stato di attuazione del Piano Nazionale di Ripresa e Resilienza”, June 20, Italia Domani, https://www.italiadomani.gov.it/content/sogei-ng/it/it/strumenti/documenti/archivio-documenti/terza-relazione-al-parlamento-sullo-stato-di-attuazione-del-pian.html 34 01 Unstructured citation Ministero per gli Affari Europei (2024) “Quarta relazione sullo stato di attuazione del Piano Nazionale di Ripresa e Resilienza”, https://www.affarieuropei.gov.it/media/7411/iv_relazione_al_parlamento_sezi.pdf 34 01 Unstructured citation Ministero per gli Affari Europei (2024) “Quinta relazione sullo stato di attuazione del Piano Nazionale di Ripresa e Resilienza”, Nota sintetica. https://www.affarieuropei.gov.it/media/7594/quinta_relazione_nota_sintetica.pdf 34 01 Unstructured citation Mosconi, F. (2015) The New European Industrial Policy. Global Competitiveness and the Manufacturing Renaissance. New York: Routledge. 34 01 Unstructured citation Mosconi, F. (2022) “European Industrial Policy from 2000 to 2020”, in J. C. Christophe Defraigne, J. Wouters, E. Traversa, and D. Zurstrassen (eds), EU Industrial Policy in the Multipolar Economy. Brookfield, VT: Edward Elgar, pp. 173-209 34 01 Unstructured citation Nisticò, R., and F. Prota (2023) “Sviluppo industriale per poli? Le zone economiche speciali in Italia e nel NRRP”, Stato e mercato 2: 227–263, https://dx.doi.org/10.1425/108269 34 06 10.1177/0486613420938207 34 06 10.1093/icc/dtz075 34 01 Unstructured citation Pianta, M. (2021) “La politica industriale al tempo del PNRR”, il Mulino 2: 152–162, https://doi.org/10.1402/101106 34 01 Unstructured citation Presidenza del Consiglio dei Ministri (2022) “Seconda relazione istruttoria sul rispetto del vincolo di destinazione alle regioni del Mezzogiorno di almeno il 40 per cento delle risorse allocabili territorialmente”, June 30, Dipartimento per le Politiche di Coesione, https://politichecoesione.governo.it/media/2954/seconda-relazione-destinazione-mezzogiorno-risorse-pnrr_dati-al-30_06_2022.pdf 34 01 Unstructured citation Prodi, R. (2003) “Industrial Policy in an Enlarged Europe, Speech Delivered at the Conference Industrial Policy in an Enlarged Europe by the President of the European Commission”, Speech Given in Brussels, January 21. 34 01 Unstructured citation PWC (2024) Dalle Zone Economiche Speciali regionali e interregionali alla ZES unica, https://www.pwc.com/it/it/assets/docs/pwc-dalle-ZES-regionali-e-interregionali-alla-ZES-unica.pdf 34 01 Unstructured citation Quadrio Curzio, A., A. Silvani, M. Fortis, and F. Cerniglia (2023) (eds) Le piattaforme tecnico-scientifiche in Europa. Ricerca, economia, innovazione. Bologna: Il Mulino, Collana Fondazione Edison. 34 01 Unstructured citation Resta, F. (2023) “Università e impresa: dal PNRR nuove reti per la ricerca”, in A. Quadrio Curzio A., A. Silvani, and F. Cerniglia (eds), Le piattaforme tecnico-scientifiche in Europa. Ricerca, economia, innovazione. Bologna: Il Mulino, Collana Fondazione Edison, pp. 64–75. 34 01 Unstructured citation Rodrik, D. (2004) “Industrial Policy for the Twenty-First Century”, John F. Kennedy School of Government, Cambridge, MA, September, https://drodrik.scholar.harvard.edu/files/dani-rodrik/files/industrial-policy-twenty-first-century.pdf 34 01 Unstructured citation Viesti, G. (2023) Riuscirà il PNRR a rilanciare l’Italia?. Rome: Donzelli editore. 34 01 Unstructured citation Viesti, G. (2024) “La ZES unica: dal mito alla dura realtà”, Menabò 208, https://eticaeconomia.it/la-zes-unica-dal-mito-alla-dura-realta/ 34 01 Unstructured citation von der Leyen, U. (2019a) “Speech by President-elect von der Leyen in the European Parliament Plenary on the Occasion of the Presentation of her College of Commissioners and their Programme”, Strasbourg, November 27. 34 01 Unstructured citation von der Leyen, U. (2019b) “A Union that Strives for More. My Agenda for Europe, by Candidate for President of the European Commission 2019–2024”, Strasbourg, July 16. 34 01 Unstructured citation White House (2022) Inflation Reduction Act Guidebook. Washington, DC: White House, https://www.whitehouse.gov/cleanenergy/inflation-reduction-act-guidebook/ 7 03 06 10.11647/obp.0434.06 77 95 19 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 5. Public Investment and Structural Transformation in Spain 1 A01 21 0000000328013447 Ignacio Alvarez Ignacio Alvarez Associate Professor of Applied Economics 40 01cby8j38 Universidad Autónoma de Madrid Ignacio Alvarez was the Secretary of State for Social Rights of the Government of Spain between January 2020 and November 2023. He holds a PhD in International Economics from the University Complutense of Madrid. He is currently Associate Professor of Applied Economics at the Autonomous University of Madrid. He has also worked as a Research Associate at the Complutense Institute of International Studies (ICEI), Visiting Professor of Labor Economics at the Spanish National University of Distance Education (UNED) and Assistant Professor at the University of Valladolid. He has been visiting researcher at the University Paris VII-Denis Diderot, at the Lisbon School of Economics and Management and at the University of South-Eastern Norway, and has participated in several European Union research projects (“Inclusive Growth through Wage Coordination”; “Collectively Agreed Wages in the New European Economic Governance”; “Collectively Agreed Wages in Europe”), as well as in several national projects. His research currently focuses on the study of the relationship between income distribution, demand, and economic growth. His academic articles have been published, among other journals, in the Socio-Economic Review, Cambridge Journal of Economics, Structural Change and Economic Dynamics, Review of Keynesian Economics, Work, Employment and Society, International Labour Review, and the Journal of Post Keynesian Economics. 2 A01 21 0000000222181004 Jorge Uxó Jorge Uxó Associate Professor of Applied Economics 40 02p0gd045 Universidad Complutense de Madrid Jorge Uxó has a PhD in Economics by the University Complutense of Madrid. He is currently Associate Professor of Applied Economics at the Complutense University of Madrid and Vice-President of the Spanish Productivity Board. He has been visiting researcher at the University of Coimbra (Centre for Social Studies), University of Alcalá and the European Trade Union Institute (ETUI) and has participated in European Union and national research projects, mainly focused on Macroeconomics and Economic Policy in Spain and the EMU and Post Keynesian Economics. His academic articles have been published, among other journals, in Cambridge Journal of Economics, Structural Change and Economic Dynamics, Review of Keynesian Economics, Review of Political Economy, International Labour Review, Journal of Post Keynesian Economics, Applied Economics or Metroeconomica. 01 eng 03 00 During the decade of 2010–2019, public investment experienced a profound decline in Spain, because of the fiscal austerity policies implemented during the Great Recession. Even with the recovery of economic growth starting in 2015, public investment did not improve and the net capital stock decreased. The COVID-19 pandemic introduced an important change in trend, with a general turnaround in fiscal policies accompanying the disbursement of Next Generation EU funds. These European Union funds will allow the implementation of an industrial transformation strategy focused on key specific sectors with high pulling power and strong multiplier effects. 30 00 During the decade of 2010–2019, public investment experienced a profound decline in Spain, because of the fiscal austerity policies implemented during the Great Recession. Even with the recovery of economic growth starting in 2015, public investment did not improve and the net capital stock decreased. The COVID-19 pandemic introduced an important change in trend, with a general turnaround in fiscal policies accompanying the disbursement of Next Generation EU funds. These European Union funds will allow the implementation of an industrial transformation strategy focused on key specific sectors with high pulling power and strong multiplier effects. 20 00 Open Access Ignacio Álvarez Jorge Uxó; 34 01 Unstructured citation Auerbach, A., and Y. Gorodnichenko (2012) “Fiscal Multipliers in Recession and Expansion”, NBER Working Paper 17447, National Bureau of Economic Research, Cambridge, Massachusetts. 34 01 Unstructured citation Bouabdallah, O. Dorrucci, E. Hoendervangers, L. and Nerlich, C. (2024) “Mind the Gap: Europe’s Strategic Investment Needs and How to Support Them”, The ECB Blog, 27 June, https://www.ecb.europa.eu/press/blog/date/2024/html/ecb.blog240627~2e939aa430.en.html 34 01 Unstructured citation Consejo Económico y Social (2020) La inversión pública en España: situación actual y prioridades estratégicas, Colección Informes, Número 01/2020, Consejo Económico y Social. 34 01 Unstructured citation Darvas, Z., L. Welslau, and J. Zettelmeyer (2024) “Incorporating the Impact of Social Investments and Reforms in the EU’s New Fiscal Framework”, Bruegel Working Paper 07/2024, https://www.bruegel.org/working-paper/incorporating-impact-social-investments-and-reforms-european-unions-new-fiscal 34 01 Unstructured citation Di Bucchianico, S., (2019) “A Bit of Keynesian Debt-to-GDP Arithmetic for Deficit-capped Countries”, Bulletin of Political Economy 13(1): 55–83. 34 01 Unstructured citation Fatas, A., and Mihov, I. (2009) “Why Fiscal Stimulus Is Likely to Work”, International Finance 12(1): 57–73 34 01 Unstructured citation Fernández-Cerezo, A., E. Moral-Benito, and J. Quintana (2023) “The Recovery, Transformation and Resilience Plan and its Macroeconomic Impact from a Sectoral Standpoint”, Economic Bulletin, Bank of Spain, 2023/Q1, https://repositorio.bde.es/bitstream/123456789/29539/1/be2301-art12e.pdf 34 06 10.1111/joes.12241 34 01 Unstructured citation Fundación BBVA-IVIE (2019) El stock de capital en España y sus comunidades autónomas. Evolución de la edad media de las inversiones y envejecimiento del capital, Fundación BBVA-IVIE. 34 01 Unstructured citation Gobierno de España (2023) Plan de Recuperación, Transformación y Resiliencia. IV Informe de Ejecución del Plan de Recuperación, Gobierno de España, December. 34 01 Unstructured citation International Monetary Fund (2014) “Is It Time for an Infrastructure Push? The Macroeconomic Effects of Public Investment”, in World Economic Outlook, October 2014: Legacies, Clouds, Uncertainties. Washington, DC: International Monetary Fund, pp. 75–112. 34 06 10.4337/ejeep.2023.0115 34 01 Unstructured citation Motyovszki, G., P. Pfeiffer, and J. Veld (2024) “The Implications of Public Investment for Debt Sustainability”, Discussion Paper 204 (June), Directorate-General for Economic and Financial Affairs, European Commission, https://economy-finance.ec.europa.eu/system/files/2024-06/dp204_en.pdf 34 01 Unstructured citation Pérez, F., and J. F. de Guevara (eds) (2024) El stock de capital en España y sus Comunidades Autónomas 1995-2023. Cambios recientes en la composición de la inversión y en las respuestas a la crisis, Documentos de Trabajo 1-2024, Fundación BBVA. 34 01 Unstructured citation Rosnick, D., and M. Weibstrot (2015) “Has Austerity Worked in Spain?”, Center for Economic and Policy Research, https://cepr.net/documents/Spain-2015-12.pdf 34 06 10.1016/j.strueco.2024.03.005 8 03 06 10.11647/obp.0434.07 99 108 10 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 6. A New Industrial Policy as the Key to the Green Transition 1 A01 Karl Aiginger Karl Aiginger Professor 40 03yn8s215 Vienna University of Economics and Business Honorary Professor 40 052r2xn60 Johannes Kepler University of Linz Karl Aiginger was born in Vienna on October 23, 1948. He is director of the Policy Crossover Center: Vienna—Europe (www.euiopaplattform.at). He is Professor at the Vienna University of Economics and Business and is an Honorary Professor at the University of Linz. He is Editor-in-Chief of the Journal of Industry, Competition and Trade (JICT). He has been the Director of the Austrian Institute of Economic Research (WIFO) from 2005 to 2016 and Coordinator of the research project “New Dynamics for Europe: Reaping the Benefits of Socio-ecological Transition”—WWWforEurope (http://Synthesis-Report-Part-I.foreurope.eu). He had temporary commitments at Stanford University, MIT, UCLA, and at the University of Changsha (Hunan, China). His research foci are industrial economics, competitiveness, and strategies of firms, regions and countries. The Policy Crossover Center published studies on “More or Less Europe”, Europe taking the lead in responsible globalization, and a European partnership policy with the South and the East. 01 eng 03 00 The world is changing quickly. The former Soviet Union is gone and its successor, Russia, is seeking to reclaim parts of Soviet territory using military force. The United States (US) as a sole remaining superpower cannot take the lead, due to populism, failed democracy, and a lack of resilience. China is on the rise, but autocratic, longing for resources and facing a declining population. Europe is less dynamic and innovative, not yet seen as unified with common goals. New middle powers are gaining shares in production, but are themselves very different. The problems the world faces are changing: peace is no longer guaranteed, global warming is accelerating, poverty is on the decline but re emerging in other ways, and migration policy is becoming more and more important. The green transition may be an engine of change and new dynamics, but there are also many backlashes. In this situation, a new industrial policy is needed—one very different from that of the past. We begin by describing the past policy as an isolated policy, along with the questions of whether such a policy is needed in a capitalistic economy and whether it should focus on “important sectors” (the sectoral or French approach) or “important activities” (the horizonal or German approach). We then turn to the increasing importance of international exports/ investments and the necessity for a green transition, but also new forms of protectionism and backlashes. This chapter builds on Aiginger and Rodrik (2020) with respect to “industrial policy for the 21st century”, as well as on Aiginger and Ketels (2024) for its “reloading” after the most recent changes in the policy environment. 30 00 The world is changing quickly. The former Soviet Union is gone and its successor, Russia, is seeking to reclaim parts of Soviet territory using military force. The United States (US) as a sole remaining superpower cannot take the lead, due to populism, failed democracy, and a lack of resilience. China is on the rise, but autocratic, longing for resources and facing a declining population. Europe is less dynamic and innovative, not yet seen as unified with common goals. New middle powers are gaining shares in production, but are themselves very different. The problems the world faces are changing: peace is no longer guaranteed, global warming is accelerating, poverty is on the decline but re emerging in other ways, and migration policy is becoming more and more important. The green transition may be an engine of change and new dynamics, but there are also many backlashes. In this situation, a new industrial policy is needed—one very different from that of the past. We begin by describing the past policy as an isolated policy, along with the questions of whether such a policy is needed in a capitalistic economy and whether it should focus on “important sectors” (the sectoral or French approach) or “important activities” (the horizonal or German approach). We then turn to the increasing importance of international exports/ investments and the necessity for a green transition, but also new forms of protectionism and backlashes. This chapter builds on Aiginger and Rodrik (2020) with respect to “industrial policy for the 21st century”, as well as on Aiginger and Ketels (2024) for its “reloading” after the most recent changes in the policy environment. 20 00 Open Access Karl Aiginger 34 01 Unstructured citation Acemoglu D. (2023) “Letter from America: When Industry Means Hard Work”, Royal Economic Society, https://res.org.uk/newsletter/letter-from-america-when-industry-means-hard-work/ 34 06 10.1007/s10842-024-00415-8 34 06 10.1007/s10842-019-00322-3 34 06 10.1080/02692170601005507 34 01 Unstructured citation Austin, B., E. Glaeser, and L. Summers (2018) “Saving the Heartland: Place-based Policies in 21st Century America. Brookings Papers of Economic Activity”, Brookings, https://www.brookings.edu/articles/saving-the-heartland-place-based-policies-in-21st-century-america/ 34 06 10.1353/eca.2022.0005 34 01 Unstructured citation Aiyar, S., and A. Ilyna (2023) “Geoeconomic Fragmentation and the Future of Multilateralism”, IMF Staff Discussion Notes 2023(001), https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2023/01/11/Geo-Economic-Fragmentation-and-the-Future-of-Multilateralism-527266 34 01 Unstructured citation Birdsall, N. M., J. E. L. Campos, C. S. Kim, W. M. Corden, L. MacDonald, H. Pack, J. Page, R. Sabor, and J. E. Stiglitz (1993) The East Asian Miracle: Economic Growth and Public Policy: Main Report (English). A World Bank Policy Research Report. Washington, DC: World Bank Group, http://documents.worldbank.org/curated/en/975081468244550798/Main-report 34 01 Unstructured citation Chang, H. J. (2002) Kicking Away the Ladder: Development Strategy in Historical Perspective. London: Anthem Press. 34 06 10.3386/w17842 34 01 Unstructured citation Draghi, M. (2024) The Future of European Competitiveness. Brussels: European Commission, https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en 34 01 Unstructured citation Economist, The (2024) “Can India, Indonesia, and Saudi Arabia be the Next Great Economies”, The Economist, 4 January, https://www.economist.com/leaders/2024/01/04/can-india-indonesia-and-saudi-arabia-be-the-next-great-economies 34 01 Unstructured citation Gil, I. S., and M. Raiser (2012) Golden Growth: Restoring the Lustre of the European Economic Model. Washington, DC: World Bank Group. 34 01 Unstructured citation Irwin, D. A. (2020) “The Washington Consensus Stands Test of Time Better than Populist Policies”, 4 December, Peterson Institute for International Economics, https://www.piie.com/blogs/realtime-economics/washington-consensus-stands-test-time-better-populist-policies 34 06 10.1051/shsconf/202317602009 34 01 Unstructured citation Javorcik, B. S., L. Kitzmueller, H. Schweiger, and M. A. Yildirim (2023) “Economic Costs of Friend-shoring”, CID Faculty Working Paper 422, https://growthlab.hks.harvard.edu/publications/economic-costs-friend-shoring 34 06 10.1146/annurev-economics-081023-024638 34 01 Unstructured citation Kelsey, T. (2023) “When Missions Fail: Lessons in ‘High Technology’ from Post-War Britain”, Blavatnik School of Government Working Paper 2023–056, https://www.bsg.ox.ac.uk/sites/default/files/2023-12/BSG-WP%E2%80%932023-056-When-Missions-Fail.pdf 34 01 Unstructured citation Ketels, C., and E. Duch (2022) “Industrial Policy in a New Global Reality: Towards a More Location- and Sector-Driven Approach”, Private Sector Development Blog, 11 July, https://blogs.worldbank.org/psd/industrial-policy-new-global-reality-towards-more-location-and-sector-driven-approach 34 01 Unstructured citation Ketels. C., M. E. Porter, and A. Kapoor (2022) Competitiveness Roadmap for India @ 100. Delhi: Economic Advisory Council of the Prime Minister, https://www.hbs.edu/ris/Publication%20Files/Report_Competitiveness_Roadmap-25_August_2022_Web_Version_690d1fab-dce8-48a0-8cd5-6d6a63a6d5eb.pdf 34 01 Unstructured citation Kose, M. A, and F. Ohnsorge (2023) Falling Long Term Growth Prospects: Trends, Expectations, and Policies. Washington, DC: World Bank, https://openknowledge.worldbank.org/handle/10986/39497 34 06 10.2307/j.ctvc776tv 34 01 Unstructured citation Mazzucato, M. (2021) Mission Economy: A Moonshot Guide to Changing Capitalism. London: Allen Lane. 34 01 Unstructured citation Nayyar, D., and G. Nayyar (2024) “Made in India: Industrial Policy in a Changing World”, Journal of Industry, Competition and Trade 24(1): 13. 34 06 10.1007/s10842-024-00420-x 34 01 Unstructured citation Rodrik, D. (2015) “Premature Deindustrialization”, NBER Working Paper 20935, https://www.nber.org/system/files/working_papers/w20935/w20935.pdf 34 01 Unstructured citation Rodrik, D., and J. Stiglitz (2024) “A New Growth Strategy for Developing Nations”, Harvard, https://drodrik.scholar.harvard.edu/sites/scholar.harvard.edu/files/dani-rodrik/files/a_new_growth_strategy_for_developing_nations.pdf 34 06 10.1007/s10842-024-00418-5 34 01 Unstructured citation Yellen, J. (2022) “Remarks at Microsoft in New Delhi”, US Department of the Treasury, 11 November, https://home.treasury.gov/news/press-releases/jy1096 9 03 06 10.11647/obp.0434.08 109 134 26 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 7. A “True” Industrial Policy for Europe Is a Technology and Innovation Policy 1 A01 Reda Cherif Reda Cherif Senior Economist 40 05m4rmw09 International Monetary Fund Affiliated Researcher at the Bennett Institute for Public Policy 40 013meh722 University of Cambridge Senior Research Advisor at the Center of Technology and Industrialization for Development (TIDE) 40 052gg0110 University of Oxford Reda Cherif is a Senior Economist at the International Monetary Fund (IMF), an Affiliated Researcher at the Bennett Institute for Public Policy at the University of Cambridge, a Senior Research Advisor at the Center of Technology and Industrialization for Development (TIDE), University of Oxford, and a Fellow at the Royal Society for the Arts. He joined the IMF in 2008, as part of the Economist Program, and worked in several departments: in the Fiscal Affairs Department, where he was an economist on the Gabon program; in the Middle East and Central Asia Department, where he covered Saudi Arabia, Qatar and Bahrain; and in the African Department, where he worked in the Regional Studies Division, issuing analytical work on trade, competition and oil economies. He has published numerous articles on the energy transition, public debt dynamics, commodity exporters, development, industrial policy, growth, and innovation. His work was published in the Journal of Development Economics and World Development among others, and it was featured in the Economist, Financial Times and National Geographic. He is the co-editor, with Fuad Hasanov and Min Zhu, of Breaking the Oil Spell, a book studying economic diversification in oil exporters. Reda holds an MSc in Economics from the London School of Economics and a PhD in Economics from the University of Chicago. 2 A01 21 0000000220234547 Fuad Hasanov Fuad Hasanov Senior Economist 40 05m4rmw09 International Monetary Fund Adjunct Professor of Economics 40 05vzafd60 Georgetown University Affiliated Researcher at the Bennett Institute for Public Policy 40 013meh722 University of Cambridge Fuad Hasanov is a Senior Economist at the International Monetary Fund (IMF), an Adjunct Professor of Economics at Georgetown University, an Affiliated Researcher at the Bennett Institute for Public Policy at the University of Cambridge, and a Senior Research Advisor at the Technology and Industrialization for Development (TIDE) Centre at the University of Oxford. Before joining the IMF in 2007, Fuad was an Assistant Professor of Economics at Oakland University in Rochester, Michigan. His recent research focuses on natural resources, growth and innovation, and industrial policy. He is the co-editor, with Reda Cherif and Min Zhu, of Breaking the Oil Spell that examines economic diversification in oil-exporting countries. Fuad received a PhD, MS, and BA in economics from the University of Texas at Austin. 3 A01 21 0000000219794731 Xun Li Xun Li Research Analyst 40 05m4rmw09 International Monetary Fund Xun Li is a Research Analyst at the International Monetary Fund (IMF). At the IMF, Xun has contributed to surveillance and policy formulation to promote sustainable economic growth in Europe. Xun holds a Master in Public Administration from Columbia University School of International and Public Affairs, specializing in renewable energy financial modeling and energy and environmental economic analysis. 01 eng 03 00 Since the Global Financial Crisis of 2008, the “core” European countries have been losing their competitive edge in global markets for sophisticated products such as electronics and green transportation and power technologies, while also missing out on the earlier revolution in information and communication technology (ICT). Meanwhile, the “periphery” European countries have been slowing down and, in pre-crisis years, have mostly channelled their investment into non-tradable industries, concentrating their resources in relatively lower productivity and lower skill activities. The slowdown in growth and convergence highlights the need to reignite productivity and economic dynamism. Lessons from the Asian economic miracles and Europe’s own growth experience suggest the importance of developing sophisticated sectors. The development of these sectors is riddled with both government and market failures, requiring adequate policies to tackle them. We argue that a “true” industrial policy for Europe is a technology and innovation policy (TIP) that focuses on correcting market failures to spur innovation, scale up, and support production networks in sophisticated industries across Europe while reorienting the engines of growth of “periphery” economies toward sophisticated sectors and their complex value chains. TIP’s guiding principles are a focus on global markets, competition, and a strict accountability framework, where the “hard” tools such as tariffs and subsidies may not be necessary and may be potentially counterproductive. 30 00 Since the Global Financial Crisis of 2008, the “core” European countries have been losing their competitive edge in global markets for sophisticated products such as electronics and green transportation and power technologies, while also missing out on the earlier revolution in information and communication technology (ICT). Meanwhile, the “periphery” European countries have been slowing down and, in pre-crisis years, have mostly channelled their investment into non-tradable industries, concentrating their resources in relatively lower productivity and lower skill activities. The slowdown in growth and convergence highlights the need to reignite productivity and economic dynamism. Lessons from the Asian economic miracles and Europe’s own growth experience suggest the importance of developing sophisticated sectors. The development of these sectors is riddled with both government and market failures, requiring adequate policies to tackle them. We argue that a “true” industrial policy for Europe is a technology and innovation policy (TIP) that focuses on correcting market failures to spur innovation, scale up, and support production networks in sophisticated industries across Europe while reorienting the engines of growth of “periphery” economies toward sophisticated sectors and their complex value chains. TIP’s guiding principles are a focus on global markets, competition, and a strict accountability framework, where the “hard” tools such as tariffs and subsidies may not be necessary and may be potentially counterproductive. 20 00 Open Access Reda Cherif Fuad Hasanov Xun Li; 34 01 Unstructured citation Adler, D. (2021) “Inside Operation Warp Speed: A New Model for Industrial Policy”, American Affairs V(2): 3–32, https://americanaffairsjournal.org/2021/05/inside-operation-warp-speed-a-new-model-for-industrial-policy/ 34 01 Unstructured citation Aghion, P. (2016) “Growth Policy Design for Middle-Income Countries”, in R. Cherif, F. Hasanov, and M. Zhu (eds), Breaking the Oil Spell: The Gulf Falcons’ Path to Diversification. Washington, DC: International Monetary Fund, pp. 117–130. 34 01 Unstructured citation Aghion, P., R. Cherif, and F. Hasanov (2022) “Competition and Innovation”, in V. Cerra, B. Eichengreen, A. El-Ganainy, and M. Schindler (eds), How To Achieve Inclusive Growth. Oxford: Oxford University Press, pp. 212–237. 34 01 Unstructured citation Arnold, N., G. Claveres, and J. 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Hasanov (2018) “Public Debt Dynamics: The Effects of Austerity, Inflation, and Growth Shocks”, Empirical Economics 54(3): 1087–1105. 34 01 Unstructured citation Cherif, R., and F. Hasanov (2019a) “Return of the Policy That Shall Not Be Named: Principles of Industrial Policy”, IMF Working Paper 2019/74, https://www.imf.org/en/Publications/WP/Issues/2019/03/26/The-Return-of-the-Policy-That-Shall-Not-Be-Named-Principles-of-Industrial-Policy-46710 34 01 Unstructured citation Cherif, R., and F. Hasanov (2019b) “Principles of True Industrial Policy”, Journal of Globalization and Development 10(1): 1–22. 34 01 Unstructured citation Cherif, R., and F. Hasanov (2019c) “The Leap of the Tiger: Escaping the Middle‐income Trap to the Technological Frontier”, Global Policy 10(4): 497–511. 34 01 Unstructured citation Cherif, R., and F. Hasanov (2024) “The Pitfalls of Protectionism: Import Substitution vs. Export-Oriented Industrial Policy”, Journal of Industry, Competition and Trade 24(1): 1–34. 34 01 Unstructured citation Cherif, R., F. Hasanov, and A. Pande (2017) “Riding the Energy Transition: Oil Beyond 2040”, IMF Working Paper 2017/120, https://www.imf.org/en/Publications/WP/Issues/2017/05/22/Riding-the-Energy-Transition-Oil-Beyond-2040-44932 34 01 Unstructured citation Cherif, R., F. Hasanov, and A. Pande (2021) “Riding the Energy Transition: Oil beyond 2040”, Asian Economic Policy Review 16(1): 117–137. 34 01 Unstructured citation Cherif, R., F. Hasanov, and M. Sarsenbayev (2024) “Call of Duty: Industrial Policy for Post-Oil Era”, IMF Working Paper 2024/74. https://www.imf.org/en/Publications/WP/Issues/2024/03/29/Call-of-Duty-Industrial-Policy-for-the-Post-Oil-Era-546941 34 01 Unstructured citation Cherif, R., F. Hasanov, and P. Aghion (2023) “Fair and Inclusive Markets: Why Dynamism Matters”, IMF Working Paper 2021/29, https://www.imf.org/en/Publications/WP/Issues/2021/02/06/Fair-and-Inclusive-Markets-Why-Dynamism-Matters-50052 34 01 Unstructured citation Cherif, R., F. Hasanov, and M. Zhu (2021) “The Electric Vehicle Revolution Goes Global”, August 30, Project Syndicate, https://www.project-syndicate.org/commentary/electirc-vehicles-in-developing-and-emerging-economies-by-reda-cherif-et-al-2021-08 34 01 Unstructured citation Draghi, M. (2024a) “Radical Change—Is What Is Needed”, Speech at the High-level Conference on the European Pillar of Social Rights, Brussels, April 16, https://geopolitique.eu/en/2024/04/16/radical-change-is-what-is-needed/ 34 01 Unstructured citation Draghi, M. (2024b) The Future of European Competitiveness. Brussels: European Commission, https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en 34 01 Unstructured citation Duchatel, M. 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Tirole (2024) “How to Escape the Middle Technology Trap”, EconPol Policy Report, April, https://www.econpol.eu/publications/policy_report/eu-innovation-policy-how-to-escape-the-middle-technology-trap 34 01 Unstructured citation Heimer, M. (2019) “The List”, Fortune 180(2): 122–118. 34 01 Unstructured citation Heimer, M. (2023) “The List”, Fortune 188(1): F1–F6. 34 01 Unstructured citation Hjelt, P. (2004) “The Fortune Global 500”, Fortune 150(2): 159–186. 34 01 Unstructured citation Hodge, A., R. Piazza, F. Hasanov, X. Li, M. Vaziri, A. Weller, and Y. C. Wong (forthcoming) “Industrial Policy in Europe: A Single Market Perspective”, IMF Working Paper. 34 01 Unstructured citation Huggins, R., A. Johnston, M. Munday, and C. Xu (2023) “Competition, Open Innovation, and Growth Challenges in the Semiconductor Industry: The Case of Europe’s Clusters”, Science and Public Policy 50: 531–547. 34 01 Unstructured citation IMF (2024a) “Euro Area Policies—2024 Annual Consultation”, IMF Country Report 24/248, https://www.imf.org/en/Publications/CR/Issues/2024/07/29/Euro-Area-Policies-2024-Annual-Consultation-Press-Release-Staff-Report-and-Statement-by-the-552578 34 01 Unstructured citation IMF (2024b) “Soft Landing in Crosswinds for a Lasting Recovery”, IMF Regional Economic Outlook, April, https://www.imf.org/en/Publications/REO/EU/Issues/2024/04/05/regional-economic-outlook-europe-april-2024 34 01 Unstructured citation Kleinhans, J.-P. (2024) “The Missing Strategy in Europe’s Chip Ambitions”, July, interface, https://www.interface-eu.org/publications/europe-semiconductor-strategy 34 01 Unstructured citation Kleinhans, J.-P., and N. Baisakova (2020) “The Global Semiconductor Value Chain: A Technology Primer for Policymakers”, October, Stiftung Neue Verantwortung Policy Paper. 34 01 Unstructured citation Letta, E. (2024) Much More Than a Market, https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf 34 01 Unstructured citation Mazzucato, M. (2013) The Entrepreneurial State: Debunking Public vs. Private Sector Myths. New York: Public Affairs. 34 01 Unstructured citation Pisano, G., and W. Shih (2012) Producing Prosperity: Why America Needs a Manufacturing Renaissance. Cambridge, MA: Harvard Business Review Press. 34 01 Unstructured citation SIA (2024) “Semiconductor Industry Association Factbook”, SIA, https://www.semiconductors.org/resources/factbook/ 34 06 10.7312/stig15214 10 03 06 10.11647/obp.0434.09 135 148 14 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 8. Industrial Policy and Security The European Union and the Double Challenge: Strengthening Competitiveness and Enhancing Economic Security 1 A01 Paolo Guerrieri Paolo Guerrieri Visiting Professor at PSIA, Paris School of International Affairs 40 05fe7ax82 Sciences Po, Paris Paolo Guerrieri is Visiting Professor at PSIA, Paris School of International Affairs, Sciences Po, Paris. He was Professor of Economics at the University of Rome “La Sapienza” and Visiting Professor at the College of Europe, Bruges (Belgium) and the USD Business School, University of San Diego, California. 2 A01 Pier Carlo Padoan Pier Carlo Padoan Full Professor of Economics retired 40 02be6w209 Sapienza University of Rome Pier Carlo Padoan who has been Italian Minister of Economy and Finance and Member of the Chamber of Deputies of the Italian Republic, is Chairman of UniCredit since April 2021. He is Full Professor of Economics retired at the La Sapienza University of Rome. He is currently Vice President of Istituto Affari Internazionali, Board member of the Institute of International Finance, a member of the Luiss Institute for European Analysis and Policy, and a member of the BoD and Executive Committee of ABI. In 2021 he was also appointed member of the Board of Istituto Luigi Einaudi and of the Committee for Corporate Governance of Borsa Italiana. He is currently a member of the European Financial Services Round Table, and of the Executive Committee of Assonime. In May 2022 he became Chairperson of the High Level Group on Financing Sustainability Transition, which is part of the High Level Groups on EU Policy and Innovation. He has been Deputy Secretary General and Chief Economist of OECD and Executive Director of the International Monetary Fund. He has held academic positions at the University of Rome, College of Europe (Bruges and Warsaw), Université Libre de Bruxelles, University of Urbino, Universidad de la Plata, Chulalongkorn University and University of Tokyo. 01 eng 03 00 This chapter argues that the European Union’s (EU) dual challenge— enhancing both competitiveness and economic security—must form the core of its open strategic autonomy framework, which integrates national security considerations with economic policy. The chapter explores the vulnerabilities and strengths of the EU’s industrial and technological strategies, emphasizing the need for deeper European integration and more robust governance to meet these challenges. Central to this effort is the provision of European public goods (EPGs), such as climate policy, energy security, and technological development, which require stronger EU-level governance and financial resources. To ensure long-term resilience and relevance in a fragmented world, Europe must undertake a profound restructuring of its economic governance and enhance its strategic autonomy. 30 00 This chapter argues that the European Union’s (EU) dual challenge— enhancing both competitiveness and economic security—must form the core of its open strategic autonomy framework, which integrates national security considerations with economic policy. The chapter explores the vulnerabilities and strengths of the EU’s industrial and technological strategies, emphasizing the need for deeper European integration and more robust governance to meet these challenges. Central to this effort is the provision of European public goods (EPGs), such as climate policy, energy security, and technological development, which require stronger EU-level governance and financial resources. To ensure long-term resilience and relevance in a fragmented world, Europe must undertake a profound restructuring of its economic governance and enhance its strategic autonomy. 20 00 Open Access Paolo Guerrieri Pier Carlo Padoan; 34 01 Unstructured citation Aghion, P. (2023) “An Innovation-Driven Industrial Policy for Europe” in S. Tagliapietra and R. Veugelers (eds), Sparking Europe’s New Industrial Revolution: A Policy for Net Zero, Growth and Resilience. Brussels: Bruegel, pp. 29–41, https://www.bruegel.org/sites/default/files/private/2023-08/Bruegel Blueprint 33_chapter 2.pdf 34 06 10.1007/s11135-023-01685-w 34 01 Unstructured citation Beaucillon, C., and S. Poli (2023) “Special Focus on EU Strategic Autonomy and Technological Sovereignty: An Introduction”, European Papers 8(2): 411–416, https://www.europeanpapers.eu/en/europeanforum/special-focus-eu-strategic-autonomy-and-technological-sovereignty-introduction 34 01 Unstructured citation Bergsten, C. F. (2022) The United States vs China: The Quest for Global Economic Leadership. New York: Polity Books. 34 01 Unstructured citation Bontadini, F., V. Meliciani, M. Savona, and A. Wikierman (2023) “Nearshoring, Global Value Chains’ Structure and Volatility”, LEAP Working Papers 8/23, https://leap.luiss.it/wp-content/uploads/2023/09/WP8.23-Nearshoring-global-value-chains-structure-and-volatility2.pdf 34 01 Unstructured citation Buti, M., A. Coloccia, and M. Messori (2023) “European Public Goods”, June 9, CEPR, https://cepr.org/voxeu/columns/european-public-goods 34 01 Unstructured citation Dadush, U. (2022) “Is the Post-War Trading System Ending?”, Policy Contribution 04/2022: 1–12, https://www.bruegel.org/sites/default/files/wp-content/uploads/2022/02/PC-04.pdf 34 01 Unstructured citation European Commission (2020) “European Raw Materials Alliance (ERMA)”, European Commission, https://single-market-economy.ec.europa.eu/industry/industrial-alliances/european-raw-materials-alliance_en 34 01 Unstructured citation European Commission (2021) “Trade Policy Review: An Open, Sustainable and Assertive Trade Policy”, COM(2021) 66, February 18, https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A52021DC0066 34 01 Unstructured citation European Commission (2023a) “A Green Deal Industrial Plan for the Net-Zero Age”, COM(2023) 62, February 1, https:// eur-lex.europa.eu/legal-content/EN/ TXT/HTML/?uri=CELEX:52023DC0062 34 01 Unstructured citation European Commission (2023b) “Joint Communication to the European Parliament, the European Council and the Council on ‘European Economic Security Strategy’, JOIN(2023) 20, June 20, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52023JC0020 34 01 Unstructured citation European Commission (2023c) “Joint Communication to the European Parliament and the European Council on ‘A Secure and Sustainable Supply of Critical Raw Materials in Support of the Twin Transition”, COM(2023) 165, March 16, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM%3A2023%3A165%3AFIN 34 01 Unstructured citation European Commission (2024) “Communication from the Commission to the European Parliament and the European Council on Advancing European Economic Security: An Introduction to Five New Initiatives”, COM(2024) 22, January 24, https://commission.europa.eu/system/files/2024-01/Communication on European economic security.pdf 34 06 10.1162/isec_a_00351 34 01 Unstructured citation Georgieva, K., G. Gopinath, and C. Pazarbasioglu (2022) “Why We Must Resist Geoeconomic Fragmentation and How”, IMF Blog, May 22, https://www.imf.org/en/Blogs/Articles/2022/05/22/blog-why-we-must-resist-geoeconomic-fragmentation 34 01 Unstructured citation Guerrieri, P., and P. C. Padoan (2020) L’economia europea. Tra crisi e rilancio. Bologna: il Mulino. 34 01 Unstructured citation Guerrieri, P., and P. C. Padoan (2024) Sovereign Europe. An Agenda for Europe in a Fragmented Global Economy. Brookfield, VT: Edward Elgar. 34 01 Unstructured citation Hoekman, B. M., and L. Puccio (2019) “EU Trade Policy: Challenges and Opportunities”, RSC Policy Papers 6, https://hdl.handle.net/1814/61589 34 01 Unstructured citation IMF (2022) “Geo-Economic Puzzle: Policy Making in a More Fragmented World”, Finance and Development 59(2). 34 01 Unstructured citation IMF (2023) “Geoeconomic Fragmentation: What’s at Stake for the EU”, IMF Working Papers 245, https://www.imf.org/en/Publications/WP/Issues/2023/11/29/Geoeconomic-Fragmentation-Whats-at-Stake-for-the-EU-541864 34 06 10.1017/s0020818320000636 34 06 10.1080/09692290.2023.2211281 34 06 10.1111/jcms.12932 34 06 10.1111/jcms.13428 34 06 10.1111/1758-5899.13303 34 01 Unstructured citation Sullivan, J. (2023) “Renewing American Economic Leadership”, Speech Given at Brookings Institution, Washington DC, April 27. 34 01 Unstructured citation Tagliapietra, S., and R. Veugelers (eds) (2023) Sparking Europe’s New Industrial Revolution: A Policy for Net Zero, Growth and Resilience. Brussels: Bruegel. 34 01 Unstructured citation Tamma, P. (2020) “Europe Wants ‘Strategic Autonomy’. It Just Has to Decide What That Means”, October 15, POLITICO, https://www.politico.eu/article/europe-trade-wants-strategic-autonomy-decide-what-means/ 34 01 Unstructured citation Tocci, N. (2021) “European Strategic Autonomy: What It Is, Why We Need It, How to Achieve It”, Istituto Affari Internazionali, https://www.iai.it/sites/default/files/9788893681780.pdf 34 06 10.1111/jcms.13366 34 01 Unstructured citation Zuleeg, F. (2023) “Economic Security: A New EU Paradigm?”, Discussion Paper, European Policy Centre, June 8, https://www.epc.eu/en/publications/Economic-security-A-new-EU-paradigm~516bc0 11 03 06 10.11647/obp.0434.10 149 168 20 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 9. Trends in Defence Spending in the European Union 1 A01 21 0000000177063868 Alessandra Cepparulo Alessandra Cepparulo Alessandra Cepparulo obtained her PhD in Political Economics at Sapienza University of Roma. She worked, as a post-doctoral researcher, at different universities in Italy and abroad and as a researcher, in several projects involving Italian national authorities and in international context. She is a Public Economist, whose research interests cover a wide set of issues: public finance and fiscal rules, forecast errors, quality of public expenditures, public investments and PPPs. She is currently working at the European Commission, DG ECFIN, in the unit responsible of fiscal policy and fiscal surveillance. 2 A01 21 0000000153508834 Paolo Pasimeni Paolo Pasimeni Senior Associate Researcher at the Brussels School of Governance 40 006e5kg04 Vrije Universiteit Brussel Paolo Pasimeni is Deputy Chief Economist at the European Commission, DG Internal Market and Industry, and Senior Associate Researcher at the Brussels School of Governance of the Vrije Universiteit Brussel (VUB). Specialized in international macroeconomics, his main field of expertise is the macroeconomic analysis of the single market and of the economic and monetary union (EMU). Expert on monetary, f iscal and structural policies, he has been working on the proposals for EMU reform, in particular on the design of a stabilization capacity. He has also worked on labour market analysis, as well as on the conception of the EU multi-annual budget. Personal webpage: https://brussels-school.be/team/paolo-pasimeni 01 eng 03 00 After more than sixty years of peace, in 2022 Europe has faced a watershed moment in its security, which is leading to higher and more integrated defence spending in the European Union (EU). This article uses new sources of data to illustrate the evolution of defence spending in the EU and its composition. It also looks at the articulation of responsibilities for defence spending in a multi-level governance system, such as the EU. The institutional evolution of defence policy in the EU tries to build on a progressive convergence of foreign policy objectives and points towards some concentration of defence spending at the supra-national level. The key question for the future is to what extent this convergence will hold and to what extent it will be reflected in new provisions for defence in the common budget. 30 00 After more than sixty years of peace, in 2022 Europe has faced a watershed moment in its security, which is leading to higher and more integrated defence spending in the European Union (EU). This article uses new sources of data to illustrate the evolution of defence spending in the EU and its composition. It also looks at the articulation of responsibilities for defence spending in a multi-level governance system, such as the EU. The institutional evolution of defence policy in the EU tries to build on a progressive convergence of foreign policy objectives and points towards some concentration of defence spending at the supra-national level. The key question for the future is to what extent this convergence will hold and to what extent it will be reflected in new provisions for defence in the common budget. 20 00 Open Access Alessandra Cepparulo Paolo Pasimeni; 34 06 10.1016/j.ejpoleco.2012.07.002 34 06 10.1007/s11127-008-9324-8 34 01 Unstructured citation Antolin-Diaz, J., and P. Surico (2022) “The Long-Run Effects of Government Spending”, CEPR Discussion Paper 17433. 34 01 Unstructured citation Benoit, E. (1978) “Growth and Defense in Developing Countries”, Economic Development and Cultural Change 26(2): 271–280. 34 06 10.1080/14751798.2017.1311039 34 06 10.1017/s1755773921000102 34 01 Unstructured citation Becker, J., and J. P. Dunne (2021) “Military Spending Composition and Economic Growth”, Defence and Peace Economics 34(3): 259–271. 34 06 10.1177/00223433231215785 34 01 Unstructured citation Buti, M., and G. Papaconstantinou (2022) “European Public Goods: How Can We Supply More?”, Policy Brief 3, Luiss School of European Political Economy, https://leap.luiss.it/wp-content/uploads/2022/06/PB3.22-European-Public-Goods.-How-can-we-supply-more.pdf 34 01 Unstructured citation Cepparulo, A., and P. Pasimeni (2024) “Defence Spending in the European Union” Discussion Paper 199, European Commission, https://economy-finance.ec.europa.eu/publications/defence-spending-european-union_en 34 06 10.1007/s00181-017-1300-z 34 01 Unstructured citation Ciaffi, G., M. Deleidi, and M. Mazzucato (2024) “Measuring the Macroeconomic Responses to Public Investment in Innovation: Evidence from OECD Countries”. Industrial and Corporate Change 33(2): 363–382. 34 01 Unstructured citation Council of the European Union (7371/22) “A Strategic Compass for Security and Defence—For a European Union that Protects its Citizens, Values and Interests and Contributes to International Peace and Security”. 34 01 Unstructured citation Council Decision (CFSP) (2017) “Council Decision 2017/2315 of 11 December 2017”, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32017D2315&from=EN 34 01 Unstructured citation Deleidi, M., and M. Mazzucato (2019) “Mission-Oriented Innovation Policies: A Theoretical and Empirical Assessment for the US Economy”, Departmental Working Papers of Economics - University ‘Roma Tre’ 0248, Department of Economics - University Roma Tre. 34 06 10.1016/j.respol.2020.104151 34 01 Unstructured citation Draghi, M. (2024a) The Future of European Competitiveness. Part A: A Competitiveness Strategy for Europe. Brussels: European Commission. 34 01 Unstructured citation Draghi, M. (2024b) The Future of European Competitiveness. Part B: In-depth Analysis and Recommendations. Brussels: European Commission. 34 01 Unstructured citation Dunne, J. P., R. Smith, and D. Willenbockel (2005) “Models of Military Expenditure and Growth: A Critical Review”, Defence and Peace Economics 16(6): 449–460. 34 06 10.15355/epsj.11.2.50 34 06 10.1080/10242694.2019.1636182 34 01 Unstructured citation European Commission (2017) JOIN. 41 Final Improving Military Mobility in the European Union. Brussels: European Commission. 34 01 Unstructured citation European Commission (2018) JOIN. 5 Final On the Action Plan on Military Mobility. Brussels: European Commission. 34 01 Unstructured citation European Commission (2022a) JOIN. 48 Action Plan on Military Mobility 2.0. Brussels: European Commission. 34 01 Unstructured citation European Commission (2022b) JOIN. 24 Final On the Defence Investment Gaps Analysis and Way Forward. Brussels: European Commission. 34 01 Unstructured citation European Commission (2024) JOIN. 10 Final A New European Defence Industrial Strategy: Achieving EU Readiness through a Responsive and Resilient European Defence Industry. Brussels: European Commission. 34 01 Unstructured citation European Council (1999a) “Declaration of the European Council on Strengthening the Common European Security and Defence”, European Council, Cologne 3–4 June 1999, https://www.europarl.europa.eu/summits/kol1_en.htm 34 01 Unstructured citation European Council (1999b) “Presidency Conclusions”, Helsinki European Council, 10–11 December 1999, https://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/ACFA4C.htm 34 01 Unstructured citation European Council (March 2024) “Conclusions—21 and 22 March 2024”, https://www.consilium.europa.eu/media/70880/euco-conclusions-2122032024.pdf 34 01 Unstructured citation EDA (2018) Factsheet: Capability Development Plan. Brussels: EDA, https://eda.europa.eu/publications-and-data/factsheets/factsheet-capability-development-plan 34 01 Unstructured citation EDA (2021) Annual Report. Brussels: EDA. 34 01 Unstructured citation EDA (2022) 2022 Coordinated Annual Review on Defence Report. Brussels: EDA. 34 01 Unstructured citation EDA (2023) Annual Report. Brussels: EDA. 34 01 Unstructured citation EU (2014) “The Mechanism for Financing Military Operations (Athena). Summaries of EU Legislation”, https://eur-lex.europa.eu/EN/legal-content/summary/the-mechanism-for-financing-military-operations-athena.html 34 06 10.1080/07036337.2023.2183395 34 01 Unstructured citation Fuest, C., and J. Pisani-Ferry (2019) “A Primer on Developing European Public Goods”, EconPol Policy Report 16(3), https://www.econstor.eu/bitstream/10419/219519/1/econpol-pol-report-16.pdf 34 06 10.1080/07036337.2023.2239998 34 01 Unstructured citation Letta, E. (2024) Much More Than a Market, https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf 34 01 Unstructured citation Malizard, J. (2015) “Does Military Expenditure Crowd Out Private Investment? A Disaggregated Perspective for the Case of France”, Economic Modelling 46: 44–52. 34 01 Unstructured citation Mazur, S. (2021) “Security and Defence Heading 5 of the 2021–2027 MFF”, Briefing 2021–2027 MFF, European Parliamentary Research Service, https://www.europarl.europa.eu/RegData/etudes/BRIE/2021/690545/EPRS_BRI(2021)690545_EN.pdf 34 01 Unstructured citation Mazzucato, M. (2013) The Entrepreneurial State: Debunking Public vs Private Sector Myths. London: Anthem Press. 34 01 Unstructured citation Mazzucato, M. (2018) “Mission-oriented Innovation Policies: Challenges and Opportunities”, Industrial and Corporate Change 27(5): 803–815. 34 01 Unstructured citation Moretti, E., C. Steinwender, and J. Van Reenen (2023) “The Intellectual Spoils of War? Defense R&D, Productivity, and International Spillovers”, Review of Economics and Statistics, 1–46. 34 06 10.1016/s0169-7218(10)02013-7 34 01 Unstructured citation Musgrave, R. A. (1939) “The Nature of Budgetary Balance and the Case for the Capital Budget”, American Economic Review 29(2): 260–271. 34 01 Unstructured citation NATO. (2014). Wales Summit Declaration Issued by the Heads of State and Government Participating in the Meeting of the North Atlantic Council in Wales, https://www.nato.int/cps/en/natohq/official_texts_112964.htm 34 01 Unstructured citation Oates, W. E. (1999) “An Essay on Fiscal Federalism”, Journal of Economic Literature 37(3): 1120–1149. 34 01 Unstructured citation Oates, W. E. (2005) “Toward a Second-Generation Theory of Fiscal Federalism”, International Tax and Public Finance 12: 349–373. 34 01 Unstructured citation Pivetti, M. (1989) “Military Expenditure and Economic Analysis: A Review Article”, Contributions to Political Economy 8(1): 55–67. 34 01 Unstructured citation Pivetti, M. (1992) “Military Spending as a Burden on Growth: an ‘Underconsumptionist’ Critique”, Cambridge Journal of Economics 16(4): 373–384. 34 01 Unstructured citation Smith, R. P., and P. Dunne (1994) “Is Military Spending a Burden? A Marxo-Marginalist Response to Pivetti”, Cambridge Journal of Economics 18(5): 515–521. 34 06 10.1080/10242694.2022.2091191 34 01 Unstructured citation Wyplosz, C. (2016) “The Six Flaws of the Eurozone”, Economic Policy 31(87): 559–606. 34 06 10.1177/0022343318808841 12 03 06 10.11647/obp.0434.11 169 180 12 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 10. Sustainable Mobility and Industrial Policy 1 A01 21 0000000227486472 Dario Guarascio Dario Guarascio Associate Professor of Economic Policy at the Department of Economics and Law 40 02be6w209 Sapienza University of Rome Dario Guarascio is Associate Professor of Economic Policy at the Department of Economics and Law—Sapienza University of Rome—and external affiliate of the Sant’Anna School of Advanced Studies in Pisa and of the National Institute for Public Policy Analysis (INAPP). Dario’s research covers economics of innovation, digitalization and labour markets, European economy, and industrial policy. He is Associate Editor of the journals Structural Change and Economic Dynamics, Journal of Industrial and Business Economics, and Economia & Lavoro and former member of the Commissions of the Ministry of Labour and Social Policy for the reform of social security. 2 A01 21 0000000188615090 Annamaria Simonazzi Annamaria Simonazzi Former Professor of Political Economy 40 02be6w209 Sapienza University of Rome Annamaria Simonazzi is Former Professor of Political Economy at La Sapienza University of Rome and Cnel Expert Advisor in the X Council. She is President of the Giacomo Brodolini Foundation, Managing Director of Economia & Lavoro and member of the editorial board of the web magazine www.inGenere.it. She has published widely on European macroeconomic issues, industrial policy, employment, welfare, and gender economics. 01 eng 03 00 Focusing on the automotive industry, this chapter addresses the problem of Europe’s vulnerability (e.g., import dependency, technological backwardness in key domains) and the hypothesis of the obsolescence of its growth and production model. First, we analyze the evolution of the Sino-German relationships highlighting the emergence of two divergent trajectories: while a well-tailored combination of industrial and trade policies allowed China to become the leader in electric vehicle (EV) production, the German development model, mostly driven by the choices of key carmakers, slowed innovation, fostered fragmentation within the European Union (EU) and created the conditions for the current vulnerability. Second, we identify the key elements— i.e., increasing demand for affordable EVs, investments in infrastructure for the provision of public goods, building-up a European Directorate for Resource Security—of a European industrial policy for sustainable mobility which may help achieve the multiple goals of decarbonizing the economy, increasing resilience, and reducing inequalities between and within countries. 30 00 Focusing on the automotive industry, this chapter addresses the problem of Europe’s vulnerability (e.g., import dependency, technological backwardness in key domains) and the hypothesis of the obsolescence of its growth and production model. First, we analyze the evolution of the Sino-German relationships highlighting the emergence of two divergent trajectories: while a well-tailored combination of industrial and trade policies allowed China to become the leader in electric vehicle (EV) production, the German development model, mostly driven by the choices of key carmakers, slowed innovation, fostered fragmentation within the European Union (EU) and created the conditions for the current vulnerability. Second, we identify the key elements— i.e., increasing demand for affordable EVs, investments in infrastructure for the provision of public goods, building-up a European Directorate for Resource Security—of a European industrial policy for sustainable mobility which may help achieve the multiple goals of decarbonizing the economy, increasing resilience, and reducing inequalities between and within countries. 20 00 Open Access Dario Guarascio Annamaria Simonazzi; 34 01 Unstructured citation Alim, A. N., P. Nilsson, and P. Campbell (2024) “Volkswagen Considers Partnership to Produce Mass Market Electric Vehicles”, March 13, Financial Times, https://www.ft.com/content/0985f16c-105c-4b62-aa80-3658fa9b629a 34 01 Unstructured citation Alim, A. M., and S. Jones (2024) “German Companies’ Dependence on China Will Last Decades, Warns Siemens”, 14 April, Financial Times, https://www.ft.com/content/e8634f5c-5a28-4741-a13d-024665456f43? 34 01 Unstructured citation Autor, D. H, D. Dorn, and G. H. Hanson (2016) “The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade”, BNER 21906. 34 01 Unstructured citation Baqaee, D., J. Hinz, B. Moll, M. Schularick, F. A. Teti, J. Wanner, and S. Yang (2024) “What If? The Effects of a Hard Decoupling from China on the German Economy”, Kiel Policy Brief 170. 34 06 10.1111/jcms.13599 34 01 Unstructured citation Beattie, A. (2024) “Europe’s New Anti-subsidy Weapon Is Powerful but Hard to Control: The EU Foreign Subsidies Regulation Is Looking to Score Some Notable Hits”, 9 May, Financial Times, https://www.ft.com/content/db880189-6556-427d-9c80-b4af3c8917d2? 34 01 Unstructured citation Celi, G., A. Ginzburg, D. Guarascio, and A. Simonazzi (2018) Crisis in the European Monetary Union. Oxford: Routledge. 34 01 Unstructured citation Celi, G., D. Guarascio, J. Reljic, A. Simonazzi, and F. Zezza (2022) “The Asymmetric Impact of War: Resilience, Vulnerability and Implications for EU Policy”, Intereconomics 57(3): 141–147. 34 01 Unstructured citation De Cecco, M. (1978) “Il sistema monetario internazionale”, in M. Carmagnani and A. Vercelli (eds.), Economia e storia. Florence: La Nuova Italia, pp. 810–830. 34 01 Unstructured citation De Quant, S., S. Tordoir, and S. Vallée (2024) “Caught in Geopolitical Fragmentation: How to De-risk Germany’s Economic Model”, Working Paper 02/2024. 34 01 Unstructured citation Deutsche Bundesbank (2024) “Risks Facing Germany as a Result of its Economic Ties with China”, Monthly Report, January. 34 06 10.1177/10245294231207990 34 01 Unstructured citation Guarascio, D., J. Reljic, G. Cucignatto, G. Celi, and A. Simonazzi (2024) “Between Scylla and Charybdis. Long-term Drivers of EU Structural Vulnerability, Review of Keynesian Economics 12(4): forthcoming. 34 01 Unstructured citation Hvistendahl, M., J. Ewing, and J. Liu (2024) “A Pivot to China Saved Elon Musk. It also Binds Him to Beijing”, 27 March, New York Times, https://www.nytimes.com/2024/03/27/world/asia/elon-musk-tesla-china.html 34 01 Unstructured citation Janeway, W.H. (2024) “Is Techno-Monopoly Inevitable?”, 5 April, Project Syndicate, https://www.project-syndicate.org/onpoint/us-big-tech-monopolies-market-power-from-key-innovations-by-william-h-janeway-2024-04 34 01 Unstructured citation Li, G., and P. Campbell (2024) “BYD Loses EV Throne to Tesla as Sales slip”, 2 April, Financial Times, https://www.ft.com/content/4f1a2188-ced0-4018-998d-5148209a5f5e 34 01 Unstructured citation Matthes, J. (2023) “Entwicklung des Konkurrenzdrucks durch China auf dem EU-Markt: Update einer Vorläuferstudie” [Evoluzione della pressione competitiva della Cina sul mercato UE], IW-Report 39/2023. 34 01 Unstructured citation McMorrow, R., and G. Li (2024) “The Steve Jobs of China Turns Car Salesman. in Xiaomi’s EV Evolution”, 5 April, Financial Times, https://www.ft.com/content/f0664662-ea9f-4bd6-a5c1-6c76c99b6ccd 34 01 Unstructured citation Moscoso, L., and I. Stoyanova (2024) “The Foreign Subsidies Regulation—100 Days Since the Start of the Notification Obligation for Concentrations”, Competition FSR Brief 1, https://competition-policy.ec.europa.eu/document/download/22197012-2036-4b1e-8b02-0eb8b2d6e666_en?filename=kdar24001enn_competition_FSR_brief_1_2024_100-days-of-FSR-notification-obligation.pdf 34 01 Unstructured citation Nilsson, P. (2024) “German Car Parts Suppliers Plan Job Cuts amid Costly EV Transition”, 18 January, Financial Times, https://www.ft.com/content/40585c6c-741c-4450-8f06-8d367839594c 34 06 10.2139/ssrn.4304165 34 01 Unstructured citation Pavlinek, P. (2023) “Transition of the Automotive Industry towards Electric Vehicle Production in the East European Integrated Periphery”, Empirica 50: 35–73. 34 01 Unstructured citation Russo, M., F. Alboni, J. C. Sanginés, M. De Domenico, G. Mangioni, S. Righi, and A. Simonazzi (2023) “Regionalisation and Cross-region Integration. Twin Dynamics in the Automotive International Trade Networks”, Structural Change and Economic Dynamics 67: 98–114. 34 01 Unstructured citation Sandbu, M. (2022) “Europe Is Learning that You Can’t Separate Trade and Politics”, 6 November, Financial Times, https://www.ft.com/content/a1b97de4-b366-4a0e-aa58-93a6b6fa8b2a 34 01 Unstructured citation Simonazzi, A., J. Carreto Sanginés, and M. Russo (2022) “The World to Come: Key Challenges for the Automotive Industry”, Economia & Lavoro 56(1): 7–23. 34 01 Unstructured citation Szalavetz, A. (2022) “Transition to Electric Vehicles in Hungary: A Devastating Crisis or Business as Usual?”, Technological Forecasting and Social Change 184: 122029. 34 01 Unstructured citation Weissmann, J. (2016) “Did Donald Trump Win the Election Because of Trade? A New Study Suggests It Helped”, 2 December, Slate, https://slate.com/business/2016/12/study-suggests-job-losses-to-china-helped-donald-trump-win-the-election.html 34 01 Unstructured citation White, E., M. Pooler, A. A. Lakshmi, and C. Murray (2024) “China’s Plan to Sell Cheap EVs to the Rest of the World”, 5 June, Financial Times, https://www.ft.com/content/c77fefa3-7f47-429b-8149-50aa60f39498?emailId=edd2675d-ec77-423b-89f1-680005d5b02d&segmentId=22011ee7-%E2%80%A61/16 13 03 06 10.11647/obp.0434.12 181 186 6 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 11. Financing Structural Investment after 2027 1 A01 Sophie Barbier Sophie Barbier Sophie Barbier is the Head of European Affairs at the French Caisse des Dépôts (CDC) Group. She graduated from the National School of Administration (ENA) and completed a Master’s degree in Economics from the Ecole Normale Supérieure de Cachan and Nanterre University. Previously, she worked at the Forecasting Department in the French Ministry for Finance and in the Asset-Liability Team in CDC. She is currently involved in the implementation of EU programs within CDC, such as the InvestEU program and the blending instrument under the Connecting Europe Facility. 2 A01 Helmut von Glasenapp Helmut von Glasenapp Helmut von Glasenapp studied business administration in Germany, after an apprenticeship in banking. He gained his first business experience with Treuhandanstalt, the former privatization agency in the eastern part of Germany. In 1993 he joined KfW in the Berlin office. From 1997 until 2005, he invested on behalf of KfW in Venture Capital and Private Equity Funds and managed a part of the innovation financing division of KfW Frankfurt. In 2005 he was asked to assist the European Commission as a Seconded National Expert notably to prepare an Equity Promotional Programme for SMEs. In 2007 he continued in Brussels as head of the KfW Liaison Office to the European Union before he was appointed as member of the EU Task Force for Greece of the European Commission until 2015. He joined the Brussels based Secretariat General of the European Long Term Investors Association in 2016 and was elected as ELTI Secretary General in October 2016. 01 eng 03 00 An investment can be described as structural if it contributes to financing the structural transformation of the economy and thus making it sustainably competitive. Experience shows that private investments alone are not sufficient due to externalities associated with this type of investment. A mixed public and private financing method is essential and it will help to accelerate the transformation. The challenge of the next European Union (EU) Multiannual Financial Framework (“post-2027”) will be to promote the development of this f inancing method. In this respect, the European budget will have to rely on four pillars: prioritize and plan, activate expenditure, decentralize implementation and strengthen steering. It is on this basis that Europe will be able to finance its structural investments and achieve the structural transformation necessary to maintain and develop its long-term competitiveness within the framework of a new European Competitiveness Pact. 30 00 An investment can be described as structural if it contributes to financing the structural transformation of the economy and thus making it sustainably competitive. Experience shows that private investments alone are not sufficient due to externalities associated with this type of investment. A mixed public and private financing method is essential and it will help to accelerate the transformation. The challenge of the next European Union (EU) Multiannual Financial Framework (“post-2027”) will be to promote the development of this f inancing method. In this respect, the European budget will have to rely on four pillars: prioritize and plan, activate expenditure, decentralize implementation and strengthen steering. It is on this basis that Europe will be able to finance its structural investments and achieve the structural transformation necessary to maintain and develop its long-term competitiveness within the framework of a new European Competitiveness Pact. 20 00 Open Access Sophie Barbier Helmut von Glasenapp; 34 01 Unstructured citation Attali, B. (2022) “Investing for the Long Term, a Short-term Emergency (Some Food for Thought)”, Eltia, https://www.eltia.eu/images/20201210_texte_VF_EN_FINAL.pdf 34 01 Unstructured citation Attali, B. (2024) “Investing in the Future: Putting the Long Term at the Heart of our Decisions”, Report of the Commission, May, https://www.caissedesdepots.fr/en/news/investing-future-long-term-heart-decisions 34 01 Unstructured citation Confrontations Europe (2024) 30 idées pour 2030. Paris: Descartes et Cie. 34 01 Unstructured citation European Council (2024) “Conclusions”, April 17 and 18, https://www.consilium.europa.eu/media/m5jlwe0p/euco-conclusions-20240417-18-en.pdf 34 01 Unstructured citation European Long-Term Investors (2024) “Strategic Outlook—Activating the EU Budget for Long-term Needs”, Eltia, https://www.eltia.eu/images/2024_02_29_Strategic_outlook.pdf 34 01 Unstructured citation Letta, E. (2024) Much More Than a Market, https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf 34 01 Unstructured citation Meade J. E. (1952) “External Economies and Diseconomies in a Competitive Situation”, The Economic Journal, 62(245): 54–67. 01 URL https://www.openbookpublishers.com/ Open Book Publishers 01 Open Book Publishers 01 Publisher's website: home page https://www.openbookpublishers.com/ 02 Publisher's website: webpage for this title https://www.openbookpublishers.com/books/10.11647/OBP.0434 Cambridge, UK 04 01 20241211 Floriana Cerniglia Francesco Saraceno. Copyright of individual chapters are maintained by the chapter author(s). 02 WORLD 06 15 9781805114383 03 9781805114383 06 15 9781805114406 03 9781805114406 06 15 9781805114420 03 9781805114420 06 15 9781805114413 03 9781805114413 WORLD 09 Open Book Publishers 02 Publisher's website: webpage for this product https://www.openbookpublishers.com/books/10.11647/obp.0434 29 Publisher's website: download the title https://www.openbookpublishers.com/books/10.11647/obp.0434 20 08 20241211 02 81.95 AUD WORLD 02 88.95 CAD WORLD 02 51.95 EUR WORLD 02 42.95 GBP WORLD 02 60.95 USD WORLD urn:uuid:6be32d24-e556-49fa-928d-b23404d1e4e6 03 01 01 thoth-work-id urn:uuid:a5a08fcc-4060-4738-abe7-c93ec292e390 01 thoth-publication-id urn:uuid:6be32d24-e556-49fa-928d-b23404d1e4e6 15 9781805114406 03 9781805114406 06 10.11647/OBP.0434 13 2023513492 23 1478292248 00 EB E107 10 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ 10 01 Series ID 85c48355-467d-436d-90c9-fe97626c22c8 02 23996676 01 Series URL https://www.openbookpublishers.com/series/2399-6676 03 13 01 02 Open Reports Series 01 01 Investing in the Structural Transformation 2024 European Public Investment Outlook 1 B01 21 000000019972716X Floriana Cerniglia Floriana Cerniglia Full Professor of Economics 40 03h7r5v07 Università Cattolica del Sacro Cuore Floriana Cerniglia is a Full Professor of Economics at Università Cattolica del Sacro Cuore (Milan) and Director of CRANEC (Centro di ricerche in analisi economica e sviluppo economico internazionale). She is the Co-Editor-in-Chief of Economia Politica (Journal of Analytical and Institutional Economics). She received her PhD from the University of Warwick (UK) and her research interests are in public economics and in macroeconomic policies. She has published in leading international journals and she has coordinated and participated in a number of peer-reviewed research projects. 2 B01 21 0000000301214329 Francesco Saraceno Francesco Saraceno Deputy Department Director at OFCE 40 05fe7ax82 Sciences Po, Paris Francesco Saraceno is Deputy Department Director at OFCE, the research centre in economics at Sciences Po in Paris, and Professor of Practice at LEAP-Luiss, Rome. He holds PhDs in Economics from Columbia University and the Sapienza University of Rome. His research focuses on the relationship between inequality, macroeconomic performance, and European macroeconomic policies. From 2000 to 2002 he was a member of the Council of Economic Advisors for the Italian Prime Minister’s Office. He teaches international and European macroeconomics at Sciences Po, where he manages the Economics concentration of the Master’s in European Affairs, and in Rome (Luiss). He is Academic Director of the Sciences Po-Northwestern European Affairs Program. He advises the International Labour Organization (ILO) on macroeconomic policies for employment and participates in IMF training programmes on fiscal policy. 01 eng 00 210 03 09 44 11 10 10 BUS039000 B2 Economics 04 HD3616.E8 93 LBBM3 10 BUS051000 B2 European Studies 93 KCB 93 1D 10 BUS068000 B2 Politics and Sociology 10 BUS032000 10 POL024000 20 Public investment; Structural transformation; European economy; Fiscal policy; Sustainable growth 01 06 02 00 The fifth volume in the European Public Investment Outlook series explores how Europe can drive structural transformation through strategic public investment. Reflecting on the lessons from the 2008–2020 polycrisis and recent economic challenges, this timely book examines fiscal policy's role in both stabilization and long-term economic devel 03 00 The fifth volume in the European Public Investment Outlook series explores how Europe can drive structural transformation through strategic public investment. Reflecting on the lessons from the 2008–2020 polycrisis and recent economic challenges, this timely book examines fiscal policy's role in both stabilization and long-term economic development.Part I, ‘State of the Art’, reviews current public investment and industrial policies in major European economies, including France, Germany, Italy, and Spain. It provides detailed analyses of each country's approach to fostering structural transformation through public investment.Part II, ‘Challenges’, addresses the diverse obstacles and opportunities facing Europe’s industrial policy. It emphasizes a multidimensional strategy to overcome bottlenecks in key sectors and drive transformation. Topics include the role of industrial policy in the green transition, creating a cohesive strategy for Europe, enhancing economic security, trends in European Union defence spending, sustainable mobility, and financing structural investment beyond 2027.This volume is essential reading for researchers, economists, and policymakers focused on understanding and implementing effective public policy in Europe, and will further appeal to anyone interested in EU governance and public investment strategies more broadly. 30 00 The fifth volume in the European Public Investment Outlook series explores how Europe can drive structural transformation through strategic public investment. Reflecting on the lessons from the 2008–2020 polycrisis and recent economic challenges, this timely book examines fiscal policy's role in both stabilization and long-term economic development.Part I, ‘State of the Art’, reviews current public investment and industrial policies in major European economies, including France, Germany, Italy, and Spain. It provides detailed analyses of each country's approach to fostering structural transformation through public investment.Part II, ‘Challenges’, addresses the diverse obstacles and opportunities facing Europe’s industrial policy. It emphasizes a multidimensional strategy to overcome bottlenecks in key sectors and drive transformation. Topics include the role of industrial policy in the green transition, creating a cohesive strategy for Europe, enhancing economic security, trends in European Union defence spending, sustainable mobility, and financing structural investment beyond 2027.This volume is essential reading for researchers, economists, and policymakers focused on understanding and implementing effective public policy in Europe, and will further appeal to anyone interested in EU governance and public investment strategies more broadly. 04 00 List of Figures List of Tables Acknowledgements Preface Introduction PART I—STATE OF THE ART 1. Public Investment and Industrial Policy: A Case for More European Union Coordination 2. Public Investment and Industrial Policy in France 3. Germany: Additional Investment Needs Require Reform of the Debt Brake 4. Italy, NRRP, and Industrial Policy 5. Public Investment and Structural Transformation in Spain PART II—CHALLENGES 6. A New Industrial Policy as the Key to the Green Transition 7. A “True” Industrial Policy for Europe is a Technology and Innovation Policy 8. Industrial Policy and Security. The European Union and the Double Challenge: Strengthening Competitiveness and Enhancing Economic Security 9. Trends in Defence Spending in the European Union 10. Sustainable Mobility and Industrial Policy 11. Financing Structural Investment after 2027 Contributor Biographies 20 00 Open Access 01 00 03 02 https://books.openbookpublishers.com/10.11647/obp.0434_frontcover.jpg 1 03 06 10.11647/obp.0434.00 1 2 2 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 Preface 1 A01 21 0000000178327458 Alberto Quadrio Curzio Alberto Quadrio Curzio 2 A01 Xavier Ragot Xavier Ragot 01 eng 20 00 Open Access Alberto Quadrio Curzio Xavier Ragot; 2 03 06 10.11647/obp.0434.01 3 9 7 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 Introduction 1 A01 21 000000019972716X Floriana Cerniglia Floriana Cerniglia Full Professor of Economics 40 03h7r5v07 Università Cattolica del Sacro Cuore Floriana Cerniglia is a Full Professor of Economics at Università Cattolica del Sacro Cuore (Milan) and Director of CRANEC (Centro di ricerche in analisi economica e sviluppo economico internazionale). She is the Co-Editor-in-Chief of Economia Politica (Journal of Analytical and Institutional Economics). She received her PhD from the University of Warwick (UK) and her research interests are in public economics and in macroeconomic policies. She has published in leading international journals and she has coordinated and participated in a number of peer-reviewed research projects. 2 A01 21 0000000301214329 Francesco Saraceno Francesco Saraceno Deputy Department Director at OFCE 40 05fe7ax82 Sciences Po, Paris Francesco Saraceno is Deputy Department Director at OFCE, the research centre in economics at Sciences Po in Paris, and Professor of Practice at LEAP-Luiss, Rome. He holds PhDs in Economics from Columbia University and the Sapienza University of Rome. His research focuses on the relationship between inequality, macroeconomic performance, and European macroeconomic policies. From 2000 to 2002 he was a member of the Council of Economic Advisors for the Italian Prime Minister’s Office. He teaches international and European macroeconomics at Sciences Po, where he manages the Economics concentration of the Master’s in European Affairs, and in Rome (Luiss). He is Academic Director of the Sciences Po-Northwestern European Affairs Program. He advises the International Labour Organization (ILO) on macroeconomic policies for employment and participates in IMF training programmes on fiscal policy. 01 eng 20 00 Open Access Floriana Cerniglia Francesco Saraceno; 34 06 10.11647/obp.0328.08 34 01 Unstructured citation Blanchard, O. J. (2016) “Rethinking Macro Policy: Progress or Confusion?”, in O. J. Blanchard et al. (eds), Progress and Confusion: The State of Macroeconomic Policy, pp. 287–290. Cambridge, MA: MIT Press. 34 01 Unstructured citation Blot, C., J. Créel, H. Kempf, S. Levasseur, X. Ragot, and F. Saraceno (2024) “Sailing in All Weather Conditions the Next 25 Years: Challenges for the Euro”, Paper Presented at the European Parliament ECON Committee Monetary Dialogue, February, https://www.europarl.europa.eu/thinktank/en/document/IPOL_STU(2024)747835 34 06 10.11647/obp.0386.11 34 06 10.11647/obp.0328 34 06 10.11647/obp.0386 34 01 Unstructured citation Draghi, M. (2024) The Future of European Competitiveness. Brussels: European Commission, https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en 34 06 10.11647/obp.0280.07 34 06 10.11647/obp.0222.07 34 01 Unstructured citation Holston, K., T. Laubach, and J. C. Williams (2023) “Measuring the Natural Rate of Interest after COVID-19”, Federal Reserve Bank of New York Staff Report 1063 (June), https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr1063.pdf 34 01 Unstructured citation Lucas, R. E. (2003) “Macroeconomic Priorities”, American Economic Review 93(1): 1–14. 34 01 Unstructured citation Mazzucato, M. (2013) The Entrepreneurial State. London: Anthem Press. 34 01 Unstructured citation Platzer, J., and M. Peruffo (2022) “Secular Drivers of the Natural Rate of Interest in the United States: A Quantitative Evaluation”, IMF Working Papers 2022(030), https://www.imf.org/en/Publications/WP/Issues/2022/02/11/Secular-Drivers-of-the-Natural-Rate-of-Interest-in-the-United-States-A-Quantitative-512755 34 01 Unstructured citation Saraceno, F. (2023) Oltre Le Banche Centrali. Inflazione, Distribuzione e Politiche Economiche. Rome: Luiss University Press. 3 03 06 10.11647/obp.0434.02 13 30 18 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 1. Public Investment and Industrial Policy A Case for More European Union Coordination 1 A01 21 0000000269174194 Andrea Brasili Andrea Brasili Senior Economist 40 03zxry661 European Investment Bank Andrea Brasili is a Senior Economist at the EIB (Luxembourg) where his research interests are both micro (firm level) data analysis and macroeconomic developments, in particular those related to fiscal policy. He received his PhD in Public Economics from the University of Pavia (Italy). Before joining the EIB, he worked in the private sector (in Italian banks and asset management companies) as a research economist, whilst still collaborating with academia. 2 A01 21 000000016940380X Tuna Dökmeci Tuna Dökmeci PhD candidate in Economics 40 0031wrj91 European University Institute Tuna Dökmeci is a PhD candidate in Economics at European University Institute (Italy), and a trainee at the EIB (Luxembourg). Her research focuses on industrial policy, industrial organization, and competition policy. 3 A01 Atanas Kolev Atanas Kolev Principal Advisor at the Economics Department 40 03zxry661 European Investment Bank Atanas Kolev is Principal Advisor at the Economics Department of the EIB. He has worked on a wide range of topics related to investment and investment financing at the firm-, sector-, and economy-wide levels. He has been an organiser and contributor to the annual economics conference of the EIB on topics like economic and social cohesion, investment in the energy sector, adaptation to climate change, public investment, and infrastructure investment. Atanas Kolev is currently a coordinator, reviewer, and economics editor for the EIB Annual Investment Report. He holds an Economics PhD from Universitat Autònoma de Barcelona. 4 A01 21 0000000281939399 Debora Revoltella Debora Revoltella Director of the Economics Department 40 03zxry661 European Investment Bank Debora Revoltella has been Director of the Economics Department of the European Investment Bank since April 2011. The Department comprises thirty economists and provides economic analysis and studies to support the bank in defining its policies and strategies. Before joining the EIB, Debora worked for many years at CESEE, was head of the research department in COMIT, and later worked as Chief Economist for CESEE in UniCredit. Debora holds a PhD in Economics and has also worked as Adjunct Professor at Bocconi University. She is a member of the Steering Committees of the Vienna Initiative and CompNet, an alternate member of the Board of the Joint Vienna Institute, and a member of the boards of SUERF and the Euro 50 Group. 5 A01 21 0000000270067740 Jochen Schanz Jochen Schanz Senior Economist 40 03zxry661 European Investment Bank Jochen Schantz is Senior Economist at the European Investment Bank. After completing a PhD in game theory at the European University Institute, he worked at Lehman Brothers, the Bank of England, and the Bank for International Settlements on monetary and financial stability. At the European Investment Bank, he focuses on public investment and human capital. 6 A01 21 0009000575440400 Annamaria Tueske Annamaria Tueske Economist at the Economics Department 40 03zxry661 European Investment Bank Annamaria Tueske is an Economist at the Economics Department of the EIB. Her current work focuses on public investment, climate and energy economics and sustainable finance. Prior to joining the EIB, Annamaria worked at the University of Luxembourg, at the OECD and at the Fiscal Council of Hungary. Her academic training focused on industrial organization, networks, and transport economics, she graduated from the Toulouse School of Economics. 7 A01 21 0000000295108991 Wouter Van Der Wielen Wouter Van Der Wielen Economist in the Economics Department 40 03zxry661 European Investment Bank Wouter Van Der Wielen is an Economist in the Economics Department of the European Investment Bank (EIB). He is responsible for impact studies of public and private sector policy support schemes and contributes macroeconomic analyses to the EIB’s f lagship publications, such as the EIB Investment Report. Prior to joining the EIB, he worked as an economic analyst at the European Commission’s Joint Research Centre, where he was principally responsible for the research developing macro-fiscal models accounting for output and employment effects of fiscal reforms. His main areas of expertise are macroeconomics, fiscal policy and labour economics. He holds a PhD in Economics as well as an MSc of Advanced Studies in Economics from KU Leuven. 01 eng 03 00 Europe needs more investment. Speeding up the climate transition and relaunching EU innovation capabilities require special efforts. Coupled with strategic autonomy and the need to secure stable and clean energy sources, these issues highlight the increasing importance of European public goods (EPGs) and policies that extend beyond national boundaries, as they involve externalities and network effects. However, Europe’s current institutional structure and mechanisms may struggle to meet this challenge. This essay examines public investment trends in the EU, arguing that while public investments have increased, greater coordination and coherence are needed. Three critical axes are identified: the provision of EPGs, policy coordination at national levels, and sufficient funding. Improving the coordination of public investment, particularly in research and development (R&D) and the climate transition, is key to unlocking Europe’s full potential. This chapter emphasizes the importance of initiatives like Important Projects of Common European Interest (IPCEIs) in fostering collaboration across countries and sectors, but argues for expanded and more integrated efforts moving forward. 30 00 Europe needs more investment. Speeding up the climate transition and relaunching EU innovation capabilities require special efforts. Coupled with strategic autonomy and the need to secure stable and clean energy sources, these issues highlight the increasing importance of European public goods (EPGs) and policies that extend beyond national boundaries, as they involve externalities and network effects. However, Europe’s current institutional structure and mechanisms may struggle to meet this challenge. This essay examines public investment trends in the EU, arguing that while public investments have increased, greater coordination and coherence are needed. Three critical axes are identified: the provision of EPGs, policy coordination at national levels, and sufficient funding. Improving the coordination of public investment, particularly in research and development (R&D) and the climate transition, is key to unlocking Europe’s full potential. This chapter emphasizes the importance of initiatives like Important Projects of Common European Interest (IPCEIs) in fostering collaboration across countries and sectors, but argues for expanded and more integrated efforts moving forward. 20 00 Open Access Andrea Brasili Tuna Dokmeci Atanas Kolev Debora Revoltella Jochen Schanz Annamaria Tueske Wouter Van Der Wielen; 34 01 Unstructured citation Buti M., A. Coloccia, and M. Messori (2023) “European Public Goods”, June 9, CEPR, https://cepr.org/voxeu/columns/european-public-goods 34 01 Unstructured citation Bergeaud, A. (2024) “The Past Present and Future of EU Productivity”, Prepared for the ECB Central Banking Forum, July 2024, https://www.ecb.europa.eu/pub/pdf/sintra/ecb.forumcentbankpub2024_Bergeaud_paper.en.pdf 34 06 10.11647/obp.0386 34 01 Unstructured citation Demertzis, M., D. Pinkus, and N. Ruer (2024) “Accelerating Strategic Investment in the European Union beyond 2026”, Bruegel Report, January 24, https://www.bruegel.org/system/files/2024-01/Report 01 2024.pdf 34 01 Unstructured citation Draghi, M. (2023) “The Next Flight of the Bumblebee: The Path to Common Fiscal Policy in the Eurozone”, 15th Annual Feldstein Lecture at the NBER Summer Institute 2023 in Cambridge, October 10, NBER, https://www.nber.org/reporter/2023number3/next-flight-bumblebee-path-common-fiscal-policy-eurozone 34 01 Unstructured citation Draghi, M. (2024) The Future of European Competitiveness. Brussels: European Commission, https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en 34 01 Unstructured citation European Commission (2020) “A New Industrial Strategy for Europe”, COM(2020) 102, March 10, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52020DC0102 34 01 Unstructured citation European Commission (2021) “Updating the 2020 New Industrial Strategy: Building a stronger Single Market for Europe’s recovery”, SWD(2021) 352, May 5, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52021SC0352 34 01 Unstructured citation European Commission (2022) “Framework for State Aid for Research and Development and Innovation”, 2022/C 414/01, October 28, https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=OJ%3AC%3A2022%3A414%3AFULL#:~:text=This Framework provides guidance on,)(c) of the Treaty. 34 01 Unstructured citation Fuest, C., and J. Pisani-Ferry (2019) “A Primer on Developing European Public Goods (A Report to Ministers Bruno Le Maire and Olaf Scholz)”, November 3, https://www.bruegel.org/sites/default/files/wp-content/uploads/2019/11/European-public-goods-primer.pdf 34 01 Unstructured citation Letta, E. (2024) Much More Than a Market, https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf 34 01 Unstructured citation Nicolaides, P. (2018) “State Aid and EU Funding: Are They Compatible?”, In-Depth Analysis Requested by the CONT Committee, Policy Department for Budgetary Affairs, April, https://www.europarl.europa.eu/cmsdata/142819/Briefing_State Aid and EU funding_Final.pdf 34 01 Unstructured citation Wyplosz, C. (2024) “Which European Public Goods?”, IPOL | Economic Governance and EMU Scrutiny Unit, March, https://www.europarl.europa.eu/RegData/etudes/IDAN/2024/755722/IPOL_IDA(2024)755722_EN.pdf 34 01 Unstructured citation Von der Leyen, U. (2024) “Statement at the European Parliament Plenary by President Ursula von der Leyen, Candidate for a Second Mandate 2024–2029”, European Commission, https://ec.europa.eu/commission/presscorner/detail/ov/STATEMENT_24_3871 4 03 06 10.11647/obp.0434.03 31 44 14 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 2. Public Investment and Industrial Policy in France 1 A01 21 0009000979785667 Vincent Charlet Vincent Charlet Vincent Charlet is the Executive Director of La Fabrique de l’industrie, a think tank he contributed to launch in 2011. Supported by the French manufacturers’ associations, co-chaired by Louis Gallois (former president of Stellantis, former CEO of Airbus Group) and Pierre-André de Chalendar (former CEO of Saint-Gobain), La Fabrique de l’industrie publishes robust studies on the performance, transformations, and assets of industrial companies and on the professional trajectories of their employees. After training as an engineer, Vincent Charlet devoted himself to the analysis of public systems and the management of change. He first participated in initiatives aimed at renovating the research and innovation system in France (evaluation, construction of indicators, foresight). He notably led the FutuRIS project, a prospective operation supported equally by major private R&D players, public research establishments. and the State, from 2006 to 2011. 2 A01 Mathieu Plane Mathieu Plane Deputy Director of the Analysis and Forecasting Department at the OFCE Research Center in Economics 40 05fe7ax82 Sciences Po, Paris Mathieu Plane is a Deputy Director of the Analysis and Forecasting Department at the OFCE Research Center in Economics, Sciences Po, Paris. He is in charge of economic forecasts for the French economy and works on economic policy issues. He teaches at Sciences Po, Paris and at the University of Paris Pantheon-Sorbonne. He was, in 2013–2014, economic advisor to the Ministers of Economy, Industry, and the Digital Sector. He has recently published, in collaboration with other authors of OFCE, 25 Years of Monetary Union: The Eurozone through Its Crises; Growth Up Against Fiscal Recovery: Economic Outlook for the French Economy 2024–2025, and French Economy 2025 by Éditions La Découverte, Repères collection. 3 A01 21 0000000301214329 Francesco Saraceno Francesco Saraceno Deputy Department Director at OFCE 40 05fe7ax82 Sciences Po, Paris Francesco Saraceno is Deputy Department Director at OFCE, the research centre in economics at Sciences Po in Paris, and Professor of Practice at LEAP-Luiss, Rome. He holds PhDs in Economics from Columbia University and the Sapienza University of Rome. His research focuses on the relationship between inequality, macroeconomic performance, and European macroeconomic policies. From 2000 to 2002 he was a member of the Council of Economic Advisors for the Italian Prime Minister’s Office. He teaches international and European macroeconomics at Sciences Po, where he manages the Economics concentration of the Master’s in European Affairs, and in Rome (Luiss). He is Academic Director of the Sciences Po-Northwestern European Affairs Program. He advises the International Labour Organization (ILO) on macroeconomic policies for employment and participates in IMF training programmes on fiscal policy. 01 eng 03 00 This chapter first traces the long-term evolution of public investment in France, noting how this is mostly channelled through local governments and how, while comparatively high with respect to other advanced economies, the public capital stock and the general government net wealth have been steadily decreasing since the Global Financial Crisis of 2008. After the COVID-19 shock, despite the 2021 “Plan de Relance” and the 2022 “Build the France of 2030” program, public investment has remained surprisingly flat. The chapter then discusses the recent evolutions in French industrial policy objectives. The Lisbon Strategy was centred on boosting productivity through innovation and climbing the value added ladder. The response to the crisis of 2008 marks a first change, with a strong emphasis on price competitiveness and cost reduction (including through corporate tax reduction). Since the early days of the pandemics, then, the notion of “industrial sovereignty” has very quickly eclipsed that of competitiveness, with policies aimed at reindustrialization especially in strategic sectors. The chapter concludes that these frequent changes indicate an excessive short-term focus among French policy makers, incompatible with managing long-term structural transformation. 30 00 This chapter first traces the long-term evolution of public investment in France, noting how this is mostly channelled through local governments and how, while comparatively high with respect to other advanced economies, the public capital stock and the general government net wealth have been steadily decreasing since the Global Financial Crisis of 2008. After the COVID-19 shock, despite the 2021 “Plan de Relance” and the 2022 “Build the France of 2030” program, public investment has remained surprisingly flat. The chapter then discusses the recent evolutions in French industrial policy objectives. The Lisbon Strategy was centred on boosting productivity through innovation and climbing the value added ladder. The response to the crisis of 2008 marks a first change, with a strong emphasis on price competitiveness and cost reduction (including through corporate tax reduction). Since the early days of the pandemics, then, the notion of “industrial sovereignty” has very quickly eclipsed that of competitiveness, with policies aimed at reindustrialization especially in strategic sectors. The chapter concludes that these frequent changes indicate an excessive short-term focus among French policy makers, incompatible with managing long-term structural transformation. 20 00 Open Access Vincent Charlet Mathieu Plane Francesco Saraceno 34 01 Unstructured citation Blot, C., J. Créel, H. Kempf, S. Levasseur, X. Ragot, and F. Saraceno (2024) “Sailing in All Weather Conditions the Next 25 Years: Challenges for the Euro”, Paper Prepared for the European Parliament ECON Committee Monetary Dialogue, February. 34 06 10.11647/obp.0222.01 34 01 Unstructured citation Charlet, V. (2024) Ce que l’industrie attend des banques. Paris: Presses des Mines. 34 01 Unstructured citation European Commission (2023) “EU Budget: Commission Proposes Strategic Technologies for Europe Platform (STEP) to Support European Leadership on Critical Technologies”, European Commission. 34 01 Unstructured citation Pisani-Ferry, J., and S. Mahfouz (2023) “Les Incidences Économiques de l’action Pour Le Climat”, May 22, France Strategie, Rapport à La Première Ministre, https://www.strategie.gouv.fr/publications/incidences-economiques-de-laction-climat 34 06 10.11647/obp.0280.02 34 01 Unstructured citation Von der Leyen, U. (2022) “State of the Union”, 14 September, European Commission, https://state-of-the-union.ec.europa.eu/state-union-2022_en 34 01 Unstructured citation White House (2023) Building a Clean Energy Economy: A Guidebook to the Inflation Reduction Act’s Investments in Clean Energy and Climate Action. Washington, DC: The White House, https://www.whitehouse.gov/wp-content/uploads/2022/12/Inflation-Reduction-Act-Guidebook.pdf 5 03 06 10.11647/obp.0434.04 45 58 14 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 3. Germany Additional Investment Needs Require Reform of the Debt Brake 1 A01 Katja Rietzler Katja Rietzler Head of the Unit of Fiscal Policy at the Macroeconomic Policy Institute (IMK) 40 022b5tw91 Hans-Böckler Foundation Katja Rietzler is Head of the Unit of Fiscal Policy at the Macroeconomic Policy Institute (IMK), part of the Hans-Böckler Foundation. She holds a PhD from the Freie Universität, Berlin. Among other topics, her research focuses on fiscal issues of the municipalities, the German tax-system, public investment needs, and fiscal rules. In addition, she is a member of the IMK’s modelling team. As an expert she regularly participates in parliamentary hearings on issues such as tax legislation, annual budgets, or the debt brake and its implementation. 2 A01 Andrew Watt Andrew Watt General Director 40 00r5yyv69 European Trade Union Institute Andrew Watt is General Director, European Trade Union Institute (ETUI), and former Head of the Unit of European Economic Policy at the Macroeconomic Policy Institute (IMK), part of the Hans-Böckler Foundation. He holds a PhD from the University of Hamburg. His main research fields are European economic and employment policy and comparative political economy, with a particular interest in the interaction between wage-setting and macroeconomic policy. Recent work has focused on reform of the economic governance of the euro area, emphasizing the need to coordinate monetary, fiscal, and wage policy in order to achieve balanced growth and favourable employment outcomes. He has served as advisor to numerous European and national institutions, including the European. 01 eng 03 00 In recent quarters, German public investment has increased slightly in real terms. However, this development is driven largely by special effects such as the reclassification of public transport companies and increased military spending. Additional investment needs are estimated to be as high as 1.4% of GDP, and cannot be met without a substantial reform of the debt brake. Economists have recently come up with numerous reform proposals, but there is still no political majority for a reform. While European fiscal rules do not require much f iscal tightening in Germany, they do constrain the use of credit to finance the necessary additional public investment. Instead of a big push, the more likely scenario is continued incremental progress, or “muddling through”. 30 00 In recent quarters, German public investment has increased slightly in real terms. However, this development is driven largely by special effects such as the reclassification of public transport companies and increased military spending. Additional investment needs are estimated to be as high as 1.4% of GDP, and cannot be met without a substantial reform of the debt brake. Economists have recently come up with numerous reform proposals, but there is still no political majority for a reform. While European fiscal rules do not require much f iscal tightening in Germany, they do constrain the use of credit to finance the necessary additional public investment. Instead of a big push, the more likely scenario is continued incremental progress, or “muddling through”. 20 00 Open Access Katja Rietzler Andrew Watt; 34 01 Unstructured citation Bardt, H., S. Dullien, M. Hüther, and K. Rietzler (2020) “For a Sound Fiscal Policy: Enabling Public Investment”, IMK Report 152e, March, https://www.imk-boeckler.de/fpdf/HBS-007619/p_imk_report_152e_2020.pdf 34 01 Unstructured citation Braun, H. (2021). “Das ist der Plan für Deutschland nach Corona”, Handelsblatt, January 26, https://www.handelsblatt.com/meinung/gastbeitraege/gastkommentar-das-ist-der-plan-fuer-deutschland-nach-corona/26850508.html 34 01 Unstructured citation Bundesministerium der Finanzen, BMF (2024a) “Vorläufiger Abschluss des Bundeshaushalts 2023”, Monatsbericht des BMF, January, https://www.bundesfinanzministerium.de/Monatsberichte/2024/01/Inhalte/Kapitel-3-Analysen/3-2-vorlaeufiger-abschluss-bundeshaushalt-2023.html 34 01 Unstructured citation Bundesministerium der Finanzen, BMF (2024b) “Abweichungen des Ergebnisses der Steuerschätzung Oktober 2024 vom Ergebnis der Steuerschätzung Mai 2024 ”, Anlage 2 zu Pressemitteilung 15 des BMF, https://www.bundesfinanzministerium.de/Content/DE/Downloads/Steuern/ergebnis-167-steuerschaetzung-02.pdf?__blob=publicationFile&v=6 34 01 Unstructured citation Bundesrechnungshof (2023) “Bericht nach § 88 Absatz 2 BHO an das Bundesministerium der Finanzen zur Steuerung und Kontrolle der Umsetzung des Deutschen Aufbau- und Resilienzplans”, Bonn, December 8, https://www.bundesrechnungshof.de/SharedDocs/Downloads/DE/Berichte/2024/umsetzung-darp-volltext.pdf?__blob=publicationFile&v=3 34 01 Unstructured citation Darvas, Z., L. Welslau, and J. Zettelmeyer (2024) “The Implications of the European Union’s New Fiscal Rules”, Policy Brief 10/24, https://www.bruegel.org/system/files/2024-07/PB 10 2024.pdf 34 01 Unstructured citation Dullien, S., T. Bauermann, L. Endres, A. Herzog-Stein, K. Rietzler, and S. Tober (2024a) “Schuldenbremse reformieren, Transformation beschleunigen. Wirtschaftspolitische Herausforderungen 2024”, IMK Report 187, January, https://www.econstor.eu/bitstream/10419/283062/1/p-imk-report-187-2024.pdf 34 01 Unstructured citation Dullien, S., S. Gerards-Iglesias, M. Hüther, and K. Rietzler (2024b) “Herausforderungen für die Schuldenbremse. Investitionsbedarfe in der Infrastruktur und für die Transformation”, IMK Policy Brief 168, https://econpapers.repec.org/paper/imkpbrief/168-2024.htm 34 06 10.11647/obp.0222.03 34 01 Unstructured citation Deutsche Bundesbank (2022) “Die Schuldenbremse des Bundes: Möglichkeiten einer stabilitätsorientierten Weiterentwicklung”, Deutsche Bundesbank, Monatsbericht, April. 34 01 Unstructured citation European Commission (2024a) “European Economic Forecast Spring 2024’, Institutional Paper 286, May, https://economy-finance.ec.europa.eu/document/download/c63e0da2-c6d6-4d13-8dcb-646b0d1927a4_en?filename=ip286_en.pdf 34 01 Unstructured citation European Commission (2024b) “2024 Country Report – Germany”, Commission Staff Working Document, SWD(2024) 605, June 19, https://economy-finance.ec.europa.eu/document/download/0826d6c6-4c97-44be-8b9e-1a0b5c4361c8_en?filename=SWD_2024_605_1_EN_Germany.pdf 34 01 Unstructured citation Fuest, C., M. Hüther, and J. Südekum (2024) “Folgen des Verfassungsurteils: Investitionen schützen. Vorteile eines Sondervermögens”, Frankfurter Allgemeine Zeitung, January 12, https://www.faz.net/aktuell/wirtschaft/folgen-des-haushaltsurteils-investitionen-schuetzen-19440915.html 34 01 Unstructured citation Hentze, T., and B. Kauder (2024) “Reformansätze für die Schuldenbremse”, ifo Schnelldienst 2/2024, 13–15, https://www.ifo.de/DocDL/sd-2024-02-haushaltspolitik-reform-schuldenbremse.pdf 34 01 Unstructured citation Hüther, M. (2024) “Ein gesamtstaatlicher »Transformations- und Infrastrukturfonds« zur Stabilisierung der Schuldenbremse”, Wirtschaftsdienst 104(1): 14–20. 34 01 Unstructured citation International Monetary Fund, IMF (2023) “Germany. Staff Report for the 2023 Article IV Consultation”, June 28, IFO, https://www.imf.org/-/media/Files/Publications/CR/2023/English/1DEUEA2023001.ashx 34 01 Unstructured citation Paetz, C., and S. Watzka (2024) “The New Fiscal Rules: Another Round of Austerity for Europe?”, IMK Policy Brief 176. 34 01 Unstructured citation Raffer, C., and H. Scheller (2024) KfW Kommunalpanel 2024. Frankfurt am Main: Kreditanstalt für Wiederaufbau, https://www.kfw.de/PDF/Download-Center/Konzernthemen/Research/PDF-Dokumente-KfW-Kommunalpanel/KfW-Kommunalpanel-2024.pdf 34 06 10.11647/obp.0280.03 34 06 10.11647/obp.0328.03 34 06 10.11647/obp.0386.03 34 01 Unstructured citation Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, SVR (2024) “Die Schuldenbremse nach dem BVerfG-Urteil: Flexibilität erhöhen – Stabilität wahren”, Policy Brief 1/2024, https://www.sachverstaendigenrat-wirtschaft.de/fileadmin/dateiablage/PolicyBrief/pb2024/Policy_Brief_2024_01.pdf 34 01 Unstructured citation Wissenschaftlicher Beirat beim BMWK (2023) Finanzierung von Staatsaufgaben: Herausforderungen und Empfehlungen für eine nachhaltige Finanzpolitik, Gutachten des Wissenschaftlichen Beirats beim Bundesministerium für Wirtschaft und Klimaschutz (BMWK). Berlin: BMWK, https://www.bmwk.de/Redaktion/DE/Publikationen/Ministerium/Veroeffentlichung-Wissenschaftlicher-Beirat/gutachten-wissenschaftlicher-beirat-finanzierung-von-staatsaufgaben.pdf?__blob=publicationFile&v=14 6 03 06 10.11647/obp.0434.05 59 76 18 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 4. Italy, NRRP, and Industrial Policy 1 A01 21 0000000302218057 Giovanni Barbieri Giovanni Barbieri Research Fellow at CRANEC (Centro di ricerche in analisi economica e sviluppo economico internazionale—Research Center in Economic Analysis and International Economic Development) 40 03h7r5v07 Università Cattolica del Sacro Cuore Giovanni Barbieri is a Research Fellow at CRANEC at Università Cattolica del Sacro Cuore. He holds a PhD in Institutions and Policies (2017, Università Cattolica del Sacro Cuore, Milano). He was previously Adjunct Professor of History of International and Commercial Institutions at the University of Palermo (DEMS) and Visiting Scholar at Scuola Normale’s ‘Istituto Ciampi’ in Florence (2022). His main expertises are International Relations Theory and International Political Economy (IPE). 2 A01 21 000000019972716X Floriana Cerniglia Floriana Cerniglia Full Professor of Economics 40 03h7r5v07 Università Cattolica del Sacro Cuore Floriana Cerniglia is a Full Professor of Economics at Università Cattolica del Sacro Cuore (Milan) and Director of CRANEC (Centro di ricerche in analisi economica e sviluppo economico internazionale). She is the Co-Editor-in-Chief of Economia Politica (Journal of Analytical and Institutional Economics). She received her PhD from the University of Warwick (UK) and her research interests are in public economics and in macroeconomic policies. She has published in leading international journals and she has coordinated and participated in a number of peer-reviewed research projects. 3 A01 Franco Mosconi Franco Mosconi Jean Monnet Professor of Industrial Economics 40 02k7wn190 Università di Parma Franco Mosconi is the Jean Monnet Professor of Industrial Economics at the University of Parma. He is a columnist for the Corriere di Bologna, the Bologna-based daily newspaper of Corriere della Sera. His research areas include European industrial policy and Industrial districts and clusters, topics on which he has extensively published in both national and international literature. 01 eng 03 00 This chapter assesses the National Recovery and Resilience Plan (NRRP) as an industrial policy tool within the Next Generation EU framework, despite limited explicit reference to an industrial strategy. The NRRP emerges during a unique moment for the European Union (EU), characterized by the suspension of the Stability and Growth Pact and the relaxation of state aid restrictions, which have collectively expanded public intervention opportunities. This marks a significant shift from the post-1990s ideological emphasis on competition over state involvement, particularly in Italy, where reductions in capital expenditure since 2009 have constrained public infrastructure and private investment. This chapter delves into the current landscape highlighting the potential for a more effective approach to industrial strategy using public investment. By focusing on “Mission 1” (Competitiveness) and “Mission 4” (Education and Research), the chapter aims to elucidate the NRRP’s industrial policy direction including reinforcing the special economic zones (SEZs) established in 2017. 30 00 This chapter assesses the National Recovery and Resilience Plan (NRRP) as an industrial policy tool within the Next Generation EU framework, despite limited explicit reference to an industrial strategy. The NRRP emerges during a unique moment for the European Union (EU), characterized by the suspension of the Stability and Growth Pact and the relaxation of state aid restrictions, which have collectively expanded public intervention opportunities. This marks a significant shift from the post-1990s ideological emphasis on competition over state involvement, particularly in Italy, where reductions in capital expenditure since 2009 have constrained public infrastructure and private investment. This chapter delves into the current landscape highlighting the potential for a more effective approach to industrial strategy using public investment. By focusing on “Mission 1” (Competitiveness) and “Mission 4” (Education and Research), the chapter aims to elucidate the NRRP’s industrial policy direction including reinforcing the special economic zones (SEZs) established in 2017. 20 00 Open Access Giovanni Barbieri Floriana Cerniglia Franco Mosconi; 34 06 10.1007/s10842-019-00322-3 34 01 Unstructured citation Andreoni, A. (2017) “Strategies for Emerging Technologies and Strategic Sectors: Evidence from OECD Countries and Some Critical Reflections on the Italian Case”, L’Industria. Rivista di Economia e Politica Industriale 1: 3–14, https://doi.org/10.1430/87136 34 01 Unstructured citation Barbieri, G., and S. J. Gahn (2023) “Le piattaforme tecno-scientifiche europee: sviluppi recenti in Italia”, in A. Quadrio Curzio, A. Silvani, M. Fortis, and F. Cerniglia (eds) (2023) Le piattaforme tecnico-scientifiche in Europa. Ricerca, economia, innovazione. Bologna: Il Mulino, Collana Fondazione Edison, pp. 297–318. 34 06 10.11647/obp.0328.04 34 01 Unstructured citation Barbieri, G., F. Cerniglia, and F. Mosconi (2024) “Italy and Industrial Policy at the Time of the NRRP”, CRANEC Working Paper 01/2024, https://centridiricerca.unicatt.it/cranec-home-pubblicazioni-22134 34 06 10.1080/09538259.2024.2368210 34 01 Unstructured citation Barbini, M., et al. (2024) “L’anno della crescita differenziata. Le regioni italiane nel 202”, Informazioni Svimez 4. 34 01 Unstructured citation Bianchi, P., and S. Labory (2016) Towards a New Industrial Policy. Milan: McGraw-Hill Education. 34 01 Unstructured citation Bratta, B., et al. (2020) “The Impact of Digitalization Policies. Evidence from Italy’s Hyper-depreciation of Industry 4.0 Investments”, Ministero dell’Economia e delle Finanze, DF Working Paper 20, https://www.finanze.gov.it/export/sites/finanze/.galleries/Documenti/Varie/dfwp6-1_ultimo.pdf 34 01 Unstructured citation Buba, J., and M. D. Wong (2017) Special Economic Zones: An Operational Review of their Impacts. Washington, DC: World Bank Group. 34 01 Unstructured citation Capriati, M., M. Deleidi, and G. Viesti (2022) “Che impatto macroeconomico può avere il PNRR nel Mezzogiorno?”, Menabò 174, https://eticaeconomia.it/che-impatto-macroeconomico-puo-avere-il-pnrr-nel-mezzogiorno/ 34 06 10.11647/obp.0328 34 01 Unstructured citation Cerniglia, F., A. Silvani, and A. Quadrio Curzio (2023) “La ricerca del Centro Cranec dell’Università Cattolica”, in A. Quadrio Curzio, A. Silvani, M. Fortis, and F. Cerniglia (eds), Le piattaforme tecnico-scientifiche in Europa. Ricerca, economia, innovazione. Bologna: Il Mulino, Collana Fondazione Edison, pp. 263–277. 34 01 Unstructured citation Chiapperini, C., and G. Viesti (2024) “Il PNRR e i divari territoriali”, Menabò 210, https://eticaeconomia.it/il-pnrr-e-i-divari-territoriali/ 34 01 Unstructured citation Coco, G. (2020) “Investimenti, disintermediazione, capacità: come superare la retorica delle politiche per il Mezzogiorno”, in G. Coco, and C. De Vincenti (eds), Una questione nazionale. Il Mezzogiorno da “problema” a “opportunità”. Bologna: Il Mulino, pp. 203-226 34 01 Unstructured citation Coco, G., and A. Lepore (2018) “Per un nuovo modello di intervento pubblico nel Mezzogiorno”, in G. Coco and A. Lepore (eds), Il risveglio del Mezzogiorno. Nuove politiche per lo sviluppo. Bari: Laterza, pp. 175-196 34 01 Unstructured citation Di Tommaso, M. R., L. Rubini, E. Barbieri, and C. Pollio (2024) Industry Organization and Industrial Policy. Production and Innovation, Development and Public Interest. Bologna: Il Mulino. 34 01 Unstructured citation Draghi, M. (2024) The Future of European Competitiveness. Brussels: European Commission, https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en 34 01 Unstructured citation European Commission (2005) “Implementing the Community Lisbon Programme: A Policy Framework to Strengthen EU Manufacturing—Towards a More Integrated Approach for Industrial Policy”, COM(2005) 464, October 5, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A52005DC0474 34 01 Unstructured citation European Commission (2012) “A Stronger European Industry for Growth and Economic Recovery Industrial Policy Communication Update”, COM(2012) 582, October 10, https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2012:0582:FIN:EN:PDF 34 01 Unstructured citation European Commission (2014) “For a European Industrial Renaissance”, COM(2014) 14, January 22, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52014DC0014&from=ET 34 01 Unstructured citation European Commission (2017) “Investing in a Smart, Innovative and Sustainable Industry: A Renewed EU Industrial Policy Strategy”, COM(2017) 479, September 13, https://eur-lex.europa.eu/resource.html?uri=cellar:c8b9aac5-9861-11e7-b92d-01aa75ed71a1.0001.02/DOC_1&format=PDF 34 01 Unstructured citation European Commission: Directorate-General for Research and Innovation and M. Mazzucato (2018) Mission-oriented Research & Innovation in the European Union—A Problem-solving Approach to Fuel Innovation-led Growth. Brussels: Publications Office, https://data.europa.eu/doi/10.2777/360325 34 01 Unstructured citation European Commission (2020) “A New Industrial Strategy for Europe”, COM(2020) 102, March 10, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52020DC0102 34 01 Unstructured citation European Commission (2021a) “Communication from the Commission. Criteria for the Analysis of the Compatibility with the Internal Market of State Aid to Promote the Execution of Important Projects of Common European Interest”, 2021/C 528/02, December 30, https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52021XC1230(02) 34 01 Unstructured citation European Commission (2021b) “Communication from the Commission on a New Funding Strategy to Finance NextGenerationEU”, COM(2021) 250, April 14, https://commission.europa.eu/document/download/a42a05ab-e656-4cf4-9d0b-b4d2825618ee_en?filename=com2021_250_en_act_part1_v3.pdf 34 01 Unstructured citation European Commission (2022) “A Chips Act for Europe”, COM(2022) 45, February 8, https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX%3A52022DC0045#:~:text=The EU Chips Act proposes,to future supply chain disruptions 34 01 Unstructured citation Governo Italiano (2021) Italia Domani: Piano Nazionale di Ripresa e Resilienza, https://www.italiadomani.gov.it/content/sogei-ng/it/it/home.html 34 01 Unstructured citation Guerrieri, P., and P. C. Padoan (2024) Sovereign Europe. An Agenda for Europe in a Fragmented Global Economy. Brookfield, VT: Edward Elgar. 34 01 Unstructured citation Jacquemin, A. (1987) The New Industrial Organization: Market Forces and Strategic Behaviour. Cambridge, MA: The MIT Press. 34 01 Unstructured citation Junker, J. C. (2017) “State of the Union Address”, Brussels, September 13, https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_17_3165 34 06 10.1146/annurev-economics-081023-024638 34 01 Unstructured citation Letta, E. (2024) Much More Than a Market, https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf 34 01 Unstructured citation Lucchese, M., and M. Pianta (2021) “Il Piano Nazionale di Ripresa e Resilienza in una prospettiva di politica industriale”, Moneta e Credito 74(294): 177–190. 34 01 Unstructured citation Ministero dell’Università e della Ricerca (2022) “NRRP, MUR: l’impatto della conoscenza grazie a un nuovo modo di fare ricerca e innovazione”, MUR, June 26, https://www.mur.gov.it/it/news/martedi-28062022/pnrr-mur-limpatto-della-conoscenza-grazie-un-nuovo-modo-di-fare-ricerca-e 34 01 Unstructured citation Ministero per gli Affari Europei (2023) “Terza relazione sullo stato di attuazione del Piano Nazionale di Ripresa e Resilienza”, June 20, Italia Domani, https://www.italiadomani.gov.it/content/sogei-ng/it/it/strumenti/documenti/archivio-documenti/terza-relazione-al-parlamento-sullo-stato-di-attuazione-del-pian.html 34 01 Unstructured citation Ministero per gli Affari Europei (2024) “Quarta relazione sullo stato di attuazione del Piano Nazionale di Ripresa e Resilienza”, https://www.affarieuropei.gov.it/media/7411/iv_relazione_al_parlamento_sezi.pdf 34 01 Unstructured citation Ministero per gli Affari Europei (2024) “Quinta relazione sullo stato di attuazione del Piano Nazionale di Ripresa e Resilienza”, Nota sintetica. https://www.affarieuropei.gov.it/media/7594/quinta_relazione_nota_sintetica.pdf 34 01 Unstructured citation Mosconi, F. (2015) The New European Industrial Policy. Global Competitiveness and the Manufacturing Renaissance. New York: Routledge. 34 01 Unstructured citation Mosconi, F. (2022) “European Industrial Policy from 2000 to 2020”, in J. C. Christophe Defraigne, J. Wouters, E. Traversa, and D. Zurstrassen (eds), EU Industrial Policy in the Multipolar Economy. Brookfield, VT: Edward Elgar, pp. 173-209 34 01 Unstructured citation Nisticò, R., and F. Prota (2023) “Sviluppo industriale per poli? Le zone economiche speciali in Italia e nel NRRP”, Stato e mercato 2: 227–263, https://dx.doi.org/10.1425/108269 34 06 10.1177/0486613420938207 34 06 10.1093/icc/dtz075 34 01 Unstructured citation Pianta, M. (2021) “La politica industriale al tempo del PNRR”, il Mulino 2: 152–162, https://doi.org/10.1402/101106 34 01 Unstructured citation Presidenza del Consiglio dei Ministri (2022) “Seconda relazione istruttoria sul rispetto del vincolo di destinazione alle regioni del Mezzogiorno di almeno il 40 per cento delle risorse allocabili territorialmente”, June 30, Dipartimento per le Politiche di Coesione, https://politichecoesione.governo.it/media/2954/seconda-relazione-destinazione-mezzogiorno-risorse-pnrr_dati-al-30_06_2022.pdf 34 01 Unstructured citation Prodi, R. (2003) “Industrial Policy in an Enlarged Europe, Speech Delivered at the Conference Industrial Policy in an Enlarged Europe by the President of the European Commission”, Speech Given in Brussels, January 21. 34 01 Unstructured citation PWC (2024) Dalle Zone Economiche Speciali regionali e interregionali alla ZES unica, https://www.pwc.com/it/it/assets/docs/pwc-dalle-ZES-regionali-e-interregionali-alla-ZES-unica.pdf 34 01 Unstructured citation Quadrio Curzio, A., A. Silvani, M. Fortis, and F. Cerniglia (2023) (eds) Le piattaforme tecnico-scientifiche in Europa. Ricerca, economia, innovazione. Bologna: Il Mulino, Collana Fondazione Edison. 34 01 Unstructured citation Resta, F. (2023) “Università e impresa: dal PNRR nuove reti per la ricerca”, in A. Quadrio Curzio A., A. Silvani, and F. Cerniglia (eds), Le piattaforme tecnico-scientifiche in Europa. Ricerca, economia, innovazione. Bologna: Il Mulino, Collana Fondazione Edison, pp. 64–75. 34 01 Unstructured citation Rodrik, D. (2004) “Industrial Policy for the Twenty-First Century”, John F. Kennedy School of Government, Cambridge, MA, September, https://drodrik.scholar.harvard.edu/files/dani-rodrik/files/industrial-policy-twenty-first-century.pdf 34 01 Unstructured citation Viesti, G. (2023) Riuscirà il PNRR a rilanciare l’Italia?. Rome: Donzelli editore. 34 01 Unstructured citation Viesti, G. (2024) “La ZES unica: dal mito alla dura realtà”, Menabò 208, https://eticaeconomia.it/la-zes-unica-dal-mito-alla-dura-realta/ 34 01 Unstructured citation von der Leyen, U. (2019a) “Speech by President-elect von der Leyen in the European Parliament Plenary on the Occasion of the Presentation of her College of Commissioners and their Programme”, Strasbourg, November 27. 34 01 Unstructured citation von der Leyen, U. (2019b) “A Union that Strives for More. My Agenda for Europe, by Candidate for President of the European Commission 2019–2024”, Strasbourg, July 16. 34 01 Unstructured citation White House (2022) Inflation Reduction Act Guidebook. Washington, DC: White House, https://www.whitehouse.gov/cleanenergy/inflation-reduction-act-guidebook/ 7 03 06 10.11647/obp.0434.06 77 95 19 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 5. Public Investment and Structural Transformation in Spain 1 A01 21 0000000328013447 Ignacio Alvarez Ignacio Alvarez Associate Professor of Applied Economics 40 01cby8j38 Universidad Autónoma de Madrid Ignacio Alvarez was the Secretary of State for Social Rights of the Government of Spain between January 2020 and November 2023. He holds a PhD in International Economics from the University Complutense of Madrid. He is currently Associate Professor of Applied Economics at the Autonomous University of Madrid. He has also worked as a Research Associate at the Complutense Institute of International Studies (ICEI), Visiting Professor of Labor Economics at the Spanish National University of Distance Education (UNED) and Assistant Professor at the University of Valladolid. He has been visiting researcher at the University Paris VII-Denis Diderot, at the Lisbon School of Economics and Management and at the University of South-Eastern Norway, and has participated in several European Union research projects (“Inclusive Growth through Wage Coordination”; “Collectively Agreed Wages in the New European Economic Governance”; “Collectively Agreed Wages in Europe”), as well as in several national projects. His research currently focuses on the study of the relationship between income distribution, demand, and economic growth. His academic articles have been published, among other journals, in the Socio-Economic Review, Cambridge Journal of Economics, Structural Change and Economic Dynamics, Review of Keynesian Economics, Work, Employment and Society, International Labour Review, and the Journal of Post Keynesian Economics. 2 A01 21 0000000222181004 Jorge Uxó Jorge Uxó Associate Professor of Applied Economics 40 02p0gd045 Universidad Complutense de Madrid Jorge Uxó has a PhD in Economics by the University Complutense of Madrid. He is currently Associate Professor of Applied Economics at the Complutense University of Madrid and Vice-President of the Spanish Productivity Board. He has been visiting researcher at the University of Coimbra (Centre for Social Studies), University of Alcalá and the European Trade Union Institute (ETUI) and has participated in European Union and national research projects, mainly focused on Macroeconomics and Economic Policy in Spain and the EMU and Post Keynesian Economics. His academic articles have been published, among other journals, in Cambridge Journal of Economics, Structural Change and Economic Dynamics, Review of Keynesian Economics, Review of Political Economy, International Labour Review, Journal of Post Keynesian Economics, Applied Economics or Metroeconomica. 01 eng 03 00 During the decade of 2010–2019, public investment experienced a profound decline in Spain, because of the fiscal austerity policies implemented during the Great Recession. Even with the recovery of economic growth starting in 2015, public investment did not improve and the net capital stock decreased. The COVID-19 pandemic introduced an important change in trend, with a general turnaround in fiscal policies accompanying the disbursement of Next Generation EU funds. These European Union funds will allow the implementation of an industrial transformation strategy focused on key specific sectors with high pulling power and strong multiplier effects. 30 00 During the decade of 2010–2019, public investment experienced a profound decline in Spain, because of the fiscal austerity policies implemented during the Great Recession. Even with the recovery of economic growth starting in 2015, public investment did not improve and the net capital stock decreased. The COVID-19 pandemic introduced an important change in trend, with a general turnaround in fiscal policies accompanying the disbursement of Next Generation EU funds. These European Union funds will allow the implementation of an industrial transformation strategy focused on key specific sectors with high pulling power and strong multiplier effects. 20 00 Open Access Ignacio Álvarez Jorge Uxó; 34 01 Unstructured citation Auerbach, A., and Y. Gorodnichenko (2012) “Fiscal Multipliers in Recession and Expansion”, NBER Working Paper 17447, National Bureau of Economic Research, Cambridge, Massachusetts. 34 01 Unstructured citation Bouabdallah, O. Dorrucci, E. Hoendervangers, L. and Nerlich, C. (2024) “Mind the Gap: Europe’s Strategic Investment Needs and How to Support Them”, The ECB Blog, 27 June, https://www.ecb.europa.eu/press/blog/date/2024/html/ecb.blog240627~2e939aa430.en.html 34 01 Unstructured citation Consejo Económico y Social (2020) La inversión pública en España: situación actual y prioridades estratégicas, Colección Informes, Número 01/2020, Consejo Económico y Social. 34 01 Unstructured citation Darvas, Z., L. Welslau, and J. Zettelmeyer (2024) “Incorporating the Impact of Social Investments and Reforms in the EU’s New Fiscal Framework”, Bruegel Working Paper 07/2024, https://www.bruegel.org/working-paper/incorporating-impact-social-investments-and-reforms-european-unions-new-fiscal 34 01 Unstructured citation Di Bucchianico, S., (2019) “A Bit of Keynesian Debt-to-GDP Arithmetic for Deficit-capped Countries”, Bulletin of Political Economy 13(1): 55–83. 34 01 Unstructured citation Fatas, A., and Mihov, I. (2009) “Why Fiscal Stimulus Is Likely to Work”, International Finance 12(1): 57–73 34 01 Unstructured citation Fernández-Cerezo, A., E. Moral-Benito, and J. Quintana (2023) “The Recovery, Transformation and Resilience Plan and its Macroeconomic Impact from a Sectoral Standpoint”, Economic Bulletin, Bank of Spain, 2023/Q1, https://repositorio.bde.es/bitstream/123456789/29539/1/be2301-art12e.pdf 34 06 10.1111/joes.12241 34 01 Unstructured citation Fundación BBVA-IVIE (2019) El stock de capital en España y sus comunidades autónomas. Evolución de la edad media de las inversiones y envejecimiento del capital, Fundación BBVA-IVIE. 34 01 Unstructured citation Gobierno de España (2023) Plan de Recuperación, Transformación y Resiliencia. IV Informe de Ejecución del Plan de Recuperación, Gobierno de España, December. 34 01 Unstructured citation International Monetary Fund (2014) “Is It Time for an Infrastructure Push? The Macroeconomic Effects of Public Investment”, in World Economic Outlook, October 2014: Legacies, Clouds, Uncertainties. Washington, DC: International Monetary Fund, pp. 75–112. 34 06 10.4337/ejeep.2023.0115 34 01 Unstructured citation Motyovszki, G., P. Pfeiffer, and J. Veld (2024) “The Implications of Public Investment for Debt Sustainability”, Discussion Paper 204 (June), Directorate-General for Economic and Financial Affairs, European Commission, https://economy-finance.ec.europa.eu/system/files/2024-06/dp204_en.pdf 34 01 Unstructured citation Pérez, F., and J. F. de Guevara (eds) (2024) El stock de capital en España y sus Comunidades Autónomas 1995-2023. Cambios recientes en la composición de la inversión y en las respuestas a la crisis, Documentos de Trabajo 1-2024, Fundación BBVA. 34 01 Unstructured citation Rosnick, D., and M. Weibstrot (2015) “Has Austerity Worked in Spain?”, Center for Economic and Policy Research, https://cepr.net/documents/Spain-2015-12.pdf 34 06 10.1016/j.strueco.2024.03.005 8 03 06 10.11647/obp.0434.07 99 108 10 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 6. A New Industrial Policy as the Key to the Green Transition 1 A01 Karl Aiginger Karl Aiginger Professor 40 03yn8s215 Vienna University of Economics and Business Honorary Professor 40 052r2xn60 Johannes Kepler University of Linz Karl Aiginger was born in Vienna on October 23, 1948. He is director of the Policy Crossover Center: Vienna—Europe (www.euiopaplattform.at). He is Professor at the Vienna University of Economics and Business and is an Honorary Professor at the University of Linz. He is Editor-in-Chief of the Journal of Industry, Competition and Trade (JICT). He has been the Director of the Austrian Institute of Economic Research (WIFO) from 2005 to 2016 and Coordinator of the research project “New Dynamics for Europe: Reaping the Benefits of Socio-ecological Transition”—WWWforEurope (http://Synthesis-Report-Part-I.foreurope.eu). He had temporary commitments at Stanford University, MIT, UCLA, and at the University of Changsha (Hunan, China). His research foci are industrial economics, competitiveness, and strategies of firms, regions and countries. The Policy Crossover Center published studies on “More or Less Europe”, Europe taking the lead in responsible globalization, and a European partnership policy with the South and the East. 01 eng 03 00 The world is changing quickly. The former Soviet Union is gone and its successor, Russia, is seeking to reclaim parts of Soviet territory using military force. The United States (US) as a sole remaining superpower cannot take the lead, due to populism, failed democracy, and a lack of resilience. China is on the rise, but autocratic, longing for resources and facing a declining population. Europe is less dynamic and innovative, not yet seen as unified with common goals. New middle powers are gaining shares in production, but are themselves very different. The problems the world faces are changing: peace is no longer guaranteed, global warming is accelerating, poverty is on the decline but re emerging in other ways, and migration policy is becoming more and more important. The green transition may be an engine of change and new dynamics, but there are also many backlashes. In this situation, a new industrial policy is needed—one very different from that of the past. We begin by describing the past policy as an isolated policy, along with the questions of whether such a policy is needed in a capitalistic economy and whether it should focus on “important sectors” (the sectoral or French approach) or “important activities” (the horizonal or German approach). We then turn to the increasing importance of international exports/ investments and the necessity for a green transition, but also new forms of protectionism and backlashes. This chapter builds on Aiginger and Rodrik (2020) with respect to “industrial policy for the 21st century”, as well as on Aiginger and Ketels (2024) for its “reloading” after the most recent changes in the policy environment. 30 00 The world is changing quickly. The former Soviet Union is gone and its successor, Russia, is seeking to reclaim parts of Soviet territory using military force. The United States (US) as a sole remaining superpower cannot take the lead, due to populism, failed democracy, and a lack of resilience. China is on the rise, but autocratic, longing for resources and facing a declining population. Europe is less dynamic and innovative, not yet seen as unified with common goals. New middle powers are gaining shares in production, but are themselves very different. The problems the world faces are changing: peace is no longer guaranteed, global warming is accelerating, poverty is on the decline but re emerging in other ways, and migration policy is becoming more and more important. The green transition may be an engine of change and new dynamics, but there are also many backlashes. In this situation, a new industrial policy is needed—one very different from that of the past. We begin by describing the past policy as an isolated policy, along with the questions of whether such a policy is needed in a capitalistic economy and whether it should focus on “important sectors” (the sectoral or French approach) or “important activities” (the horizonal or German approach). We then turn to the increasing importance of international exports/ investments and the necessity for a green transition, but also new forms of protectionism and backlashes. This chapter builds on Aiginger and Rodrik (2020) with respect to “industrial policy for the 21st century”, as well as on Aiginger and Ketels (2024) for its “reloading” after the most recent changes in the policy environment. 20 00 Open Access Karl Aiginger 34 01 Unstructured citation Acemoglu D. (2023) “Letter from America: When Industry Means Hard Work”, Royal Economic Society, https://res.org.uk/newsletter/letter-from-america-when-industry-means-hard-work/ 34 06 10.1007/s10842-024-00415-8 34 06 10.1007/s10842-019-00322-3 34 06 10.1080/02692170601005507 34 01 Unstructured citation Austin, B., E. Glaeser, and L. Summers (2018) “Saving the Heartland: Place-based Policies in 21st Century America. Brookings Papers of Economic Activity”, Brookings, https://www.brookings.edu/articles/saving-the-heartland-place-based-policies-in-21st-century-america/ 34 06 10.1353/eca.2022.0005 34 01 Unstructured citation Aiyar, S., and A. Ilyna (2023) “Geoeconomic Fragmentation and the Future of Multilateralism”, IMF Staff Discussion Notes 2023(001), https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2023/01/11/Geo-Economic-Fragmentation-and-the-Future-of-Multilateralism-527266 34 01 Unstructured citation Birdsall, N. M., J. E. L. Campos, C. S. Kim, W. M. Corden, L. MacDonald, H. Pack, J. Page, R. Sabor, and J. E. Stiglitz (1993) The East Asian Miracle: Economic Growth and Public Policy: Main Report (English). A World Bank Policy Research Report. Washington, DC: World Bank Group, http://documents.worldbank.org/curated/en/975081468244550798/Main-report 34 01 Unstructured citation Chang, H. J. (2002) Kicking Away the Ladder: Development Strategy in Historical Perspective. London: Anthem Press. 34 06 10.3386/w17842 34 01 Unstructured citation Draghi, M. (2024) The Future of European Competitiveness. Brussels: European Commission, https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en 34 01 Unstructured citation Economist, The (2024) “Can India, Indonesia, and Saudi Arabia be the Next Great Economies”, The Economist, 4 January, https://www.economist.com/leaders/2024/01/04/can-india-indonesia-and-saudi-arabia-be-the-next-great-economies 34 01 Unstructured citation Gil, I. S., and M. Raiser (2012) Golden Growth: Restoring the Lustre of the European Economic Model. Washington, DC: World Bank Group. 34 01 Unstructured citation Irwin, D. A. (2020) “The Washington Consensus Stands Test of Time Better than Populist Policies”, 4 December, Peterson Institute for International Economics, https://www.piie.com/blogs/realtime-economics/washington-consensus-stands-test-time-better-populist-policies 34 06 10.1051/shsconf/202317602009 34 01 Unstructured citation Javorcik, B. S., L. Kitzmueller, H. Schweiger, and M. A. Yildirim (2023) “Economic Costs of Friend-shoring”, CID Faculty Working Paper 422, https://growthlab.hks.harvard.edu/publications/economic-costs-friend-shoring 34 06 10.1146/annurev-economics-081023-024638 34 01 Unstructured citation Kelsey, T. (2023) “When Missions Fail: Lessons in ‘High Technology’ from Post-War Britain”, Blavatnik School of Government Working Paper 2023–056, https://www.bsg.ox.ac.uk/sites/default/files/2023-12/BSG-WP%E2%80%932023-056-When-Missions-Fail.pdf 34 01 Unstructured citation Ketels, C., and E. Duch (2022) “Industrial Policy in a New Global Reality: Towards a More Location- and Sector-Driven Approach”, Private Sector Development Blog, 11 July, https://blogs.worldbank.org/psd/industrial-policy-new-global-reality-towards-more-location-and-sector-driven-approach 34 01 Unstructured citation Ketels. C., M. E. Porter, and A. Kapoor (2022) Competitiveness Roadmap for India @ 100. Delhi: Economic Advisory Council of the Prime Minister, https://www.hbs.edu/ris/Publication%20Files/Report_Competitiveness_Roadmap-25_August_2022_Web_Version_690d1fab-dce8-48a0-8cd5-6d6a63a6d5eb.pdf 34 01 Unstructured citation Kose, M. A, and F. Ohnsorge (2023) Falling Long Term Growth Prospects: Trends, Expectations, and Policies. Washington, DC: World Bank, https://openknowledge.worldbank.org/handle/10986/39497 34 06 10.2307/j.ctvc776tv 34 01 Unstructured citation Mazzucato, M. (2021) Mission Economy: A Moonshot Guide to Changing Capitalism. London: Allen Lane. 34 01 Unstructured citation Nayyar, D., and G. Nayyar (2024) “Made in India: Industrial Policy in a Changing World”, Journal of Industry, Competition and Trade 24(1): 13. 34 06 10.1007/s10842-024-00420-x 34 01 Unstructured citation Rodrik, D. (2015) “Premature Deindustrialization”, NBER Working Paper 20935, https://www.nber.org/system/files/working_papers/w20935/w20935.pdf 34 01 Unstructured citation Rodrik, D., and J. Stiglitz (2024) “A New Growth Strategy for Developing Nations”, Harvard, https://drodrik.scholar.harvard.edu/sites/scholar.harvard.edu/files/dani-rodrik/files/a_new_growth_strategy_for_developing_nations.pdf 34 06 10.1007/s10842-024-00418-5 34 01 Unstructured citation Yellen, J. (2022) “Remarks at Microsoft in New Delhi”, US Department of the Treasury, 11 November, https://home.treasury.gov/news/press-releases/jy1096 9 03 06 10.11647/obp.0434.08 109 134 26 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 7. A “True” Industrial Policy for Europe Is a Technology and Innovation Policy 1 A01 Reda Cherif Reda Cherif Senior Economist 40 05m4rmw09 International Monetary Fund Affiliated Researcher at the Bennett Institute for Public Policy 40 013meh722 University of Cambridge Senior Research Advisor at the Center of Technology and Industrialization for Development (TIDE) 40 052gg0110 University of Oxford Reda Cherif is a Senior Economist at the International Monetary Fund (IMF), an Affiliated Researcher at the Bennett Institute for Public Policy at the University of Cambridge, a Senior Research Advisor at the Center of Technology and Industrialization for Development (TIDE), University of Oxford, and a Fellow at the Royal Society for the Arts. He joined the IMF in 2008, as part of the Economist Program, and worked in several departments: in the Fiscal Affairs Department, where he was an economist on the Gabon program; in the Middle East and Central Asia Department, where he covered Saudi Arabia, Qatar and Bahrain; and in the African Department, where he worked in the Regional Studies Division, issuing analytical work on trade, competition and oil economies. He has published numerous articles on the energy transition, public debt dynamics, commodity exporters, development, industrial policy, growth, and innovation. His work was published in the Journal of Development Economics and World Development among others, and it was featured in the Economist, Financial Times and National Geographic. He is the co-editor, with Fuad Hasanov and Min Zhu, of Breaking the Oil Spell, a book studying economic diversification in oil exporters. Reda holds an MSc in Economics from the London School of Economics and a PhD in Economics from the University of Chicago. 2 A01 21 0000000220234547 Fuad Hasanov Fuad Hasanov Senior Economist 40 05m4rmw09 International Monetary Fund Adjunct Professor of Economics 40 05vzafd60 Georgetown University Affiliated Researcher at the Bennett Institute for Public Policy 40 013meh722 University of Cambridge Fuad Hasanov is a Senior Economist at the International Monetary Fund (IMF), an Adjunct Professor of Economics at Georgetown University, an Affiliated Researcher at the Bennett Institute for Public Policy at the University of Cambridge, and a Senior Research Advisor at the Technology and Industrialization for Development (TIDE) Centre at the University of Oxford. Before joining the IMF in 2007, Fuad was an Assistant Professor of Economics at Oakland University in Rochester, Michigan. His recent research focuses on natural resources, growth and innovation, and industrial policy. He is the co-editor, with Reda Cherif and Min Zhu, of Breaking the Oil Spell that examines economic diversification in oil-exporting countries. Fuad received a PhD, MS, and BA in economics from the University of Texas at Austin. 3 A01 21 0000000219794731 Xun Li Xun Li Research Analyst 40 05m4rmw09 International Monetary Fund Xun Li is a Research Analyst at the International Monetary Fund (IMF). At the IMF, Xun has contributed to surveillance and policy formulation to promote sustainable economic growth in Europe. Xun holds a Master in Public Administration from Columbia University School of International and Public Affairs, specializing in renewable energy financial modeling and energy and environmental economic analysis. 01 eng 03 00 Since the Global Financial Crisis of 2008, the “core” European countries have been losing their competitive edge in global markets for sophisticated products such as electronics and green transportation and power technologies, while also missing out on the earlier revolution in information and communication technology (ICT). Meanwhile, the “periphery” European countries have been slowing down and, in pre-crisis years, have mostly channelled their investment into non-tradable industries, concentrating their resources in relatively lower productivity and lower skill activities. The slowdown in growth and convergence highlights the need to reignite productivity and economic dynamism. Lessons from the Asian economic miracles and Europe’s own growth experience suggest the importance of developing sophisticated sectors. The development of these sectors is riddled with both government and market failures, requiring adequate policies to tackle them. We argue that a “true” industrial policy for Europe is a technology and innovation policy (TIP) that focuses on correcting market failures to spur innovation, scale up, and support production networks in sophisticated industries across Europe while reorienting the engines of growth of “periphery” economies toward sophisticated sectors and their complex value chains. TIP’s guiding principles are a focus on global markets, competition, and a strict accountability framework, where the “hard” tools such as tariffs and subsidies may not be necessary and may be potentially counterproductive. 30 00 Since the Global Financial Crisis of 2008, the “core” European countries have been losing their competitive edge in global markets for sophisticated products such as electronics and green transportation and power technologies, while also missing out on the earlier revolution in information and communication technology (ICT). Meanwhile, the “periphery” European countries have been slowing down and, in pre-crisis years, have mostly channelled their investment into non-tradable industries, concentrating their resources in relatively lower productivity and lower skill activities. The slowdown in growth and convergence highlights the need to reignite productivity and economic dynamism. Lessons from the Asian economic miracles and Europe’s own growth experience suggest the importance of developing sophisticated sectors. The development of these sectors is riddled with both government and market failures, requiring adequate policies to tackle them. We argue that a “true” industrial policy for Europe is a technology and innovation policy (TIP) that focuses on correcting market failures to spur innovation, scale up, and support production networks in sophisticated industries across Europe while reorienting the engines of growth of “periphery” economies toward sophisticated sectors and their complex value chains. TIP’s guiding principles are a focus on global markets, competition, and a strict accountability framework, where the “hard” tools such as tariffs and subsidies may not be necessary and may be potentially counterproductive. 20 00 Open Access Reda Cherif Fuad Hasanov Xun Li; 34 01 Unstructured citation Adler, D. 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Aghion (2023) “Fair and Inclusive Markets: Why Dynamism Matters”, IMF Working Paper 2021/29, https://www.imf.org/en/Publications/WP/Issues/2021/02/06/Fair-and-Inclusive-Markets-Why-Dynamism-Matters-50052 34 01 Unstructured citation Cherif, R., F. Hasanov, and M. Zhu (2021) “The Electric Vehicle Revolution Goes Global”, August 30, Project Syndicate, https://www.project-syndicate.org/commentary/electirc-vehicles-in-developing-and-emerging-economies-by-reda-cherif-et-al-2021-08 34 01 Unstructured citation Draghi, M. (2024a) “Radical Change—Is What Is Needed”, Speech at the High-level Conference on the European Pillar of Social Rights, Brussels, April 16, https://geopolitique.eu/en/2024/04/16/radical-change-is-what-is-needed/ 34 01 Unstructured citation Draghi, M. (2024b) The Future of European Competitiveness. Brussels: European Commission, https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en 34 01 Unstructured citation Duchatel, M. 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Baisakova (2020) “The Global Semiconductor Value Chain: A Technology Primer for Policymakers”, October, Stiftung Neue Verantwortung Policy Paper. 34 01 Unstructured citation Letta, E. (2024) Much More Than a Market, https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf 34 01 Unstructured citation Mazzucato, M. (2013) The Entrepreneurial State: Debunking Public vs. Private Sector Myths. New York: Public Affairs. 34 01 Unstructured citation Pisano, G., and W. Shih (2012) Producing Prosperity: Why America Needs a Manufacturing Renaissance. Cambridge, MA: Harvard Business Review Press. 34 01 Unstructured citation SIA (2024) “Semiconductor Industry Association Factbook”, SIA, https://www.semiconductors.org/resources/factbook/ 34 06 10.7312/stig15214 10 03 06 10.11647/obp.0434.09 135 148 14 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 8. Industrial Policy and Security The European Union and the Double Challenge: Strengthening Competitiveness and Enhancing Economic Security 1 A01 Paolo Guerrieri Paolo Guerrieri Visiting Professor at PSIA, Paris School of International Affairs 40 05fe7ax82 Sciences Po, Paris Paolo Guerrieri is Visiting Professor at PSIA, Paris School of International Affairs, Sciences Po, Paris. He was Professor of Economics at the University of Rome “La Sapienza” and Visiting Professor at the College of Europe, Bruges (Belgium) and the USD Business School, University of San Diego, California. 2 A01 Pier Carlo Padoan Pier Carlo Padoan Full Professor of Economics retired 40 02be6w209 Sapienza University of Rome Pier Carlo Padoan who has been Italian Minister of Economy and Finance and Member of the Chamber of Deputies of the Italian Republic, is Chairman of UniCredit since April 2021. He is Full Professor of Economics retired at the La Sapienza University of Rome. He is currently Vice President of Istituto Affari Internazionali, Board member of the Institute of International Finance, a member of the Luiss Institute for European Analysis and Policy, and a member of the BoD and Executive Committee of ABI. In 2021 he was also appointed member of the Board of Istituto Luigi Einaudi and of the Committee for Corporate Governance of Borsa Italiana. He is currently a member of the European Financial Services Round Table, and of the Executive Committee of Assonime. In May 2022 he became Chairperson of the High Level Group on Financing Sustainability Transition, which is part of the High Level Groups on EU Policy and Innovation. He has been Deputy Secretary General and Chief Economist of OECD and Executive Director of the International Monetary Fund. He has held academic positions at the University of Rome, College of Europe (Bruges and Warsaw), Université Libre de Bruxelles, University of Urbino, Universidad de la Plata, Chulalongkorn University and University of Tokyo. 01 eng 03 00 This chapter argues that the European Union’s (EU) dual challenge— enhancing both competitiveness and economic security—must form the core of its open strategic autonomy framework, which integrates national security considerations with economic policy. The chapter explores the vulnerabilities and strengths of the EU’s industrial and technological strategies, emphasizing the need for deeper European integration and more robust governance to meet these challenges. Central to this effort is the provision of European public goods (EPGs), such as climate policy, energy security, and technological development, which require stronger EU-level governance and financial resources. To ensure long-term resilience and relevance in a fragmented world, Europe must undertake a profound restructuring of its economic governance and enhance its strategic autonomy. 30 00 This chapter argues that the European Union’s (EU) dual challenge— enhancing both competitiveness and economic security—must form the core of its open strategic autonomy framework, which integrates national security considerations with economic policy. The chapter explores the vulnerabilities and strengths of the EU’s industrial and technological strategies, emphasizing the need for deeper European integration and more robust governance to meet these challenges. Central to this effort is the provision of European public goods (EPGs), such as climate policy, energy security, and technological development, which require stronger EU-level governance and financial resources. To ensure long-term resilience and relevance in a fragmented world, Europe must undertake a profound restructuring of its economic governance and enhance its strategic autonomy. 20 00 Open Access Paolo Guerrieri Pier Carlo Padoan; 34 01 Unstructured citation Aghion, P. (2023) “An Innovation-Driven Industrial Policy for Europe” in S. Tagliapietra and R. Veugelers (eds), Sparking Europe’s New Industrial Revolution: A Policy for Net Zero, Growth and Resilience. Brussels: Bruegel, pp. 29–41, https://www.bruegel.org/sites/default/files/private/2023-08/Bruegel Blueprint 33_chapter 2.pdf 34 06 10.1007/s11135-023-01685-w 34 01 Unstructured citation Beaucillon, C., and S. Poli (2023) “Special Focus on EU Strategic Autonomy and Technological Sovereignty: An Introduction”, European Papers 8(2): 411–416, https://www.europeanpapers.eu/en/europeanforum/special-focus-eu-strategic-autonomy-and-technological-sovereignty-introduction 34 01 Unstructured citation Bergsten, C. F. (2022) The United States vs China: The Quest for Global Economic Leadership. New York: Polity Books. 34 01 Unstructured citation Bontadini, F., V. Meliciani, M. Savona, and A. Wikierman (2023) “Nearshoring, Global Value Chains’ Structure and Volatility”, LEAP Working Papers 8/23, https://leap.luiss.it/wp-content/uploads/2023/09/WP8.23-Nearshoring-global-value-chains-structure-and-volatility2.pdf 34 01 Unstructured citation Buti, M., A. Coloccia, and M. Messori (2023) “European Public Goods”, June 9, CEPR, https://cepr.org/voxeu/columns/european-public-goods 34 01 Unstructured citation Dadush, U. (2022) “Is the Post-War Trading System Ending?”, Policy Contribution 04/2022: 1–12, https://www.bruegel.org/sites/default/files/wp-content/uploads/2022/02/PC-04.pdf 34 01 Unstructured citation European Commission (2020) “European Raw Materials Alliance (ERMA)”, European Commission, https://single-market-economy.ec.europa.eu/industry/industrial-alliances/european-raw-materials-alliance_en 34 01 Unstructured citation European Commission (2021) “Trade Policy Review: An Open, Sustainable and Assertive Trade Policy”, COM(2021) 66, February 18, https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A52021DC0066 34 01 Unstructured citation European Commission (2023a) “A Green Deal Industrial Plan for the Net-Zero Age”, COM(2023) 62, February 1, https:// eur-lex.europa.eu/legal-content/EN/ TXT/HTML/?uri=CELEX:52023DC0062 34 01 Unstructured citation European Commission (2023b) “Joint Communication to the European Parliament, the European Council and the Council on ‘European Economic Security Strategy’, JOIN(2023) 20, June 20, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52023JC0020 34 01 Unstructured citation European Commission (2023c) “Joint Communication to the European Parliament and the European Council on ‘A Secure and Sustainable Supply of Critical Raw Materials in Support of the Twin Transition”, COM(2023) 165, March 16, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM%3A2023%3A165%3AFIN 34 01 Unstructured citation European Commission (2024) “Communication from the Commission to the European Parliament and the European Council on Advancing European Economic Security: An Introduction to Five New Initiatives”, COM(2024) 22, January 24, https://commission.europa.eu/system/files/2024-01/Communication on European economic security.pdf 34 06 10.1162/isec_a_00351 34 01 Unstructured citation Georgieva, K., G. Gopinath, and C. Pazarbasioglu (2022) “Why We Must Resist Geoeconomic Fragmentation and How”, IMF Blog, May 22, https://www.imf.org/en/Blogs/Articles/2022/05/22/blog-why-we-must-resist-geoeconomic-fragmentation 34 01 Unstructured citation Guerrieri, P., and P. C. Padoan (2020) L’economia europea. Tra crisi e rilancio. Bologna: il Mulino. 34 01 Unstructured citation Guerrieri, P., and P. C. Padoan (2024) Sovereign Europe. An Agenda for Europe in a Fragmented Global Economy. Brookfield, VT: Edward Elgar. 34 01 Unstructured citation Hoekman, B. M., and L. Puccio (2019) “EU Trade Policy: Challenges and Opportunities”, RSC Policy Papers 6, https://hdl.handle.net/1814/61589 34 01 Unstructured citation IMF (2022) “Geo-Economic Puzzle: Policy Making in a More Fragmented World”, Finance and Development 59(2). 34 01 Unstructured citation IMF (2023) “Geoeconomic Fragmentation: What’s at Stake for the EU”, IMF Working Papers 245, https://www.imf.org/en/Publications/WP/Issues/2023/11/29/Geoeconomic-Fragmentation-Whats-at-Stake-for-the-EU-541864 34 06 10.1017/s0020818320000636 34 06 10.1080/09692290.2023.2211281 34 06 10.1111/jcms.12932 34 06 10.1111/jcms.13428 34 06 10.1111/1758-5899.13303 34 01 Unstructured citation Sullivan, J. (2023) “Renewing American Economic Leadership”, Speech Given at Brookings Institution, Washington DC, April 27. 34 01 Unstructured citation Tagliapietra, S., and R. Veugelers (eds) (2023) Sparking Europe’s New Industrial Revolution: A Policy for Net Zero, Growth and Resilience. Brussels: Bruegel. 34 01 Unstructured citation Tamma, P. (2020) “Europe Wants ‘Strategic Autonomy’. It Just Has to Decide What That Means”, October 15, POLITICO, https://www.politico.eu/article/europe-trade-wants-strategic-autonomy-decide-what-means/ 34 01 Unstructured citation Tocci, N. (2021) “European Strategic Autonomy: What It Is, Why We Need It, How to Achieve It”, Istituto Affari Internazionali, https://www.iai.it/sites/default/files/9788893681780.pdf 34 06 10.1111/jcms.13366 34 01 Unstructured citation Zuleeg, F. (2023) “Economic Security: A New EU Paradigm?”, Discussion Paper, European Policy Centre, June 8, https://www.epc.eu/en/publications/Economic-security-A-new-EU-paradigm~516bc0 11 03 06 10.11647/obp.0434.10 149 168 20 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 9. Trends in Defence Spending in the European Union 1 A01 21 0000000177063868 Alessandra Cepparulo Alessandra Cepparulo Alessandra Cepparulo obtained her PhD in Political Economics at Sapienza University of Roma. She worked, as a post-doctoral researcher, at different universities in Italy and abroad and as a researcher, in several projects involving Italian national authorities and in international context. She is a Public Economist, whose research interests cover a wide set of issues: public finance and fiscal rules, forecast errors, quality of public expenditures, public investments and PPPs. She is currently working at the European Commission, DG ECFIN, in the unit responsible of fiscal policy and fiscal surveillance. 2 A01 21 0000000153508834 Paolo Pasimeni Paolo Pasimeni Senior Associate Researcher at the Brussels School of Governance 40 006e5kg04 Vrije Universiteit Brussel Paolo Pasimeni is Deputy Chief Economist at the European Commission, DG Internal Market and Industry, and Senior Associate Researcher at the Brussels School of Governance of the Vrije Universiteit Brussel (VUB). Specialized in international macroeconomics, his main field of expertise is the macroeconomic analysis of the single market and of the economic and monetary union (EMU). Expert on monetary, f iscal and structural policies, he has been working on the proposals for EMU reform, in particular on the design of a stabilization capacity. He has also worked on labour market analysis, as well as on the conception of the EU multi-annual budget. Personal webpage: https://brussels-school.be/team/paolo-pasimeni 01 eng 03 00 After more than sixty years of peace, in 2022 Europe has faced a watershed moment in its security, which is leading to higher and more integrated defence spending in the European Union (EU). This article uses new sources of data to illustrate the evolution of defence spending in the EU and its composition. It also looks at the articulation of responsibilities for defence spending in a multi-level governance system, such as the EU. The institutional evolution of defence policy in the EU tries to build on a progressive convergence of foreign policy objectives and points towards some concentration of defence spending at the supra-national level. The key question for the future is to what extent this convergence will hold and to what extent it will be reflected in new provisions for defence in the common budget. 30 00 After more than sixty years of peace, in 2022 Europe has faced a watershed moment in its security, which is leading to higher and more integrated defence spending in the European Union (EU). This article uses new sources of data to illustrate the evolution of defence spending in the EU and its composition. It also looks at the articulation of responsibilities for defence spending in a multi-level governance system, such as the EU. The institutional evolution of defence policy in the EU tries to build on a progressive convergence of foreign policy objectives and points towards some concentration of defence spending at the supra-national level. 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(1989) “Military Expenditure and Economic Analysis: A Review Article”, Contributions to Political Economy 8(1): 55–67. 34 01 Unstructured citation Pivetti, M. (1992) “Military Spending as a Burden on Growth: an ‘Underconsumptionist’ Critique”, Cambridge Journal of Economics 16(4): 373–384. 34 01 Unstructured citation Smith, R. P., and P. Dunne (1994) “Is Military Spending a Burden? A Marxo-Marginalist Response to Pivetti”, Cambridge Journal of Economics 18(5): 515–521. 34 06 10.1080/10242694.2022.2091191 34 01 Unstructured citation Wyplosz, C. (2016) “The Six Flaws of the Eurozone”, Economic Policy 31(87): 559–606. 34 06 10.1177/0022343318808841 12 03 06 10.11647/obp.0434.11 169 180 12 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 10. Sustainable Mobility and Industrial Policy 1 A01 21 0000000227486472 Dario Guarascio Dario Guarascio Associate Professor of Economic Policy at the Department of Economics and Law 40 02be6w209 Sapienza University of Rome Dario Guarascio is Associate Professor of Economic Policy at the Department of Economics and Law—Sapienza University of Rome—and external affiliate of the Sant’Anna School of Advanced Studies in Pisa and of the National Institute for Public Policy Analysis (INAPP). Dario’s research covers economics of innovation, digitalization and labour markets, European economy, and industrial policy. He is Associate Editor of the journals Structural Change and Economic Dynamics, Journal of Industrial and Business Economics, and Economia & Lavoro and former member of the Commissions of the Ministry of Labour and Social Policy for the reform of social security. 2 A01 21 0000000188615090 Annamaria Simonazzi Annamaria Simonazzi Former Professor of Political Economy 40 02be6w209 Sapienza University of Rome Annamaria Simonazzi is Former Professor of Political Economy at La Sapienza University of Rome and Cnel Expert Advisor in the X Council. She is President of the Giacomo Brodolini Foundation, Managing Director of Economia & Lavoro and member of the editorial board of the web magazine www.inGenere.it. She has published widely on European macroeconomic issues, industrial policy, employment, welfare, and gender economics. 01 eng 03 00 Focusing on the automotive industry, this chapter addresses the problem of Europe’s vulnerability (e.g., import dependency, technological backwardness in key domains) and the hypothesis of the obsolescence of its growth and production model. First, we analyze the evolution of the Sino-German relationships highlighting the emergence of two divergent trajectories: while a well-tailored combination of industrial and trade policies allowed China to become the leader in electric vehicle (EV) production, the German development model, mostly driven by the choices of key carmakers, slowed innovation, fostered fragmentation within the European Union (EU) and created the conditions for the current vulnerability. Second, we identify the key elements— i.e., increasing demand for affordable EVs, investments in infrastructure for the provision of public goods, building-up a European Directorate for Resource Security—of a European industrial policy for sustainable mobility which may help achieve the multiple goals of decarbonizing the economy, increasing resilience, and reducing inequalities between and within countries. 30 00 Focusing on the automotive industry, this chapter addresses the problem of Europe’s vulnerability (e.g., import dependency, technological backwardness in key domains) and the hypothesis of the obsolescence of its growth and production model. First, we analyze the evolution of the Sino-German relationships highlighting the emergence of two divergent trajectories: while a well-tailored combination of industrial and trade policies allowed China to become the leader in electric vehicle (EV) production, the German development model, mostly driven by the choices of key carmakers, slowed innovation, fostered fragmentation within the European Union (EU) and created the conditions for the current vulnerability. Second, we identify the key elements— i.e., increasing demand for affordable EVs, investments in infrastructure for the provision of public goods, building-up a European Directorate for Resource Security—of a European industrial policy for sustainable mobility which may help achieve the multiple goals of decarbonizing the economy, increasing resilience, and reducing inequalities between and within countries. 20 00 Open Access Dario Guarascio Annamaria Simonazzi; 34 01 Unstructured citation Alim, A. N., P. Nilsson, and P. Campbell (2024) “Volkswagen Considers Partnership to Produce Mass Market Electric Vehicles”, March 13, Financial Times, https://www.ft.com/content/0985f16c-105c-4b62-aa80-3658fa9b629a 34 01 Unstructured citation Alim, A. M., and S. Jones (2024) “German Companies’ Dependence on China Will Last Decades, Warns Siemens”, 14 April, Financial Times, https://www.ft.com/content/e8634f5c-5a28-4741-a13d-024665456f43? 34 01 Unstructured citation Autor, D. H, D. Dorn, and G. H. Hanson (2016) “The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade”, BNER 21906. 34 01 Unstructured citation Baqaee, D., J. Hinz, B. Moll, M. Schularick, F. A. Teti, J. Wanner, and S. Yang (2024) “What If? The Effects of a Hard Decoupling from China on the German Economy”, Kiel Policy Brief 170. 34 06 10.1111/jcms.13599 34 01 Unstructured citation Beattie, A. (2024) “Europe’s New Anti-subsidy Weapon Is Powerful but Hard to Control: The EU Foreign Subsidies Regulation Is Looking to Score Some Notable Hits”, 9 May, Financial Times, https://www.ft.com/content/db880189-6556-427d-9c80-b4af3c8917d2? 34 01 Unstructured citation Celi, G., A. Ginzburg, D. Guarascio, and A. Simonazzi (2018) Crisis in the European Monetary Union. Oxford: Routledge. 34 01 Unstructured citation Celi, G., D. Guarascio, J. Reljic, A. Simonazzi, and F. Zezza (2022) “The Asymmetric Impact of War: Resilience, Vulnerability and Implications for EU Policy”, Intereconomics 57(3): 141–147. 34 01 Unstructured citation De Cecco, M. (1978) “Il sistema monetario internazionale”, in M. Carmagnani and A. Vercelli (eds.), Economia e storia. Florence: La Nuova Italia, pp. 810–830. 34 01 Unstructured citation De Quant, S., S. Tordoir, and S. Vallée (2024) “Caught in Geopolitical Fragmentation: How to De-risk Germany’s Economic Model”, Working Paper 02/2024. 34 01 Unstructured citation Deutsche Bundesbank (2024) “Risks Facing Germany as a Result of its Economic Ties with China”, Monthly Report, January. 34 06 10.1177/10245294231207990 34 01 Unstructured citation Guarascio, D., J. Reljic, G. Cucignatto, G. Celi, and A. Simonazzi (2024) “Between Scylla and Charybdis. Long-term Drivers of EU Structural Vulnerability, Review of Keynesian Economics 12(4): forthcoming. 34 01 Unstructured citation Hvistendahl, M., J. Ewing, and J. Liu (2024) “A Pivot to China Saved Elon Musk. It also Binds Him to Beijing”, 27 March, New York Times, https://www.nytimes.com/2024/03/27/world/asia/elon-musk-tesla-china.html 34 01 Unstructured citation Janeway, W.H. (2024) “Is Techno-Monopoly Inevitable?”, 5 April, Project Syndicate, https://www.project-syndicate.org/onpoint/us-big-tech-monopolies-market-power-from-key-innovations-by-william-h-janeway-2024-04 34 01 Unstructured citation Li, G., and P. Campbell (2024) “BYD Loses EV Throne to Tesla as Sales slip”, 2 April, Financial Times, https://www.ft.com/content/4f1a2188-ced0-4018-998d-5148209a5f5e 34 01 Unstructured citation Matthes, J. (2023) “Entwicklung des Konkurrenzdrucks durch China auf dem EU-Markt: Update einer Vorläuferstudie” [Evoluzione della pressione competitiva della Cina sul mercato UE], IW-Report 39/2023. 34 01 Unstructured citation McMorrow, R., and G. Li (2024) “The Steve Jobs of China Turns Car Salesman. in Xiaomi’s EV Evolution”, 5 April, Financial Times, https://www.ft.com/content/f0664662-ea9f-4bd6-a5c1-6c76c99b6ccd 34 01 Unstructured citation Moscoso, L., and I. Stoyanova (2024) “The Foreign Subsidies Regulation—100 Days Since the Start of the Notification Obligation for Concentrations”, Competition FSR Brief 1, https://competition-policy.ec.europa.eu/document/download/22197012-2036-4b1e-8b02-0eb8b2d6e666_en?filename=kdar24001enn_competition_FSR_brief_1_2024_100-days-of-FSR-notification-obligation.pdf 34 01 Unstructured citation Nilsson, P. (2024) “German Car Parts Suppliers Plan Job Cuts amid Costly EV Transition”, 18 January, Financial Times, https://www.ft.com/content/40585c6c-741c-4450-8f06-8d367839594c 34 06 10.2139/ssrn.4304165 34 01 Unstructured citation Pavlinek, P. (2023) “Transition of the Automotive Industry towards Electric Vehicle Production in the East European Integrated Periphery”, Empirica 50: 35–73. 34 01 Unstructured citation Russo, M., F. Alboni, J. C. Sanginés, M. De Domenico, G. Mangioni, S. Righi, and A. Simonazzi (2023) “Regionalisation and Cross-region Integration. Twin Dynamics in the Automotive International Trade Networks”, Structural Change and Economic Dynamics 67: 98–114. 34 01 Unstructured citation Sandbu, M. (2022) “Europe Is Learning that You Can’t Separate Trade and Politics”, 6 November, Financial Times, https://www.ft.com/content/a1b97de4-b366-4a0e-aa58-93a6b6fa8b2a 34 01 Unstructured citation Simonazzi, A., J. Carreto Sanginés, and M. Russo (2022) “The World to Come: Key Challenges for the Automotive Industry”, Economia & Lavoro 56(1): 7–23. 34 01 Unstructured citation Szalavetz, A. (2022) “Transition to Electric Vehicles in Hungary: A Devastating Crisis or Business as Usual?”, Technological Forecasting and Social Change 184: 122029. 34 01 Unstructured citation Weissmann, J. (2016) “Did Donald Trump Win the Election Because of Trade? A New Study Suggests It Helped”, 2 December, Slate, https://slate.com/business/2016/12/study-suggests-job-losses-to-china-helped-donald-trump-win-the-election.html 34 01 Unstructured citation White, E., M. Pooler, A. A. Lakshmi, and C. Murray (2024) “China’s Plan to Sell Cheap EVs to the Rest of the World”, 5 June, Financial Times, https://www.ft.com/content/c77fefa3-7f47-429b-8149-50aa60f39498?emailId=edd2675d-ec77-423b-89f1-680005d5b02d&segmentId=22011ee7-%E2%80%A61/16 13 03 06 10.11647/obp.0434.12 181 186 6 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 11. Financing Structural Investment after 2027 1 A01 Sophie Barbier Sophie Barbier Sophie Barbier is the Head of European Affairs at the French Caisse des Dépôts (CDC) Group. She graduated from the National School of Administration (ENA) and completed a Master’s degree in Economics from the Ecole Normale Supérieure de Cachan and Nanterre University. Previously, she worked at the Forecasting Department in the French Ministry for Finance and in the Asset-Liability Team in CDC. She is currently involved in the implementation of EU programs within CDC, such as the InvestEU program and the blending instrument under the Connecting Europe Facility. 2 A01 Helmut von Glasenapp Helmut von Glasenapp Helmut von Glasenapp studied business administration in Germany, after an apprenticeship in banking. He gained his first business experience with Treuhandanstalt, the former privatization agency in the eastern part of Germany. In 1993 he joined KfW in the Berlin office. From 1997 until 2005, he invested on behalf of KfW in Venture Capital and Private Equity Funds and managed a part of the innovation financing division of KfW Frankfurt. In 2005 he was asked to assist the European Commission as a Seconded National Expert notably to prepare an Equity Promotional Programme for SMEs. In 2007 he continued in Brussels as head of the KfW Liaison Office to the European Union before he was appointed as member of the EU Task Force for Greece of the European Commission until 2015. He joined the Brussels based Secretariat General of the European Long Term Investors Association in 2016 and was elected as ELTI Secretary General in October 2016. 01 eng 03 00 An investment can be described as structural if it contributes to financing the structural transformation of the economy and thus making it sustainably competitive. Experience shows that private investments alone are not sufficient due to externalities associated with this type of investment. A mixed public and private financing method is essential and it will help to accelerate the transformation. The challenge of the next European Union (EU) Multiannual Financial Framework (“post-2027”) will be to promote the development of this f inancing method. In this respect, the European budget will have to rely on four pillars: prioritize and plan, activate expenditure, decentralize implementation and strengthen steering. It is on this basis that Europe will be able to finance its structural investments and achieve the structural transformation necessary to maintain and develop its long-term competitiveness within the framework of a new European Competitiveness Pact. 30 00 An investment can be described as structural if it contributes to financing the structural transformation of the economy and thus making it sustainably competitive. Experience shows that private investments alone are not sufficient due to externalities associated with this type of investment. A mixed public and private financing method is essential and it will help to accelerate the transformation. The challenge of the next European Union (EU) Multiannual Financial Framework (“post-2027”) will be to promote the development of this f inancing method. In this respect, the European budget will have to rely on four pillars: prioritize and plan, activate expenditure, decentralize implementation and strengthen steering. It is on this basis that Europe will be able to finance its structural investments and achieve the structural transformation necessary to maintain and develop its long-term competitiveness within the framework of a new European Competitiveness Pact. 20 00 Open Access Sophie Barbier Helmut von Glasenapp; 34 01 Unstructured citation Attali, B. (2022) “Investing for the Long Term, a Short-term Emergency (Some Food for Thought)”, Eltia, https://www.eltia.eu/images/20201210_texte_VF_EN_FINAL.pdf 34 01 Unstructured citation Attali, B. (2024) “Investing in the Future: Putting the Long Term at the Heart of our Decisions”, Report of the Commission, May, https://www.caissedesdepots.fr/en/news/investing-future-long-term-heart-decisions 34 01 Unstructured citation Confrontations Europe (2024) 30 idées pour 2030. Paris: Descartes et Cie. 34 01 Unstructured citation European Council (2024) “Conclusions”, April 17 and 18, https://www.consilium.europa.eu/media/m5jlwe0p/euco-conclusions-20240417-18-en.pdf 34 01 Unstructured citation European Long-Term Investors (2024) “Strategic Outlook—Activating the EU Budget for Long-term Needs”, Eltia, https://www.eltia.eu/images/2024_02_29_Strategic_outlook.pdf 34 01 Unstructured citation Letta, E. (2024) Much More Than a Market, https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf 34 01 Unstructured citation Meade J. E. (1952) “External Economies and Diseconomies in a Competitive Situation”, The Economic Journal, 62(245): 54–67. 01 URL https://www.openbookpublishers.com/ Open Book Publishers 01 Open Book Publishers 01 Publisher's website: home page https://www.openbookpublishers.com/ 02 Publisher's website: webpage for this title https://www.openbookpublishers.com/books/10.11647/OBP.0434 Cambridge, UK 04 01 20241211 Floriana Cerniglia Francesco Saraceno. Copyright of individual chapters are maintained by the chapter author(s). 02 WORLD 06 15 9781805114383 03 9781805114383 06 15 9781805114390 03 9781805114390 06 15 9781805114420 03 9781805114420 06 15 9781805114413 03 9781805114413 WORLD 11 OAPEN 36 OAPEN: webpage for this product https://library.oapen.org/handle/20.500.12657/95838 29 OAPEN: download the title https://library.oapen.org/bitstream/handle/20.500.12657/95838/obp.0434.pdf?sequence=1&isAllowed=y 20 08 20241211 01 11 DOAB 36 DOAB: webpage for this product https://directory.doabooks.org/handle/20.500.12854/149882 20 08 20241211 01 11 Unknown 36 Unspecified hosting platform: webpage for this product https://thoth-arch.lib.cam.ac.uk/handle/1811/831 29 Unspecified hosting platform: download the title https://thoth-arch.lib.cam.ac.uk/bitstreams/37bde021-0e2a-424c-93b8-e465c949b940/download 20 08 20241211 01 11 Unknown 36 Unspecified hosting platform: webpage for this product https://hdl.handle.net/2134/28148411 29 Unspecified hosting platform: download the title https://repository.lboro.ac.uk/ndownloader/files/51511658 20 08 20241211 01 11 INTERNET_ARCHIVE 36 INTERNET_ARCHIVE: webpage for this product https://archive.org/details/a5a08fcc-4060-4738-abe7-c93ec292e390 29 INTERNET_ARCHIVE: download the title https://archive.org/download/a5a08fcc-4060-4738-abe7-c93ec292e390/a5a08fcc-4060-4738-abe7-c93ec292e390.pdf 20 08 20241211 01 09 Open Book Publishers 02 Publisher's website: webpage for this product https://www.openbookpublishers.com/books/10.11647/obp.0434 29 Publisher's website: download the title https://books.openbookpublishers.com/10.11647/obp.0434.pdf 20 08 20241211 01 urn:uuid:28d352eb-9b41-4023-89f6-a1448f33eecc 03 01 01 thoth-work-id urn:uuid:a5a08fcc-4060-4738-abe7-c93ec292e390 01 thoth-publication-id urn:uuid:28d352eb-9b41-4023-89f6-a1448f33eecc 15 9781805114420 03 9781805114420 06 10.11647/OBP.0434 13 2023513492 23 1478292248 00 EB E105 10 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ 10 01 Series ID 85c48355-467d-436d-90c9-fe97626c22c8 02 23996676 01 Series URL https://www.openbookpublishers.com/series/2399-6676 03 13 01 02 Open Reports Series 01 01 Investing in the Structural Transformation 2024 European Public Investment Outlook 1 B01 21 000000019972716X Floriana Cerniglia Floriana Cerniglia Full Professor of Economics 40 03h7r5v07 Università Cattolica del Sacro Cuore Floriana Cerniglia is a Full Professor of Economics at Università Cattolica del Sacro Cuore (Milan) and Director of CRANEC (Centro di ricerche in analisi economica e sviluppo economico internazionale). She is the Co-Editor-in-Chief of Economia Politica (Journal of Analytical and Institutional Economics). She received her PhD from the University of Warwick (UK) and her research interests are in public economics and in macroeconomic policies. She has published in leading international journals and she has coordinated and participated in a number of peer-reviewed research projects. 2 B01 21 0000000301214329 Francesco Saraceno Francesco Saraceno Deputy Department Director at OFCE 40 05fe7ax82 Sciences Po, Paris Francesco Saraceno is Deputy Department Director at OFCE, the research centre in economics at Sciences Po in Paris, and Professor of Practice at LEAP-Luiss, Rome. He holds PhDs in Economics from Columbia University and the Sapienza University of Rome. His research focuses on the relationship between inequality, macroeconomic performance, and European macroeconomic policies. From 2000 to 2002 he was a member of the Council of Economic Advisors for the Italian Prime Minister’s Office. He teaches international and European macroeconomics at Sciences Po, where he manages the Economics concentration of the Master’s in European Affairs, and in Rome (Luiss). He is Academic Director of the Sciences Po-Northwestern European Affairs Program. He advises the International Labour Organization (ILO) on macroeconomic policies for employment and participates in IMF training programmes on fiscal policy. 01 eng 00 210 03 09 44 11 10 10 BUS039000 B2 Economics 04 HD3616.E8 93 LBBM3 10 BUS051000 B2 European Studies 93 KCB 93 1D 10 BUS068000 B2 Politics and Sociology 10 BUS032000 10 POL024000 20 Public investment; Structural transformation; European economy; Fiscal policy; Sustainable growth 01 06 02 00 The fifth volume in the European Public Investment Outlook series explores how Europe can drive structural transformation through strategic public investment. Reflecting on the lessons from the 2008–2020 polycrisis and recent economic challenges, this timely book examines fiscal policy's role in both stabilization and long-term economic devel 03 00 The fifth volume in the European Public Investment Outlook series explores how Europe can drive structural transformation through strategic public investment. Reflecting on the lessons from the 2008–2020 polycrisis and recent economic challenges, this timely book examines fiscal policy's role in both stabilization and long-term economic development.Part I, ‘State of the Art’, reviews current public investment and industrial policies in major European economies, including France, Germany, Italy, and Spain. It provides detailed analyses of each country's approach to fostering structural transformation through public investment.Part II, ‘Challenges’, addresses the diverse obstacles and opportunities facing Europe’s industrial policy. It emphasizes a multidimensional strategy to overcome bottlenecks in key sectors and drive transformation. Topics include the role of industrial policy in the green transition, creating a cohesive strategy for Europe, enhancing economic security, trends in European Union defence spending, sustainable mobility, and financing structural investment beyond 2027.This volume is essential reading for researchers, economists, and policymakers focused on understanding and implementing effective public policy in Europe, and will further appeal to anyone interested in EU governance and public investment strategies more broadly. 30 00 The fifth volume in the European Public Investment Outlook series explores how Europe can drive structural transformation through strategic public investment. Reflecting on the lessons from the 2008–2020 polycrisis and recent economic challenges, this timely book examines fiscal policy's role in both stabilization and long-term economic development.Part I, ‘State of the Art’, reviews current public investment and industrial policies in major European economies, including France, Germany, Italy, and Spain. It provides detailed analyses of each country's approach to fostering structural transformation through public investment.Part II, ‘Challenges’, addresses the diverse obstacles and opportunities facing Europe’s industrial policy. It emphasizes a multidimensional strategy to overcome bottlenecks in key sectors and drive transformation. Topics include the role of industrial policy in the green transition, creating a cohesive strategy for Europe, enhancing economic security, trends in European Union defence spending, sustainable mobility, and financing structural investment beyond 2027.This volume is essential reading for researchers, economists, and policymakers focused on understanding and implementing effective public policy in Europe, and will further appeal to anyone interested in EU governance and public investment strategies more broadly. 04 00 List of Figures List of Tables Acknowledgements Preface Introduction PART I—STATE OF THE ART 1. Public Investment and Industrial Policy: A Case for More European Union Coordination 2. Public Investment and Industrial Policy in France 3. Germany: Additional Investment Needs Require Reform of the Debt Brake 4. Italy, NRRP, and Industrial Policy 5. Public Investment and Structural Transformation in Spain PART II—CHALLENGES 6. A New Industrial Policy as the Key to the Green Transition 7. A “True” Industrial Policy for Europe is a Technology and Innovation Policy 8. Industrial Policy and Security. The European Union and the Double Challenge: Strengthening Competitiveness and Enhancing Economic Security 9. Trends in Defence Spending in the European Union 10. Sustainable Mobility and Industrial Policy 11. Financing Structural Investment after 2027 Contributor Biographies 20 00 Open Access 01 00 03 02 https://books.openbookpublishers.com/10.11647/obp.0434_frontcover.jpg 1 03 06 10.11647/obp.0434.00 1 2 2 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 Preface 1 A01 21 0000000178327458 Alberto Quadrio Curzio Alberto Quadrio Curzio 2 A01 Xavier Ragot Xavier Ragot 01 eng 20 00 Open Access Alberto Quadrio Curzio Xavier Ragot; 2 03 06 10.11647/obp.0434.01 3 9 7 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 Introduction 1 A01 21 000000019972716X Floriana Cerniglia Floriana Cerniglia Full Professor of Economics 40 03h7r5v07 Università Cattolica del Sacro Cuore Floriana Cerniglia is a Full Professor of Economics at Università Cattolica del Sacro Cuore (Milan) and Director of CRANEC (Centro di ricerche in analisi economica e sviluppo economico internazionale). She is the Co-Editor-in-Chief of Economia Politica (Journal of Analytical and Institutional Economics). She received her PhD from the University of Warwick (UK) and her research interests are in public economics and in macroeconomic policies. She has published in leading international journals and she has coordinated and participated in a number of peer-reviewed research projects. 2 A01 21 0000000301214329 Francesco Saraceno Francesco Saraceno Deputy Department Director at OFCE 40 05fe7ax82 Sciences Po, Paris Francesco Saraceno is Deputy Department Director at OFCE, the research centre in economics at Sciences Po in Paris, and Professor of Practice at LEAP-Luiss, Rome. He holds PhDs in Economics from Columbia University and the Sapienza University of Rome. His research focuses on the relationship between inequality, macroeconomic performance, and European macroeconomic policies. From 2000 to 2002 he was a member of the Council of Economic Advisors for the Italian Prime Minister’s Office. He teaches international and European macroeconomics at Sciences Po, where he manages the Economics concentration of the Master’s in European Affairs, and in Rome (Luiss). He is Academic Director of the Sciences Po-Northwestern European Affairs Program. He advises the International Labour Organization (ILO) on macroeconomic policies for employment and participates in IMF training programmes on fiscal policy. 01 eng 20 00 Open Access Floriana Cerniglia Francesco Saraceno; 34 06 10.11647/obp.0328.08 34 01 Unstructured citation Blanchard, O. J. (2016) “Rethinking Macro Policy: Progress or Confusion?”, in O. J. Blanchard et al. (eds), Progress and Confusion: The State of Macroeconomic Policy, pp. 287–290. Cambridge, MA: MIT Press. 34 01 Unstructured citation Blot, C., J. Créel, H. Kempf, S. Levasseur, X. Ragot, and F. Saraceno (2024) “Sailing in All Weather Conditions the Next 25 Years: Challenges for the Euro”, Paper Presented at the European Parliament ECON Committee Monetary Dialogue, February, https://www.europarl.europa.eu/thinktank/en/document/IPOL_STU(2024)747835 34 06 10.11647/obp.0386.11 34 06 10.11647/obp.0328 34 06 10.11647/obp.0386 34 01 Unstructured citation Draghi, M. (2024) The Future of European Competitiveness. Brussels: European Commission, https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en 34 06 10.11647/obp.0280.07 34 06 10.11647/obp.0222.07 34 01 Unstructured citation Holston, K., T. Laubach, and J. C. Williams (2023) “Measuring the Natural Rate of Interest after COVID-19”, Federal Reserve Bank of New York Staff Report 1063 (June), https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr1063.pdf 34 01 Unstructured citation Lucas, R. E. (2003) “Macroeconomic Priorities”, American Economic Review 93(1): 1–14. 34 01 Unstructured citation Mazzucato, M. (2013) The Entrepreneurial State. London: Anthem Press. 34 01 Unstructured citation Platzer, J., and M. Peruffo (2022) “Secular Drivers of the Natural Rate of Interest in the United States: A Quantitative Evaluation”, IMF Working Papers 2022(030), https://www.imf.org/en/Publications/WP/Issues/2022/02/11/Secular-Drivers-of-the-Natural-Rate-of-Interest-in-the-United-States-A-Quantitative-512755 34 01 Unstructured citation Saraceno, F. (2023) Oltre Le Banche Centrali. Inflazione, Distribuzione e Politiche Economiche. Rome: Luiss University Press. 3 03 06 10.11647/obp.0434.02 13 30 18 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 1. Public Investment and Industrial Policy A Case for More European Union Coordination 1 A01 21 0000000269174194 Andrea Brasili Andrea Brasili Senior Economist 40 03zxry661 European Investment Bank Andrea Brasili is a Senior Economist at the EIB (Luxembourg) where his research interests are both micro (firm level) data analysis and macroeconomic developments, in particular those related to fiscal policy. He received his PhD in Public Economics from the University of Pavia (Italy). Before joining the EIB, he worked in the private sector (in Italian banks and asset management companies) as a research economist, whilst still collaborating with academia. 2 A01 21 000000016940380X Tuna Dökmeci Tuna Dökmeci PhD candidate in Economics 40 0031wrj91 European University Institute Tuna Dökmeci is a PhD candidate in Economics at European University Institute (Italy), and a trainee at the EIB (Luxembourg). Her research focuses on industrial policy, industrial organization, and competition policy. 3 A01 Atanas Kolev Atanas Kolev Principal Advisor at the Economics Department 40 03zxry661 European Investment Bank Atanas Kolev is Principal Advisor at the Economics Department of the EIB. He has worked on a wide range of topics related to investment and investment financing at the firm-, sector-, and economy-wide levels. He has been an organiser and contributor to the annual economics conference of the EIB on topics like economic and social cohesion, investment in the energy sector, adaptation to climate change, public investment, and infrastructure investment. Atanas Kolev is currently a coordinator, reviewer, and economics editor for the EIB Annual Investment Report. He holds an Economics PhD from Universitat Autònoma de Barcelona. 4 A01 21 0000000281939399 Debora Revoltella Debora Revoltella Director of the Economics Department 40 03zxry661 European Investment Bank Debora Revoltella has been Director of the Economics Department of the European Investment Bank since April 2011. The Department comprises thirty economists and provides economic analysis and studies to support the bank in defining its policies and strategies. Before joining the EIB, Debora worked for many years at CESEE, was head of the research department in COMIT, and later worked as Chief Economist for CESEE in UniCredit. Debora holds a PhD in Economics and has also worked as Adjunct Professor at Bocconi University. She is a member of the Steering Committees of the Vienna Initiative and CompNet, an alternate member of the Board of the Joint Vienna Institute, and a member of the boards of SUERF and the Euro 50 Group. 5 A01 21 0000000270067740 Jochen Schanz Jochen Schanz Senior Economist 40 03zxry661 European Investment Bank Jochen Schantz is Senior Economist at the European Investment Bank. After completing a PhD in game theory at the European University Institute, he worked at Lehman Brothers, the Bank of England, and the Bank for International Settlements on monetary and financial stability. At the European Investment Bank, he focuses on public investment and human capital. 6 A01 21 0009000575440400 Annamaria Tueske Annamaria Tueske Economist at the Economics Department 40 03zxry661 European Investment Bank Annamaria Tueske is an Economist at the Economics Department of the EIB. Her current work focuses on public investment, climate and energy economics and sustainable finance. Prior to joining the EIB, Annamaria worked at the University of Luxembourg, at the OECD and at the Fiscal Council of Hungary. Her academic training focused on industrial organization, networks, and transport economics, she graduated from the Toulouse School of Economics. 7 A01 21 0000000295108991 Wouter Van Der Wielen Wouter Van Der Wielen Economist in the Economics Department 40 03zxry661 European Investment Bank Wouter Van Der Wielen is an Economist in the Economics Department of the European Investment Bank (EIB). He is responsible for impact studies of public and private sector policy support schemes and contributes macroeconomic analyses to the EIB’s f lagship publications, such as the EIB Investment Report. Prior to joining the EIB, he worked as an economic analyst at the European Commission’s Joint Research Centre, where he was principally responsible for the research developing macro-fiscal models accounting for output and employment effects of fiscal reforms. His main areas of expertise are macroeconomics, fiscal policy and labour economics. He holds a PhD in Economics as well as an MSc of Advanced Studies in Economics from KU Leuven. 01 eng 03 00 Europe needs more investment. Speeding up the climate transition and relaunching EU innovation capabilities require special efforts. Coupled with strategic autonomy and the need to secure stable and clean energy sources, these issues highlight the increasing importance of European public goods (EPGs) and policies that extend beyond national boundaries, as they involve externalities and network effects. However, Europe’s current institutional structure and mechanisms may struggle to meet this challenge. This essay examines public investment trends in the EU, arguing that while public investments have increased, greater coordination and coherence are needed. Three critical axes are identified: the provision of EPGs, policy coordination at national levels, and sufficient funding. Improving the coordination of public investment, particularly in research and development (R&D) and the climate transition, is key to unlocking Europe’s full potential. This chapter emphasizes the importance of initiatives like Important Projects of Common European Interest (IPCEIs) in fostering collaboration across countries and sectors, but argues for expanded and more integrated efforts moving forward. 30 00 Europe needs more investment. Speeding up the climate transition and relaunching EU innovation capabilities require special efforts. Coupled with strategic autonomy and the need to secure stable and clean energy sources, these issues highlight the increasing importance of European public goods (EPGs) and policies that extend beyond national boundaries, as they involve externalities and network effects. However, Europe’s current institutional structure and mechanisms may struggle to meet this challenge. This essay examines public investment trends in the EU, arguing that while public investments have increased, greater coordination and coherence are needed. Three critical axes are identified: the provision of EPGs, policy coordination at national levels, and sufficient funding. Improving the coordination of public investment, particularly in research and development (R&D) and the climate transition, is key to unlocking Europe’s full potential. This chapter emphasizes the importance of initiatives like Important Projects of Common European Interest (IPCEIs) in fostering collaboration across countries and sectors, but argues for expanded and more integrated efforts moving forward. 20 00 Open Access Andrea Brasili Tuna Dokmeci Atanas Kolev Debora Revoltella Jochen Schanz Annamaria Tueske Wouter Van Der Wielen; 34 01 Unstructured citation Buti M., A. Coloccia, and M. Messori (2023) “European Public Goods”, June 9, CEPR, https://cepr.org/voxeu/columns/european-public-goods 34 01 Unstructured citation Bergeaud, A. (2024) “The Past Present and Future of EU Productivity”, Prepared for the ECB Central Banking Forum, July 2024, https://www.ecb.europa.eu/pub/pdf/sintra/ecb.forumcentbankpub2024_Bergeaud_paper.en.pdf 34 06 10.11647/obp.0386 34 01 Unstructured citation Demertzis, M., D. Pinkus, and N. Ruer (2024) “Accelerating Strategic Investment in the European Union beyond 2026”, Bruegel Report, January 24, https://www.bruegel.org/system/files/2024-01/Report 01 2024.pdf 34 01 Unstructured citation Draghi, M. (2023) “The Next Flight of the Bumblebee: The Path to Common Fiscal Policy in the Eurozone”, 15th Annual Feldstein Lecture at the NBER Summer Institute 2023 in Cambridge, October 10, NBER, https://www.nber.org/reporter/2023number3/next-flight-bumblebee-path-common-fiscal-policy-eurozone 34 01 Unstructured citation Draghi, M. (2024) The Future of European Competitiveness. Brussels: European Commission, https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en 34 01 Unstructured citation European Commission (2020) “A New Industrial Strategy for Europe”, COM(2020) 102, March 10, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52020DC0102 34 01 Unstructured citation European Commission (2021) “Updating the 2020 New Industrial Strategy: Building a stronger Single Market for Europe’s recovery”, SWD(2021) 352, May 5, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52021SC0352 34 01 Unstructured citation European Commission (2022) “Framework for State Aid for Research and Development and Innovation”, 2022/C 414/01, October 28, https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=OJ%3AC%3A2022%3A414%3AFULL#:~:text=This Framework provides guidance on,)(c) of the Treaty. 34 01 Unstructured citation Fuest, C., and J. Pisani-Ferry (2019) “A Primer on Developing European Public Goods (A Report to Ministers Bruno Le Maire and Olaf Scholz)”, November 3, https://www.bruegel.org/sites/default/files/wp-content/uploads/2019/11/European-public-goods-primer.pdf 34 01 Unstructured citation Letta, E. (2024) Much More Than a Market, https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf 34 01 Unstructured citation Nicolaides, P. (2018) “State Aid and EU Funding: Are They Compatible?”, In-Depth Analysis Requested by the CONT Committee, Policy Department for Budgetary Affairs, April, https://www.europarl.europa.eu/cmsdata/142819/Briefing_State Aid and EU funding_Final.pdf 34 01 Unstructured citation Wyplosz, C. (2024) “Which European Public Goods?”, IPOL | Economic Governance and EMU Scrutiny Unit, March, https://www.europarl.europa.eu/RegData/etudes/IDAN/2024/755722/IPOL_IDA(2024)755722_EN.pdf 34 01 Unstructured citation Von der Leyen, U. (2024) “Statement at the European Parliament Plenary by President Ursula von der Leyen, Candidate for a Second Mandate 2024–2029”, European Commission, https://ec.europa.eu/commission/presscorner/detail/ov/STATEMENT_24_3871 4 03 06 10.11647/obp.0434.03 31 44 14 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 2. Public Investment and Industrial Policy in France 1 A01 21 0009000979785667 Vincent Charlet Vincent Charlet Vincent Charlet is the Executive Director of La Fabrique de l’industrie, a think tank he contributed to launch in 2011. Supported by the French manufacturers’ associations, co-chaired by Louis Gallois (former president of Stellantis, former CEO of Airbus Group) and Pierre-André de Chalendar (former CEO of Saint-Gobain), La Fabrique de l’industrie publishes robust studies on the performance, transformations, and assets of industrial companies and on the professional trajectories of their employees. After training as an engineer, Vincent Charlet devoted himself to the analysis of public systems and the management of change. He first participated in initiatives aimed at renovating the research and innovation system in France (evaluation, construction of indicators, foresight). He notably led the FutuRIS project, a prospective operation supported equally by major private R&D players, public research establishments. and the State, from 2006 to 2011. 2 A01 Mathieu Plane Mathieu Plane Deputy Director of the Analysis and Forecasting Department at the OFCE Research Center in Economics 40 05fe7ax82 Sciences Po, Paris Mathieu Plane is a Deputy Director of the Analysis and Forecasting Department at the OFCE Research Center in Economics, Sciences Po, Paris. He is in charge of economic forecasts for the French economy and works on economic policy issues. He teaches at Sciences Po, Paris and at the University of Paris Pantheon-Sorbonne. He was, in 2013–2014, economic advisor to the Ministers of Economy, Industry, and the Digital Sector. He has recently published, in collaboration with other authors of OFCE, 25 Years of Monetary Union: The Eurozone through Its Crises; Growth Up Against Fiscal Recovery: Economic Outlook for the French Economy 2024–2025, and French Economy 2025 by Éditions La Découverte, Repères collection. 3 A01 21 0000000301214329 Francesco Saraceno Francesco Saraceno Deputy Department Director at OFCE 40 05fe7ax82 Sciences Po, Paris Francesco Saraceno is Deputy Department Director at OFCE, the research centre in economics at Sciences Po in Paris, and Professor of Practice at LEAP-Luiss, Rome. He holds PhDs in Economics from Columbia University and the Sapienza University of Rome. His research focuses on the relationship between inequality, macroeconomic performance, and European macroeconomic policies. From 2000 to 2002 he was a member of the Council of Economic Advisors for the Italian Prime Minister’s Office. He teaches international and European macroeconomics at Sciences Po, where he manages the Economics concentration of the Master’s in European Affairs, and in Rome (Luiss). He is Academic Director of the Sciences Po-Northwestern European Affairs Program. He advises the International Labour Organization (ILO) on macroeconomic policies for employment and participates in IMF training programmes on fiscal policy. 01 eng 03 00 This chapter first traces the long-term evolution of public investment in France, noting how this is mostly channelled through local governments and how, while comparatively high with respect to other advanced economies, the public capital stock and the general government net wealth have been steadily decreasing since the Global Financial Crisis of 2008. After the COVID-19 shock, despite the 2021 “Plan de Relance” and the 2022 “Build the France of 2030” program, public investment has remained surprisingly flat. The chapter then discusses the recent evolutions in French industrial policy objectives. The Lisbon Strategy was centred on boosting productivity through innovation and climbing the value added ladder. The response to the crisis of 2008 marks a first change, with a strong emphasis on price competitiveness and cost reduction (including through corporate tax reduction). Since the early days of the pandemics, then, the notion of “industrial sovereignty” has very quickly eclipsed that of competitiveness, with policies aimed at reindustrialization especially in strategic sectors. The chapter concludes that these frequent changes indicate an excessive short-term focus among French policy makers, incompatible with managing long-term structural transformation. 30 00 This chapter first traces the long-term evolution of public investment in France, noting how this is mostly channelled through local governments and how, while comparatively high with respect to other advanced economies, the public capital stock and the general government net wealth have been steadily decreasing since the Global Financial Crisis of 2008. After the COVID-19 shock, despite the 2021 “Plan de Relance” and the 2022 “Build the France of 2030” program, public investment has remained surprisingly flat. The chapter then discusses the recent evolutions in French industrial policy objectives. The Lisbon Strategy was centred on boosting productivity through innovation and climbing the value added ladder. The response to the crisis of 2008 marks a first change, with a strong emphasis on price competitiveness and cost reduction (including through corporate tax reduction). Since the early days of the pandemics, then, the notion of “industrial sovereignty” has very quickly eclipsed that of competitiveness, with policies aimed at reindustrialization especially in strategic sectors. The chapter concludes that these frequent changes indicate an excessive short-term focus among French policy makers, incompatible with managing long-term structural transformation. 20 00 Open Access Vincent Charlet Mathieu Plane Francesco Saraceno 34 01 Unstructured citation Blot, C., J. Créel, H. Kempf, S. Levasseur, X. Ragot, and F. Saraceno (2024) “Sailing in All Weather Conditions the Next 25 Years: Challenges for the Euro”, Paper Prepared for the European Parliament ECON Committee Monetary Dialogue, February. 34 06 10.11647/obp.0222.01 34 01 Unstructured citation Charlet, V. (2024) Ce que l’industrie attend des banques. Paris: Presses des Mines. 34 01 Unstructured citation European Commission (2023) “EU Budget: Commission Proposes Strategic Technologies for Europe Platform (STEP) to Support European Leadership on Critical Technologies”, European Commission. 34 01 Unstructured citation Pisani-Ferry, J., and S. Mahfouz (2023) “Les Incidences Économiques de l’action Pour Le Climat”, May 22, France Strategie, Rapport à La Première Ministre, https://www.strategie.gouv.fr/publications/incidences-economiques-de-laction-climat 34 06 10.11647/obp.0280.02 34 01 Unstructured citation Von der Leyen, U. (2022) “State of the Union”, 14 September, European Commission, https://state-of-the-union.ec.europa.eu/state-union-2022_en 34 01 Unstructured citation White House (2023) Building a Clean Energy Economy: A Guidebook to the Inflation Reduction Act’s Investments in Clean Energy and Climate Action. Washington, DC: The White House, https://www.whitehouse.gov/wp-content/uploads/2022/12/Inflation-Reduction-Act-Guidebook.pdf 5 03 06 10.11647/obp.0434.04 45 58 14 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 3. Germany Additional Investment Needs Require Reform of the Debt Brake 1 A01 Katja Rietzler Katja Rietzler Head of the Unit of Fiscal Policy at the Macroeconomic Policy Institute (IMK) 40 022b5tw91 Hans-Böckler Foundation Katja Rietzler is Head of the Unit of Fiscal Policy at the Macroeconomic Policy Institute (IMK), part of the Hans-Böckler Foundation. She holds a PhD from the Freie Universität, Berlin. Among other topics, her research focuses on fiscal issues of the municipalities, the German tax-system, public investment needs, and fiscal rules. In addition, she is a member of the IMK’s modelling team. As an expert she regularly participates in parliamentary hearings on issues such as tax legislation, annual budgets, or the debt brake and its implementation. 2 A01 Andrew Watt Andrew Watt General Director 40 00r5yyv69 European Trade Union Institute Andrew Watt is General Director, European Trade Union Institute (ETUI), and former Head of the Unit of European Economic Policy at the Macroeconomic Policy Institute (IMK), part of the Hans-Böckler Foundation. He holds a PhD from the University of Hamburg. His main research fields are European economic and employment policy and comparative political economy, with a particular interest in the interaction between wage-setting and macroeconomic policy. Recent work has focused on reform of the economic governance of the euro area, emphasizing the need to coordinate monetary, fiscal, and wage policy in order to achieve balanced growth and favourable employment outcomes. He has served as advisor to numerous European and national institutions, including the European. 01 eng 03 00 In recent quarters, German public investment has increased slightly in real terms. However, this development is driven largely by special effects such as the reclassification of public transport companies and increased military spending. Additional investment needs are estimated to be as high as 1.4% of GDP, and cannot be met without a substantial reform of the debt brake. Economists have recently come up with numerous reform proposals, but there is still no political majority for a reform. While European fiscal rules do not require much f iscal tightening in Germany, they do constrain the use of credit to finance the necessary additional public investment. Instead of a big push, the more likely scenario is continued incremental progress, or “muddling through”. 30 00 In recent quarters, German public investment has increased slightly in real terms. However, this development is driven largely by special effects such as the reclassification of public transport companies and increased military spending. Additional investment needs are estimated to be as high as 1.4% of GDP, and cannot be met without a substantial reform of the debt brake. Economists have recently come up with numerous reform proposals, but there is still no political majority for a reform. While European fiscal rules do not require much f iscal tightening in Germany, they do constrain the use of credit to finance the necessary additional public investment. Instead of a big push, the more likely scenario is continued incremental progress, or “muddling through”. 20 00 Open Access Katja Rietzler Andrew Watt; 34 01 Unstructured citation Bardt, H., S. Dullien, M. Hüther, and K. Rietzler (2020) “For a Sound Fiscal Policy: Enabling Public Investment”, IMK Report 152e, March, https://www.imk-boeckler.de/fpdf/HBS-007619/p_imk_report_152e_2020.pdf 34 01 Unstructured citation Braun, H. (2021). “Das ist der Plan für Deutschland nach Corona”, Handelsblatt, January 26, https://www.handelsblatt.com/meinung/gastbeitraege/gastkommentar-das-ist-der-plan-fuer-deutschland-nach-corona/26850508.html 34 01 Unstructured citation Bundesministerium der Finanzen, BMF (2024a) “Vorläufiger Abschluss des Bundeshaushalts 2023”, Monatsbericht des BMF, January, https://www.bundesfinanzministerium.de/Monatsberichte/2024/01/Inhalte/Kapitel-3-Analysen/3-2-vorlaeufiger-abschluss-bundeshaushalt-2023.html 34 01 Unstructured citation Bundesministerium der Finanzen, BMF (2024b) “Abweichungen des Ergebnisses der Steuerschätzung Oktober 2024 vom Ergebnis der Steuerschätzung Mai 2024 ”, Anlage 2 zu Pressemitteilung 15 des BMF, https://www.bundesfinanzministerium.de/Content/DE/Downloads/Steuern/ergebnis-167-steuerschaetzung-02.pdf?__blob=publicationFile&v=6 34 01 Unstructured citation Bundesrechnungshof (2023) “Bericht nach § 88 Absatz 2 BHO an das Bundesministerium der Finanzen zur Steuerung und Kontrolle der Umsetzung des Deutschen Aufbau- und Resilienzplans”, Bonn, December 8, https://www.bundesrechnungshof.de/SharedDocs/Downloads/DE/Berichte/2024/umsetzung-darp-volltext.pdf?__blob=publicationFile&v=3 34 01 Unstructured citation Darvas, Z., L. Welslau, and J. Zettelmeyer (2024) “The Implications of the European Union’s New Fiscal Rules”, Policy Brief 10/24, https://www.bruegel.org/system/files/2024-07/PB 10 2024.pdf 34 01 Unstructured citation Dullien, S., T. Bauermann, L. Endres, A. Herzog-Stein, K. Rietzler, and S. Tober (2024a) “Schuldenbremse reformieren, Transformation beschleunigen. Wirtschaftspolitische Herausforderungen 2024”, IMK Report 187, January, https://www.econstor.eu/bitstream/10419/283062/1/p-imk-report-187-2024.pdf 34 01 Unstructured citation Dullien, S., S. Gerards-Iglesias, M. Hüther, and K. Rietzler (2024b) “Herausforderungen für die Schuldenbremse. Investitionsbedarfe in der Infrastruktur und für die Transformation”, IMK Policy Brief 168, https://econpapers.repec.org/paper/imkpbrief/168-2024.htm 34 06 10.11647/obp.0222.03 34 01 Unstructured citation Deutsche Bundesbank (2022) “Die Schuldenbremse des Bundes: Möglichkeiten einer stabilitätsorientierten Weiterentwicklung”, Deutsche Bundesbank, Monatsbericht, April. 34 01 Unstructured citation European Commission (2024a) “European Economic Forecast Spring 2024’, Institutional Paper 286, May, https://economy-finance.ec.europa.eu/document/download/c63e0da2-c6d6-4d13-8dcb-646b0d1927a4_en?filename=ip286_en.pdf 34 01 Unstructured citation European Commission (2024b) “2024 Country Report – Germany”, Commission Staff Working Document, SWD(2024) 605, June 19, https://economy-finance.ec.europa.eu/document/download/0826d6c6-4c97-44be-8b9e-1a0b5c4361c8_en?filename=SWD_2024_605_1_EN_Germany.pdf 34 01 Unstructured citation Fuest, C., M. Hüther, and J. Südekum (2024) “Folgen des Verfassungsurteils: Investitionen schützen. Vorteile eines Sondervermögens”, Frankfurter Allgemeine Zeitung, January 12, https://www.faz.net/aktuell/wirtschaft/folgen-des-haushaltsurteils-investitionen-schuetzen-19440915.html 34 01 Unstructured citation Hentze, T., and B. Kauder (2024) “Reformansätze für die Schuldenbremse”, ifo Schnelldienst 2/2024, 13–15, https://www.ifo.de/DocDL/sd-2024-02-haushaltspolitik-reform-schuldenbremse.pdf 34 01 Unstructured citation Hüther, M. (2024) “Ein gesamtstaatlicher »Transformations- und Infrastrukturfonds« zur Stabilisierung der Schuldenbremse”, Wirtschaftsdienst 104(1): 14–20. 34 01 Unstructured citation International Monetary Fund, IMF (2023) “Germany. Staff Report for the 2023 Article IV Consultation”, June 28, IFO, https://www.imf.org/-/media/Files/Publications/CR/2023/English/1DEUEA2023001.ashx 34 01 Unstructured citation Paetz, C., and S. Watzka (2024) “The New Fiscal Rules: Another Round of Austerity for Europe?”, IMK Policy Brief 176. 34 01 Unstructured citation Raffer, C., and H. Scheller (2024) KfW Kommunalpanel 2024. Frankfurt am Main: Kreditanstalt für Wiederaufbau, https://www.kfw.de/PDF/Download-Center/Konzernthemen/Research/PDF-Dokumente-KfW-Kommunalpanel/KfW-Kommunalpanel-2024.pdf 34 06 10.11647/obp.0280.03 34 06 10.11647/obp.0328.03 34 06 10.11647/obp.0386.03 34 01 Unstructured citation Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, SVR (2024) “Die Schuldenbremse nach dem BVerfG-Urteil: Flexibilität erhöhen – Stabilität wahren”, Policy Brief 1/2024, https://www.sachverstaendigenrat-wirtschaft.de/fileadmin/dateiablage/PolicyBrief/pb2024/Policy_Brief_2024_01.pdf 34 01 Unstructured citation Wissenschaftlicher Beirat beim BMWK (2023) Finanzierung von Staatsaufgaben: Herausforderungen und Empfehlungen für eine nachhaltige Finanzpolitik, Gutachten des Wissenschaftlichen Beirats beim Bundesministerium für Wirtschaft und Klimaschutz (BMWK). Berlin: BMWK, https://www.bmwk.de/Redaktion/DE/Publikationen/Ministerium/Veroeffentlichung-Wissenschaftlicher-Beirat/gutachten-wissenschaftlicher-beirat-finanzierung-von-staatsaufgaben.pdf?__blob=publicationFile&v=14 6 03 06 10.11647/obp.0434.05 59 76 18 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 4. Italy, NRRP, and Industrial Policy 1 A01 21 0000000302218057 Giovanni Barbieri Giovanni Barbieri Research Fellow at CRANEC (Centro di ricerche in analisi economica e sviluppo economico internazionale—Research Center in Economic Analysis and International Economic Development) 40 03h7r5v07 Università Cattolica del Sacro Cuore Giovanni Barbieri is a Research Fellow at CRANEC at Università Cattolica del Sacro Cuore. He holds a PhD in Institutions and Policies (2017, Università Cattolica del Sacro Cuore, Milano). He was previously Adjunct Professor of History of International and Commercial Institutions at the University of Palermo (DEMS) and Visiting Scholar at Scuola Normale’s ‘Istituto Ciampi’ in Florence (2022). His main expertises are International Relations Theory and International Political Economy (IPE). 2 A01 21 000000019972716X Floriana Cerniglia Floriana Cerniglia Full Professor of Economics 40 03h7r5v07 Università Cattolica del Sacro Cuore Floriana Cerniglia is a Full Professor of Economics at Università Cattolica del Sacro Cuore (Milan) and Director of CRANEC (Centro di ricerche in analisi economica e sviluppo economico internazionale). She is the Co-Editor-in-Chief of Economia Politica (Journal of Analytical and Institutional Economics). She received her PhD from the University of Warwick (UK) and her research interests are in public economics and in macroeconomic policies. She has published in leading international journals and she has coordinated and participated in a number of peer-reviewed research projects. 3 A01 Franco Mosconi Franco Mosconi Jean Monnet Professor of Industrial Economics 40 02k7wn190 Università di Parma Franco Mosconi is the Jean Monnet Professor of Industrial Economics at the University of Parma. He is a columnist for the Corriere di Bologna, the Bologna-based daily newspaper of Corriere della Sera. His research areas include European industrial policy and Industrial districts and clusters, topics on which he has extensively published in both national and international literature. 01 eng 03 00 This chapter assesses the National Recovery and Resilience Plan (NRRP) as an industrial policy tool within the Next Generation EU framework, despite limited explicit reference to an industrial strategy. The NRRP emerges during a unique moment for the European Union (EU), characterized by the suspension of the Stability and Growth Pact and the relaxation of state aid restrictions, which have collectively expanded public intervention opportunities. This marks a significant shift from the post-1990s ideological emphasis on competition over state involvement, particularly in Italy, where reductions in capital expenditure since 2009 have constrained public infrastructure and private investment. This chapter delves into the current landscape highlighting the potential for a more effective approach to industrial strategy using public investment. By focusing on “Mission 1” (Competitiveness) and “Mission 4” (Education and Research), the chapter aims to elucidate the NRRP’s industrial policy direction including reinforcing the special economic zones (SEZs) established in 2017. 30 00 This chapter assesses the National Recovery and Resilience Plan (NRRP) as an industrial policy tool within the Next Generation EU framework, despite limited explicit reference to an industrial strategy. The NRRP emerges during a unique moment for the European Union (EU), characterized by the suspension of the Stability and Growth Pact and the relaxation of state aid restrictions, which have collectively expanded public intervention opportunities. This marks a significant shift from the post-1990s ideological emphasis on competition over state involvement, particularly in Italy, where reductions in capital expenditure since 2009 have constrained public infrastructure and private investment. This chapter delves into the current landscape highlighting the potential for a more effective approach to industrial strategy using public investment. By focusing on “Mission 1” (Competitiveness) and “Mission 4” (Education and Research), the chapter aims to elucidate the NRRP’s industrial policy direction including reinforcing the special economic zones (SEZs) established in 2017. 20 00 Open Access Giovanni Barbieri Floriana Cerniglia Franco Mosconi; 34 06 10.1007/s10842-019-00322-3 34 01 Unstructured citation Andreoni, A. (2017) “Strategies for Emerging Technologies and Strategic Sectors: Evidence from OECD Countries and Some Critical Reflections on the Italian Case”, L’Industria. Rivista di Economia e Politica Industriale 1: 3–14, https://doi.org/10.1430/87136 34 01 Unstructured citation Barbieri, G., and S. J. Gahn (2023) “Le piattaforme tecno-scientifiche europee: sviluppi recenti in Italia”, in A. Quadrio Curzio, A. Silvani, M. Fortis, and F. Cerniglia (eds) (2023) Le piattaforme tecnico-scientifiche in Europa. Ricerca, economia, innovazione. Bologna: Il Mulino, Collana Fondazione Edison, pp. 297–318. 34 06 10.11647/obp.0328.04 34 01 Unstructured citation Barbieri, G., F. Cerniglia, and F. Mosconi (2024) “Italy and Industrial Policy at the Time of the NRRP”, CRANEC Working Paper 01/2024, https://centridiricerca.unicatt.it/cranec-home-pubblicazioni-22134 34 06 10.1080/09538259.2024.2368210 34 01 Unstructured citation Barbini, M., et al. (2024) “L’anno della crescita differenziata. Le regioni italiane nel 202”, Informazioni Svimez 4. 34 01 Unstructured citation Bianchi, P., and S. Labory (2016) Towards a New Industrial Policy. Milan: McGraw-Hill Education. 34 01 Unstructured citation Bratta, B., et al. (2020) “The Impact of Digitalization Policies. Evidence from Italy’s Hyper-depreciation of Industry 4.0 Investments”, Ministero dell’Economia e delle Finanze, DF Working Paper 20, https://www.finanze.gov.it/export/sites/finanze/.galleries/Documenti/Varie/dfwp6-1_ultimo.pdf 34 01 Unstructured citation Buba, J., and M. D. Wong (2017) Special Economic Zones: An Operational Review of their Impacts. Washington, DC: World Bank Group. 34 01 Unstructured citation Capriati, M., M. Deleidi, and G. Viesti (2022) “Che impatto macroeconomico può avere il PNRR nel Mezzogiorno?”, Menabò 174, https://eticaeconomia.it/che-impatto-macroeconomico-puo-avere-il-pnrr-nel-mezzogiorno/ 34 06 10.11647/obp.0328 34 01 Unstructured citation Cerniglia, F., A. Silvani, and A. Quadrio Curzio (2023) “La ricerca del Centro Cranec dell’Università Cattolica”, in A. Quadrio Curzio, A. Silvani, M. Fortis, and F. Cerniglia (eds), Le piattaforme tecnico-scientifiche in Europa. Ricerca, economia, innovazione. Bologna: Il Mulino, Collana Fondazione Edison, pp. 263–277. 34 01 Unstructured citation Chiapperini, C., and G. Viesti (2024) “Il PNRR e i divari territoriali”, Menabò 210, https://eticaeconomia.it/il-pnrr-e-i-divari-territoriali/ 34 01 Unstructured citation Coco, G. (2020) “Investimenti, disintermediazione, capacità: come superare la retorica delle politiche per il Mezzogiorno”, in G. Coco, and C. De Vincenti (eds), Una questione nazionale. Il Mezzogiorno da “problema” a “opportunità”. Bologna: Il Mulino, pp. 203-226 34 01 Unstructured citation Coco, G., and A. Lepore (2018) “Per un nuovo modello di intervento pubblico nel Mezzogiorno”, in G. Coco and A. Lepore (eds), Il risveglio del Mezzogiorno. Nuove politiche per lo sviluppo. Bari: Laterza, pp. 175-196 34 01 Unstructured citation Di Tommaso, M. R., L. Rubini, E. Barbieri, and C. Pollio (2024) Industry Organization and Industrial Policy. Production and Innovation, Development and Public Interest. Bologna: Il Mulino. 34 01 Unstructured citation Draghi, M. (2024) The Future of European Competitiveness. Brussels: European Commission, https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en 34 01 Unstructured citation European Commission (2005) “Implementing the Community Lisbon Programme: A Policy Framework to Strengthen EU Manufacturing—Towards a More Integrated Approach for Industrial Policy”, COM(2005) 464, October 5, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A52005DC0474 34 01 Unstructured citation European Commission (2012) “A Stronger European Industry for Growth and Economic Recovery Industrial Policy Communication Update”, COM(2012) 582, October 10, https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2012:0582:FIN:EN:PDF 34 01 Unstructured citation European Commission (2014) “For a European Industrial Renaissance”, COM(2014) 14, January 22, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52014DC0014&from=ET 34 01 Unstructured citation European Commission (2017) “Investing in a Smart, Innovative and Sustainable Industry: A Renewed EU Industrial Policy Strategy”, COM(2017) 479, September 13, https://eur-lex.europa.eu/resource.html?uri=cellar:c8b9aac5-9861-11e7-b92d-01aa75ed71a1.0001.02/DOC_1&format=PDF 34 01 Unstructured citation European Commission: Directorate-General for Research and Innovation and M. Mazzucato (2018) Mission-oriented Research & Innovation in the European Union—A Problem-solving Approach to Fuel Innovation-led Growth. Brussels: Publications Office, https://data.europa.eu/doi/10.2777/360325 34 01 Unstructured citation European Commission (2020) “A New Industrial Strategy for Europe”, COM(2020) 102, March 10, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52020DC0102 34 01 Unstructured citation European Commission (2021a) “Communication from the Commission. Criteria for the Analysis of the Compatibility with the Internal Market of State Aid to Promote the Execution of Important Projects of Common European Interest”, 2021/C 528/02, December 30, https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52021XC1230(02) 34 01 Unstructured citation European Commission (2021b) “Communication from the Commission on a New Funding Strategy to Finance NextGenerationEU”, COM(2021) 250, April 14, https://commission.europa.eu/document/download/a42a05ab-e656-4cf4-9d0b-b4d2825618ee_en?filename=com2021_250_en_act_part1_v3.pdf 34 01 Unstructured citation European Commission (2022) “A Chips Act for Europe”, COM(2022) 45, February 8, https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX%3A52022DC0045#:~:text=The EU Chips Act proposes,to future supply chain disruptions 34 01 Unstructured citation Governo Italiano (2021) Italia Domani: Piano Nazionale di Ripresa e Resilienza, https://www.italiadomani.gov.it/content/sogei-ng/it/it/home.html 34 01 Unstructured citation Guerrieri, P., and P. C. Padoan (2024) Sovereign Europe. An Agenda for Europe in a Fragmented Global Economy. Brookfield, VT: Edward Elgar. 34 01 Unstructured citation Jacquemin, A. (1987) The New Industrial Organization: Market Forces and Strategic Behaviour. Cambridge, MA: The MIT Press. 34 01 Unstructured citation Junker, J. C. (2017) “State of the Union Address”, Brussels, September 13, https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_17_3165 34 06 10.1146/annurev-economics-081023-024638 34 01 Unstructured citation Letta, E. (2024) Much More Than a Market, https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf 34 01 Unstructured citation Lucchese, M., and M. Pianta (2021) “Il Piano Nazionale di Ripresa e Resilienza in una prospettiva di politica industriale”, Moneta e Credito 74(294): 177–190. 34 01 Unstructured citation Ministero dell’Università e della Ricerca (2022) “NRRP, MUR: l’impatto della conoscenza grazie a un nuovo modo di fare ricerca e innovazione”, MUR, June 26, https://www.mur.gov.it/it/news/martedi-28062022/pnrr-mur-limpatto-della-conoscenza-grazie-un-nuovo-modo-di-fare-ricerca-e 34 01 Unstructured citation Ministero per gli Affari Europei (2023) “Terza relazione sullo stato di attuazione del Piano Nazionale di Ripresa e Resilienza”, June 20, Italia Domani, https://www.italiadomani.gov.it/content/sogei-ng/it/it/strumenti/documenti/archivio-documenti/terza-relazione-al-parlamento-sullo-stato-di-attuazione-del-pian.html 34 01 Unstructured citation Ministero per gli Affari Europei (2024) “Quarta relazione sullo stato di attuazione del Piano Nazionale di Ripresa e Resilienza”, https://www.affarieuropei.gov.it/media/7411/iv_relazione_al_parlamento_sezi.pdf 34 01 Unstructured citation Ministero per gli Affari Europei (2024) “Quinta relazione sullo stato di attuazione del Piano Nazionale di Ripresa e Resilienza”, Nota sintetica. https://www.affarieuropei.gov.it/media/7594/quinta_relazione_nota_sintetica.pdf 34 01 Unstructured citation Mosconi, F. (2015) The New European Industrial Policy. Global Competitiveness and the Manufacturing Renaissance. New York: Routledge. 34 01 Unstructured citation Mosconi, F. (2022) “European Industrial Policy from 2000 to 2020”, in J. C. Christophe Defraigne, J. Wouters, E. Traversa, and D. Zurstrassen (eds), EU Industrial Policy in the Multipolar Economy. Brookfield, VT: Edward Elgar, pp. 173-209 34 01 Unstructured citation Nisticò, R., and F. Prota (2023) “Sviluppo industriale per poli? Le zone economiche speciali in Italia e nel NRRP”, Stato e mercato 2: 227–263, https://dx.doi.org/10.1425/108269 34 06 10.1177/0486613420938207 34 06 10.1093/icc/dtz075 34 01 Unstructured citation Pianta, M. (2021) “La politica industriale al tempo del PNRR”, il Mulino 2: 152–162, https://doi.org/10.1402/101106 34 01 Unstructured citation Presidenza del Consiglio dei Ministri (2022) “Seconda relazione istruttoria sul rispetto del vincolo di destinazione alle regioni del Mezzogiorno di almeno il 40 per cento delle risorse allocabili territorialmente”, June 30, Dipartimento per le Politiche di Coesione, https://politichecoesione.governo.it/media/2954/seconda-relazione-destinazione-mezzogiorno-risorse-pnrr_dati-al-30_06_2022.pdf 34 01 Unstructured citation Prodi, R. (2003) “Industrial Policy in an Enlarged Europe, Speech Delivered at the Conference Industrial Policy in an Enlarged Europe by the President of the European Commission”, Speech Given in Brussels, January 21. 34 01 Unstructured citation PWC (2024) Dalle Zone Economiche Speciali regionali e interregionali alla ZES unica, https://www.pwc.com/it/it/assets/docs/pwc-dalle-ZES-regionali-e-interregionali-alla-ZES-unica.pdf 34 01 Unstructured citation Quadrio Curzio, A., A. Silvani, M. Fortis, and F. Cerniglia (2023) (eds) Le piattaforme tecnico-scientifiche in Europa. Ricerca, economia, innovazione. Bologna: Il Mulino, Collana Fondazione Edison. 34 01 Unstructured citation Resta, F. (2023) “Università e impresa: dal PNRR nuove reti per la ricerca”, in A. Quadrio Curzio A., A. Silvani, and F. Cerniglia (eds), Le piattaforme tecnico-scientifiche in Europa. Ricerca, economia, innovazione. Bologna: Il Mulino, Collana Fondazione Edison, pp. 64–75. 34 01 Unstructured citation Rodrik, D. (2004) “Industrial Policy for the Twenty-First Century”, John F. Kennedy School of Government, Cambridge, MA, September, https://drodrik.scholar.harvard.edu/files/dani-rodrik/files/industrial-policy-twenty-first-century.pdf 34 01 Unstructured citation Viesti, G. (2023) Riuscirà il PNRR a rilanciare l’Italia?. Rome: Donzelli editore. 34 01 Unstructured citation Viesti, G. (2024) “La ZES unica: dal mito alla dura realtà”, Menabò 208, https://eticaeconomia.it/la-zes-unica-dal-mito-alla-dura-realta/ 34 01 Unstructured citation von der Leyen, U. (2019a) “Speech by President-elect von der Leyen in the European Parliament Plenary on the Occasion of the Presentation of her College of Commissioners and their Programme”, Strasbourg, November 27. 34 01 Unstructured citation von der Leyen, U. (2019b) “A Union that Strives for More. My Agenda for Europe, by Candidate for President of the European Commission 2019–2024”, Strasbourg, July 16. 34 01 Unstructured citation White House (2022) Inflation Reduction Act Guidebook. Washington, DC: White House, https://www.whitehouse.gov/cleanenergy/inflation-reduction-act-guidebook/ 7 03 06 10.11647/obp.0434.06 77 95 19 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 5. Public Investment and Structural Transformation in Spain 1 A01 21 0000000328013447 Ignacio Alvarez Ignacio Alvarez Associate Professor of Applied Economics 40 01cby8j38 Universidad Autónoma de Madrid Ignacio Alvarez was the Secretary of State for Social Rights of the Government of Spain between January 2020 and November 2023. He holds a PhD in International Economics from the University Complutense of Madrid. He is currently Associate Professor of Applied Economics at the Autonomous University of Madrid. He has also worked as a Research Associate at the Complutense Institute of International Studies (ICEI), Visiting Professor of Labor Economics at the Spanish National University of Distance Education (UNED) and Assistant Professor at the University of Valladolid. He has been visiting researcher at the University Paris VII-Denis Diderot, at the Lisbon School of Economics and Management and at the University of South-Eastern Norway, and has participated in several European Union research projects (“Inclusive Growth through Wage Coordination”; “Collectively Agreed Wages in the New European Economic Governance”; “Collectively Agreed Wages in Europe”), as well as in several national projects. His research currently focuses on the study of the relationship between income distribution, demand, and economic growth. His academic articles have been published, among other journals, in the Socio-Economic Review, Cambridge Journal of Economics, Structural Change and Economic Dynamics, Review of Keynesian Economics, Work, Employment and Society, International Labour Review, and the Journal of Post Keynesian Economics. 2 A01 21 0000000222181004 Jorge Uxó Jorge Uxó Associate Professor of Applied Economics 40 02p0gd045 Universidad Complutense de Madrid Jorge Uxó has a PhD in Economics by the University Complutense of Madrid. He is currently Associate Professor of Applied Economics at the Complutense University of Madrid and Vice-President of the Spanish Productivity Board. He has been visiting researcher at the University of Coimbra (Centre for Social Studies), University of Alcalá and the European Trade Union Institute (ETUI) and has participated in European Union and national research projects, mainly focused on Macroeconomics and Economic Policy in Spain and the EMU and Post Keynesian Economics. His academic articles have been published, among other journals, in Cambridge Journal of Economics, Structural Change and Economic Dynamics, Review of Keynesian Economics, Review of Political Economy, International Labour Review, Journal of Post Keynesian Economics, Applied Economics or Metroeconomica. 01 eng 03 00 During the decade of 2010–2019, public investment experienced a profound decline in Spain, because of the fiscal austerity policies implemented during the Great Recession. Even with the recovery of economic growth starting in 2015, public investment did not improve and the net capital stock decreased. The COVID-19 pandemic introduced an important change in trend, with a general turnaround in fiscal policies accompanying the disbursement of Next Generation EU funds. These European Union funds will allow the implementation of an industrial transformation strategy focused on key specific sectors with high pulling power and strong multiplier effects. 30 00 During the decade of 2010–2019, public investment experienced a profound decline in Spain, because of the fiscal austerity policies implemented during the Great Recession. Even with the recovery of economic growth starting in 2015, public investment did not improve and the net capital stock decreased. The COVID-19 pandemic introduced an important change in trend, with a general turnaround in fiscal policies accompanying the disbursement of Next Generation EU funds. These European Union funds will allow the implementation of an industrial transformation strategy focused on key specific sectors with high pulling power and strong multiplier effects. 20 00 Open Access Ignacio Álvarez Jorge Uxó; 34 01 Unstructured citation Auerbach, A., and Y. Gorodnichenko (2012) “Fiscal Multipliers in Recession and Expansion”, NBER Working Paper 17447, National Bureau of Economic Research, Cambridge, Massachusetts. 34 01 Unstructured citation Bouabdallah, O. Dorrucci, E. Hoendervangers, L. and Nerlich, C. (2024) “Mind the Gap: Europe’s Strategic Investment Needs and How to Support Them”, The ECB Blog, 27 June, https://www.ecb.europa.eu/press/blog/date/2024/html/ecb.blog240627~2e939aa430.en.html 34 01 Unstructured citation Consejo Económico y Social (2020) La inversión pública en España: situación actual y prioridades estratégicas, Colección Informes, Número 01/2020, Consejo Económico y Social. 34 01 Unstructured citation Darvas, Z., L. Welslau, and J. Zettelmeyer (2024) “Incorporating the Impact of Social Investments and Reforms in the EU’s New Fiscal Framework”, Bruegel Working Paper 07/2024, https://www.bruegel.org/working-paper/incorporating-impact-social-investments-and-reforms-european-unions-new-fiscal 34 01 Unstructured citation Di Bucchianico, S., (2019) “A Bit of Keynesian Debt-to-GDP Arithmetic for Deficit-capped Countries”, Bulletin of Political Economy 13(1): 55–83. 34 01 Unstructured citation Fatas, A., and Mihov, I. (2009) “Why Fiscal Stimulus Is Likely to Work”, International Finance 12(1): 57–73 34 01 Unstructured citation Fernández-Cerezo, A., E. Moral-Benito, and J. Quintana (2023) “The Recovery, Transformation and Resilience Plan and its Macroeconomic Impact from a Sectoral Standpoint”, Economic Bulletin, Bank of Spain, 2023/Q1, https://repositorio.bde.es/bitstream/123456789/29539/1/be2301-art12e.pdf 34 06 10.1111/joes.12241 34 01 Unstructured citation Fundación BBVA-IVIE (2019) El stock de capital en España y sus comunidades autónomas. Evolución de la edad media de las inversiones y envejecimiento del capital, Fundación BBVA-IVIE. 34 01 Unstructured citation Gobierno de España (2023) Plan de Recuperación, Transformación y Resiliencia. IV Informe de Ejecución del Plan de Recuperación, Gobierno de España, December. 34 01 Unstructured citation International Monetary Fund (2014) “Is It Time for an Infrastructure Push? The Macroeconomic Effects of Public Investment”, in World Economic Outlook, October 2014: Legacies, Clouds, Uncertainties. Washington, DC: International Monetary Fund, pp. 75–112. 34 06 10.4337/ejeep.2023.0115 34 01 Unstructured citation Motyovszki, G., P. Pfeiffer, and J. Veld (2024) “The Implications of Public Investment for Debt Sustainability”, Discussion Paper 204 (June), Directorate-General for Economic and Financial Affairs, European Commission, https://economy-finance.ec.europa.eu/system/files/2024-06/dp204_en.pdf 34 01 Unstructured citation Pérez, F., and J. F. de Guevara (eds) (2024) El stock de capital en España y sus Comunidades Autónomas 1995-2023. Cambios recientes en la composición de la inversión y en las respuestas a la crisis, Documentos de Trabajo 1-2024, Fundación BBVA. 34 01 Unstructured citation Rosnick, D., and M. Weibstrot (2015) “Has Austerity Worked in Spain?”, Center for Economic and Policy Research, https://cepr.net/documents/Spain-2015-12.pdf 34 06 10.1016/j.strueco.2024.03.005 8 03 06 10.11647/obp.0434.07 99 108 10 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 6. A New Industrial Policy as the Key to the Green Transition 1 A01 Karl Aiginger Karl Aiginger Professor 40 03yn8s215 Vienna University of Economics and Business Honorary Professor 40 052r2xn60 Johannes Kepler University of Linz Karl Aiginger was born in Vienna on October 23, 1948. He is director of the Policy Crossover Center: Vienna—Europe (www.euiopaplattform.at). He is Professor at the Vienna University of Economics and Business and is an Honorary Professor at the University of Linz. He is Editor-in-Chief of the Journal of Industry, Competition and Trade (JICT). He has been the Director of the Austrian Institute of Economic Research (WIFO) from 2005 to 2016 and Coordinator of the research project “New Dynamics for Europe: Reaping the Benefits of Socio-ecological Transition”—WWWforEurope (http://Synthesis-Report-Part-I.foreurope.eu). He had temporary commitments at Stanford University, MIT, UCLA, and at the University of Changsha (Hunan, China). His research foci are industrial economics, competitiveness, and strategies of firms, regions and countries. The Policy Crossover Center published studies on “More or Less Europe”, Europe taking the lead in responsible globalization, and a European partnership policy with the South and the East. 01 eng 03 00 The world is changing quickly. The former Soviet Union is gone and its successor, Russia, is seeking to reclaim parts of Soviet territory using military force. The United States (US) as a sole remaining superpower cannot take the lead, due to populism, failed democracy, and a lack of resilience. China is on the rise, but autocratic, longing for resources and facing a declining population. Europe is less dynamic and innovative, not yet seen as unified with common goals. New middle powers are gaining shares in production, but are themselves very different. The problems the world faces are changing: peace is no longer guaranteed, global warming is accelerating, poverty is on the decline but re emerging in other ways, and migration policy is becoming more and more important. The green transition may be an engine of change and new dynamics, but there are also many backlashes. In this situation, a new industrial policy is needed—one very different from that of the past. We begin by describing the past policy as an isolated policy, along with the questions of whether such a policy is needed in a capitalistic economy and whether it should focus on “important sectors” (the sectoral or French approach) or “important activities” (the horizonal or German approach). We then turn to the increasing importance of international exports/ investments and the necessity for a green transition, but also new forms of protectionism and backlashes. This chapter builds on Aiginger and Rodrik (2020) with respect to “industrial policy for the 21st century”, as well as on Aiginger and Ketels (2024) for its “reloading” after the most recent changes in the policy environment. 30 00 The world is changing quickly. The former Soviet Union is gone and its successor, Russia, is seeking to reclaim parts of Soviet territory using military force. The United States (US) as a sole remaining superpower cannot take the lead, due to populism, failed democracy, and a lack of resilience. China is on the rise, but autocratic, longing for resources and facing a declining population. Europe is less dynamic and innovative, not yet seen as unified with common goals. New middle powers are gaining shares in production, but are themselves very different. The problems the world faces are changing: peace is no longer guaranteed, global warming is accelerating, poverty is on the decline but re emerging in other ways, and migration policy is becoming more and more important. The green transition may be an engine of change and new dynamics, but there are also many backlashes. In this situation, a new industrial policy is needed—one very different from that of the past. We begin by describing the past policy as an isolated policy, along with the questions of whether such a policy is needed in a capitalistic economy and whether it should focus on “important sectors” (the sectoral or French approach) or “important activities” (the horizonal or German approach). We then turn to the increasing importance of international exports/ investments and the necessity for a green transition, but also new forms of protectionism and backlashes. This chapter builds on Aiginger and Rodrik (2020) with respect to “industrial policy for the 21st century”, as well as on Aiginger and Ketels (2024) for its “reloading” after the most recent changes in the policy environment. 20 00 Open Access Karl Aiginger 34 01 Unstructured citation Acemoglu D. (2023) “Letter from America: When Industry Means Hard Work”, Royal Economic Society, https://res.org.uk/newsletter/letter-from-america-when-industry-means-hard-work/ 34 06 10.1007/s10842-024-00415-8 34 06 10.1007/s10842-019-00322-3 34 06 10.1080/02692170601005507 34 01 Unstructured citation Austin, B., E. Glaeser, and L. Summers (2018) “Saving the Heartland: Place-based Policies in 21st Century America. Brookings Papers of Economic Activity”, Brookings, https://www.brookings.edu/articles/saving-the-heartland-place-based-policies-in-21st-century-america/ 34 06 10.1353/eca.2022.0005 34 01 Unstructured citation Aiyar, S., and A. 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Yildirim (2023) “Economic Costs of Friend-shoring”, CID Faculty Working Paper 422, https://growthlab.hks.harvard.edu/publications/economic-costs-friend-shoring 34 06 10.1146/annurev-economics-081023-024638 34 01 Unstructured citation Kelsey, T. (2023) “When Missions Fail: Lessons in ‘High Technology’ from Post-War Britain”, Blavatnik School of Government Working Paper 2023–056, https://www.bsg.ox.ac.uk/sites/default/files/2023-12/BSG-WP%E2%80%932023-056-When-Missions-Fail.pdf 34 01 Unstructured citation Ketels, C., and E. Duch (2022) “Industrial Policy in a New Global Reality: Towards a More Location- and Sector-Driven Approach”, Private Sector Development Blog, 11 July, https://blogs.worldbank.org/psd/industrial-policy-new-global-reality-towards-more-location-and-sector-driven-approach 34 01 Unstructured citation Ketels. C., M. E. Porter, and A. Kapoor (2022) Competitiveness Roadmap for India @ 100. Delhi: Economic Advisory Council of the Prime Minister, https://www.hbs.edu/ris/Publication%20Files/Report_Competitiveness_Roadmap-25_August_2022_Web_Version_690d1fab-dce8-48a0-8cd5-6d6a63a6d5eb.pdf 34 01 Unstructured citation Kose, M. A, and F. Ohnsorge (2023) Falling Long Term Growth Prospects: Trends, Expectations, and Policies. Washington, DC: World Bank, https://openknowledge.worldbank.org/handle/10986/39497 34 06 10.2307/j.ctvc776tv 34 01 Unstructured citation Mazzucato, M. (2021) Mission Economy: A Moonshot Guide to Changing Capitalism. London: Allen Lane. 34 01 Unstructured citation Nayyar, D., and G. Nayyar (2024) “Made in India: Industrial Policy in a Changing World”, Journal of Industry, Competition and Trade 24(1): 13. 34 06 10.1007/s10842-024-00420-x 34 01 Unstructured citation Rodrik, D. (2015) “Premature Deindustrialization”, NBER Working Paper 20935, https://www.nber.org/system/files/working_papers/w20935/w20935.pdf 34 01 Unstructured citation Rodrik, D., and J. Stiglitz (2024) “A New Growth Strategy for Developing Nations”, Harvard, https://drodrik.scholar.harvard.edu/sites/scholar.harvard.edu/files/dani-rodrik/files/a_new_growth_strategy_for_developing_nations.pdf 34 06 10.1007/s10842-024-00418-5 34 01 Unstructured citation Yellen, J. (2022) “Remarks at Microsoft in New Delhi”, US Department of the Treasury, 11 November, https://home.treasury.gov/news/press-releases/jy1096 9 03 06 10.11647/obp.0434.08 109 134 26 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 7. A “True” Industrial Policy for Europe Is a Technology and Innovation Policy 1 A01 Reda Cherif Reda Cherif Senior Economist 40 05m4rmw09 International Monetary Fund Affiliated Researcher at the Bennett Institute for Public Policy 40 013meh722 University of Cambridge Senior Research Advisor at the Center of Technology and Industrialization for Development (TIDE) 40 052gg0110 University of Oxford Reda Cherif is a Senior Economist at the International Monetary Fund (IMF), an Affiliated Researcher at the Bennett Institute for Public Policy at the University of Cambridge, a Senior Research Advisor at the Center of Technology and Industrialization for Development (TIDE), University of Oxford, and a Fellow at the Royal Society for the Arts. He joined the IMF in 2008, as part of the Economist Program, and worked in several departments: in the Fiscal Affairs Department, where he was an economist on the Gabon program; in the Middle East and Central Asia Department, where he covered Saudi Arabia, Qatar and Bahrain; and in the African Department, where he worked in the Regional Studies Division, issuing analytical work on trade, competition and oil economies. He has published numerous articles on the energy transition, public debt dynamics, commodity exporters, development, industrial policy, growth, and innovation. His work was published in the Journal of Development Economics and World Development among others, and it was featured in the Economist, Financial Times and National Geographic. He is the co-editor, with Fuad Hasanov and Min Zhu, of Breaking the Oil Spell, a book studying economic diversification in oil exporters. Reda holds an MSc in Economics from the London School of Economics and a PhD in Economics from the University of Chicago. 2 A01 21 0000000220234547 Fuad Hasanov Fuad Hasanov Senior Economist 40 05m4rmw09 International Monetary Fund Adjunct Professor of Economics 40 05vzafd60 Georgetown University Affiliated Researcher at the Bennett Institute for Public Policy 40 013meh722 University of Cambridge Fuad Hasanov is a Senior Economist at the International Monetary Fund (IMF), an Adjunct Professor of Economics at Georgetown University, an Affiliated Researcher at the Bennett Institute for Public Policy at the University of Cambridge, and a Senior Research Advisor at the Technology and Industrialization for Development (TIDE) Centre at the University of Oxford. Before joining the IMF in 2007, Fuad was an Assistant Professor of Economics at Oakland University in Rochester, Michigan. His recent research focuses on natural resources, growth and innovation, and industrial policy. He is the co-editor, with Reda Cherif and Min Zhu, of Breaking the Oil Spell that examines economic diversification in oil-exporting countries. Fuad received a PhD, MS, and BA in economics from the University of Texas at Austin. 3 A01 21 0000000219794731 Xun Li Xun Li Research Analyst 40 05m4rmw09 International Monetary Fund Xun Li is a Research Analyst at the International Monetary Fund (IMF). At the IMF, Xun has contributed to surveillance and policy formulation to promote sustainable economic growth in Europe. Xun holds a Master in Public Administration from Columbia University School of International and Public Affairs, specializing in renewable energy financial modeling and energy and environmental economic analysis. 01 eng 03 00 Since the Global Financial Crisis of 2008, the “core” European countries have been losing their competitive edge in global markets for sophisticated products such as electronics and green transportation and power technologies, while also missing out on the earlier revolution in information and communication technology (ICT). Meanwhile, the “periphery” European countries have been slowing down and, in pre-crisis years, have mostly channelled their investment into non-tradable industries, concentrating their resources in relatively lower productivity and lower skill activities. The slowdown in growth and convergence highlights the need to reignite productivity and economic dynamism. Lessons from the Asian economic miracles and Europe’s own growth experience suggest the importance of developing sophisticated sectors. The development of these sectors is riddled with both government and market failures, requiring adequate policies to tackle them. We argue that a “true” industrial policy for Europe is a technology and innovation policy (TIP) that focuses on correcting market failures to spur innovation, scale up, and support production networks in sophisticated industries across Europe while reorienting the engines of growth of “periphery” economies toward sophisticated sectors and their complex value chains. TIP’s guiding principles are a focus on global markets, competition, and a strict accountability framework, where the “hard” tools such as tariffs and subsidies may not be necessary and may be potentially counterproductive. 30 00 Since the Global Financial Crisis of 2008, the “core” European countries have been losing their competitive edge in global markets for sophisticated products such as electronics and green transportation and power technologies, while also missing out on the earlier revolution in information and communication technology (ICT). Meanwhile, the “periphery” European countries have been slowing down and, in pre-crisis years, have mostly channelled their investment into non-tradable industries, concentrating their resources in relatively lower productivity and lower skill activities. The slowdown in growth and convergence highlights the need to reignite productivity and economic dynamism. Lessons from the Asian economic miracles and Europe’s own growth experience suggest the importance of developing sophisticated sectors. The development of these sectors is riddled with both government and market failures, requiring adequate policies to tackle them. We argue that a “true” industrial policy for Europe is a technology and innovation policy (TIP) that focuses on correcting market failures to spur innovation, scale up, and support production networks in sophisticated industries across Europe while reorienting the engines of growth of “periphery” economies toward sophisticated sectors and their complex value chains. TIP’s guiding principles are a focus on global markets, competition, and a strict accountability framework, where the “hard” tools such as tariffs and subsidies may not be necessary and may be potentially counterproductive. 20 00 Open Access Reda Cherif Fuad Hasanov Xun Li; 34 01 Unstructured citation Adler, D. 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Frie (2024) “Stepping Up Venture Capital to Finance Innovation in Europe”, IMF Working Paper 24/146. 34 01 Unstructured citation Atlas of Economic Complexity, The (2024) Harvard University, Growth Lab, https://atlas.cid.harvard.edu. 34 01 Unstructured citation Bergeaud, A. (2024) “The Past, Present, and Future of European Productivity”, Working Paper, ECB Forum on Central Banking, July 1–3, https://www.ecb.europa.eu/pub/pdf/sintra/ecb.forumcentbankpub2024_Bergeaud_paper.en.pdf 34 01 Unstructured citation Ali-Yrkkö, J., R. Cherif, F. Hasanov, N. Kuosmanen, and M. Pajarinen (2021) “Knowledge Spillovers from Superstar Tech-Firms: The Case of Nokia”, IMF Working Paper 2021/258, https://www.imf.org/en/Publications/WP/Issues/2021/10/29/Knowledge-Spillovers-From-Superstar-Tech-Firms-The-Case-of-Nokia-501347 34 01 Unstructured citation Cherif, R., and F. Hasanov (2018) “Public Debt Dynamics: The Effects of Austerity, Inflation, and Growth Shocks”, Empirical Economics 54(3): 1087–1105. 34 01 Unstructured citation Cherif, R., and F. Hasanov (2019a) “Return of the Policy That Shall Not Be Named: Principles of Industrial Policy”, IMF Working Paper 2019/74, https://www.imf.org/en/Publications/WP/Issues/2019/03/26/The-Return-of-the-Policy-That-Shall-Not-Be-Named-Principles-of-Industrial-Policy-46710 34 01 Unstructured citation Cherif, R., and F. Hasanov (2019b) “Principles of True Industrial Policy”, Journal of Globalization and Development 10(1): 1–22. 34 01 Unstructured citation Cherif, R., and F. Hasanov (2019c) “The Leap of the Tiger: Escaping the Middle‐income Trap to the Technological Frontier”, Global Policy 10(4): 497–511. 34 01 Unstructured citation Cherif, R., and F. Hasanov (2024) “The Pitfalls of Protectionism: Import Substitution vs. Export-Oriented Industrial Policy”, Journal of Industry, Competition and Trade 24(1): 1–34. 34 01 Unstructured citation Cherif, R., F. Hasanov, and A. Pande (2017) “Riding the Energy Transition: Oil Beyond 2040”, IMF Working Paper 2017/120, https://www.imf.org/en/Publications/WP/Issues/2017/05/22/Riding-the-Energy-Transition-Oil-Beyond-2040-44932 34 01 Unstructured citation Cherif, R., F. Hasanov, and A. Pande (2021) “Riding the Energy Transition: Oil beyond 2040”, Asian Economic Policy Review 16(1): 117–137. 34 01 Unstructured citation Cherif, R., F. Hasanov, and M. Sarsenbayev (2024) “Call of Duty: Industrial Policy for Post-Oil Era”, IMF Working Paper 2024/74. https://www.imf.org/en/Publications/WP/Issues/2024/03/29/Call-of-Duty-Industrial-Policy-for-the-Post-Oil-Era-546941 34 01 Unstructured citation Cherif, R., F. Hasanov, and P. Aghion (2023) “Fair and Inclusive Markets: Why Dynamism Matters”, IMF Working Paper 2021/29, https://www.imf.org/en/Publications/WP/Issues/2021/02/06/Fair-and-Inclusive-Markets-Why-Dynamism-Matters-50052 34 01 Unstructured citation Cherif, R., F. Hasanov, and M. Zhu (2021) “The Electric Vehicle Revolution Goes Global”, August 30, Project Syndicate, https://www.project-syndicate.org/commentary/electirc-vehicles-in-developing-and-emerging-economies-by-reda-cherif-et-al-2021-08 34 01 Unstructured citation Draghi, M. (2024a) “Radical Change—Is What Is Needed”, Speech at the High-level Conference on the European Pillar of Social Rights, Brussels, April 16, https://geopolitique.eu/en/2024/04/16/radical-change-is-what-is-needed/ 34 01 Unstructured citation Draghi, M. (2024b) The Future of European Competitiveness. Brussels: European Commission, https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en 34 01 Unstructured citation Duchatel, M. (2022) “Semiconductors in Europe: The Return of Industrial Policy” Institut Montaigne, Policy Paper, https://www.institutmontaigne.org/ressources/pdfs/publications/europe-new-geopolitics-technology-1.pdf 34 01 Unstructured citation European Commission (2024) “Euro Area Competitiveness: Opportunities and Value Added of a European Industrial Policy. A Note to the Eurogroup for June 20, 2024 Meeting”, https://www.consilium.europa.eu/media/dfcjg0yd/com-note-ea-competitiveness-industrial-policy.pdf 34 01 Unstructured citation Evans, P. (1995) Embedded Autonomy: States and Industrial Transformation. Princeton, NJ: Princeton University Press. 34 01 Unstructured citation Fortune (1998) “The World’s Largest Corporations”, 138(3): F1–F10. 34 01 Unstructured citation Fortune (2010) “Global 500”, 162(2): 153–F7. 34 01 Unstructured citation Fortune (2015) “Global 500”, 172(2): F1–F6. 34 01 Unstructured citation Fuest, C., D. Gros, P. Mengel, G. Presidente, and J. 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Baisakova (2020) “The Global Semiconductor Value Chain: A Technology Primer for Policymakers”, October, Stiftung Neue Verantwortung Policy Paper. 34 01 Unstructured citation Letta, E. (2024) Much More Than a Market, https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf 34 01 Unstructured citation Mazzucato, M. (2013) The Entrepreneurial State: Debunking Public vs. Private Sector Myths. New York: Public Affairs. 34 01 Unstructured citation Pisano, G., and W. Shih (2012) Producing Prosperity: Why America Needs a Manufacturing Renaissance. Cambridge, MA: Harvard Business Review Press. 34 01 Unstructured citation SIA (2024) “Semiconductor Industry Association Factbook”, SIA, https://www.semiconductors.org/resources/factbook/ 34 06 10.7312/stig15214 10 03 06 10.11647/obp.0434.09 135 148 14 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 8. Industrial Policy and Security The European Union and the Double Challenge: Strengthening Competitiveness and Enhancing Economic Security 1 A01 Paolo Guerrieri Paolo Guerrieri Visiting Professor at PSIA, Paris School of International Affairs 40 05fe7ax82 Sciences Po, Paris Paolo Guerrieri is Visiting Professor at PSIA, Paris School of International Affairs, Sciences Po, Paris. He was Professor of Economics at the University of Rome “La Sapienza” and Visiting Professor at the College of Europe, Bruges (Belgium) and the USD Business School, University of San Diego, California. 2 A01 Pier Carlo Padoan Pier Carlo Padoan Full Professor of Economics retired 40 02be6w209 Sapienza University of Rome Pier Carlo Padoan who has been Italian Minister of Economy and Finance and Member of the Chamber of Deputies of the Italian Republic, is Chairman of UniCredit since April 2021. He is Full Professor of Economics retired at the La Sapienza University of Rome. He is currently Vice President of Istituto Affari Internazionali, Board member of the Institute of International Finance, a member of the Luiss Institute for European Analysis and Policy, and a member of the BoD and Executive Committee of ABI. In 2021 he was also appointed member of the Board of Istituto Luigi Einaudi and of the Committee for Corporate Governance of Borsa Italiana. He is currently a member of the European Financial Services Round Table, and of the Executive Committee of Assonime. In May 2022 he became Chairperson of the High Level Group on Financing Sustainability Transition, which is part of the High Level Groups on EU Policy and Innovation. He has been Deputy Secretary General and Chief Economist of OECD and Executive Director of the International Monetary Fund. He has held academic positions at the University of Rome, College of Europe (Bruges and Warsaw), Université Libre de Bruxelles, University of Urbino, Universidad de la Plata, Chulalongkorn University and University of Tokyo. 01 eng 03 00 This chapter argues that the European Union’s (EU) dual challenge— enhancing both competitiveness and economic security—must form the core of its open strategic autonomy framework, which integrates national security considerations with economic policy. The chapter explores the vulnerabilities and strengths of the EU’s industrial and technological strategies, emphasizing the need for deeper European integration and more robust governance to meet these challenges. Central to this effort is the provision of European public goods (EPGs), such as climate policy, energy security, and technological development, which require stronger EU-level governance and financial resources. To ensure long-term resilience and relevance in a fragmented world, Europe must undertake a profound restructuring of its economic governance and enhance its strategic autonomy. 30 00 This chapter argues that the European Union’s (EU) dual challenge— enhancing both competitiveness and economic security—must form the core of its open strategic autonomy framework, which integrates national security considerations with economic policy. The chapter explores the vulnerabilities and strengths of the EU’s industrial and technological strategies, emphasizing the need for deeper European integration and more robust governance to meet these challenges. Central to this effort is the provision of European public goods (EPGs), such as climate policy, energy security, and technological development, which require stronger EU-level governance and financial resources. To ensure long-term resilience and relevance in a fragmented world, Europe must undertake a profound restructuring of its economic governance and enhance its strategic autonomy. 20 00 Open Access Paolo Guerrieri Pier Carlo Padoan; 34 01 Unstructured citation Aghion, P. (2023) “An Innovation-Driven Industrial Policy for Europe” in S. Tagliapietra and R. Veugelers (eds), Sparking Europe’s New Industrial Revolution: A Policy for Net Zero, Growth and Resilience. Brussels: Bruegel, pp. 29–41, https://www.bruegel.org/sites/default/files/private/2023-08/Bruegel Blueprint 33_chapter 2.pdf 34 06 10.1007/s11135-023-01685-w 34 01 Unstructured citation Beaucillon, C., and S. Poli (2023) “Special Focus on EU Strategic Autonomy and Technological Sovereignty: An Introduction”, European Papers 8(2): 411–416, https://www.europeanpapers.eu/en/europeanforum/special-focus-eu-strategic-autonomy-and-technological-sovereignty-introduction 34 01 Unstructured citation Bergsten, C. F. (2022) The United States vs China: The Quest for Global Economic Leadership. New York: Polity Books. 34 01 Unstructured citation Bontadini, F., V. Meliciani, M. Savona, and A. Wikierman (2023) “Nearshoring, Global Value Chains’ Structure and Volatility”, LEAP Working Papers 8/23, https://leap.luiss.it/wp-content/uploads/2023/09/WP8.23-Nearshoring-global-value-chains-structure-and-volatility2.pdf 34 01 Unstructured citation Buti, M., A. Coloccia, and M. Messori (2023) “European Public Goods”, June 9, CEPR, https://cepr.org/voxeu/columns/european-public-goods 34 01 Unstructured citation Dadush, U. (2022) “Is the Post-War Trading System Ending?”, Policy Contribution 04/2022: 1–12, https://www.bruegel.org/sites/default/files/wp-content/uploads/2022/02/PC-04.pdf 34 01 Unstructured citation European Commission (2020) “European Raw Materials Alliance (ERMA)”, European Commission, https://single-market-economy.ec.europa.eu/industry/industrial-alliances/european-raw-materials-alliance_en 34 01 Unstructured citation European Commission (2021) “Trade Policy Review: An Open, Sustainable and Assertive Trade Policy”, COM(2021) 66, February 18, https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A52021DC0066 34 01 Unstructured citation European Commission (2023a) “A Green Deal Industrial Plan for the Net-Zero Age”, COM(2023) 62, February 1, https:// eur-lex.europa.eu/legal-content/EN/ TXT/HTML/?uri=CELEX:52023DC0062 34 01 Unstructured citation European Commission (2023b) “Joint Communication to the European Parliament, the European Council and the Council on ‘European Economic Security Strategy’, JOIN(2023) 20, June 20, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52023JC0020 34 01 Unstructured citation European Commission (2023c) “Joint Communication to the European Parliament and the European Council on ‘A Secure and Sustainable Supply of Critical Raw Materials in Support of the Twin Transition”, COM(2023) 165, March 16, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM%3A2023%3A165%3AFIN 34 01 Unstructured citation European Commission (2024) “Communication from the Commission to the European Parliament and the European Council on Advancing European Economic Security: An Introduction to Five New Initiatives”, COM(2024) 22, January 24, https://commission.europa.eu/system/files/2024-01/Communication on European economic security.pdf 34 06 10.1162/isec_a_00351 34 01 Unstructured citation Georgieva, K., G. Gopinath, and C. Pazarbasioglu (2022) “Why We Must Resist Geoeconomic Fragmentation and How”, IMF Blog, May 22, https://www.imf.org/en/Blogs/Articles/2022/05/22/blog-why-we-must-resist-geoeconomic-fragmentation 34 01 Unstructured citation Guerrieri, P., and P. C. Padoan (2020) L’economia europea. Tra crisi e rilancio. Bologna: il Mulino. 34 01 Unstructured citation Guerrieri, P., and P. C. Padoan (2024) Sovereign Europe. An Agenda for Europe in a Fragmented Global Economy. Brookfield, VT: Edward Elgar. 34 01 Unstructured citation Hoekman, B. M., and L. Puccio (2019) “EU Trade Policy: Challenges and Opportunities”, RSC Policy Papers 6, https://hdl.handle.net/1814/61589 34 01 Unstructured citation IMF (2022) “Geo-Economic Puzzle: Policy Making in a More Fragmented World”, Finance and Development 59(2). 34 01 Unstructured citation IMF (2023) “Geoeconomic Fragmentation: What’s at Stake for the EU”, IMF Working Papers 245, https://www.imf.org/en/Publications/WP/Issues/2023/11/29/Geoeconomic-Fragmentation-Whats-at-Stake-for-the-EU-541864 34 06 10.1017/s0020818320000636 34 06 10.1080/09692290.2023.2211281 34 06 10.1111/jcms.12932 34 06 10.1111/jcms.13428 34 06 10.1111/1758-5899.13303 34 01 Unstructured citation Sullivan, J. (2023) “Renewing American Economic Leadership”, Speech Given at Brookings Institution, Washington DC, April 27. 34 01 Unstructured citation Tagliapietra, S., and R. Veugelers (eds) (2023) Sparking Europe’s New Industrial Revolution: A Policy for Net Zero, Growth and Resilience. Brussels: Bruegel. 34 01 Unstructured citation Tamma, P. (2020) “Europe Wants ‘Strategic Autonomy’. It Just Has to Decide What That Means”, October 15, POLITICO, https://www.politico.eu/article/europe-trade-wants-strategic-autonomy-decide-what-means/ 34 01 Unstructured citation Tocci, N. (2021) “European Strategic Autonomy: What It Is, Why We Need It, How to Achieve It”, Istituto Affari Internazionali, https://www.iai.it/sites/default/files/9788893681780.pdf 34 06 10.1111/jcms.13366 34 01 Unstructured citation Zuleeg, F. (2023) “Economic Security: A New EU Paradigm?”, Discussion Paper, European Policy Centre, June 8, https://www.epc.eu/en/publications/Economic-security-A-new-EU-paradigm~516bc0 11 03 06 10.11647/obp.0434.10 149 168 20 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 9. Trends in Defence Spending in the European Union 1 A01 21 0000000177063868 Alessandra Cepparulo Alessandra Cepparulo Alessandra Cepparulo obtained her PhD in Political Economics at Sapienza University of Roma. She worked, as a post-doctoral researcher, at different universities in Italy and abroad and as a researcher, in several projects involving Italian national authorities and in international context. She is a Public Economist, whose research interests cover a wide set of issues: public finance and fiscal rules, forecast errors, quality of public expenditures, public investments and PPPs. She is currently working at the European Commission, DG ECFIN, in the unit responsible of fiscal policy and fiscal surveillance. 2 A01 21 0000000153508834 Paolo Pasimeni Paolo Pasimeni Senior Associate Researcher at the Brussels School of Governance 40 006e5kg04 Vrije Universiteit Brussel Paolo Pasimeni is Deputy Chief Economist at the European Commission, DG Internal Market and Industry, and Senior Associate Researcher at the Brussels School of Governance of the Vrije Universiteit Brussel (VUB). Specialized in international macroeconomics, his main field of expertise is the macroeconomic analysis of the single market and of the economic and monetary union (EMU). Expert on monetary, f iscal and structural policies, he has been working on the proposals for EMU reform, in particular on the design of a stabilization capacity. He has also worked on labour market analysis, as well as on the conception of the EU multi-annual budget. Personal webpage: https://brussels-school.be/team/paolo-pasimeni 01 eng 03 00 After more than sixty years of peace, in 2022 Europe has faced a watershed moment in its security, which is leading to higher and more integrated defence spending in the European Union (EU). This article uses new sources of data to illustrate the evolution of defence spending in the EU and its composition. It also looks at the articulation of responsibilities for defence spending in a multi-level governance system, such as the EU. The institutional evolution of defence policy in the EU tries to build on a progressive convergence of foreign policy objectives and points towards some concentration of defence spending at the supra-national level. The key question for the future is to what extent this convergence will hold and to what extent it will be reflected in new provisions for defence in the common budget. 30 00 After more than sixty years of peace, in 2022 Europe has faced a watershed moment in its security, which is leading to higher and more integrated defence spending in the European Union (EU). This article uses new sources of data to illustrate the evolution of defence spending in the EU and its composition. It also looks at the articulation of responsibilities for defence spending in a multi-level governance system, such as the EU. The institutional evolution of defence policy in the EU tries to build on a progressive convergence of foreign policy objectives and points towards some concentration of defence spending at the supra-national level. The key question for the future is to what extent this convergence will hold and to what extent it will be reflected in new provisions for defence in the common budget. 20 00 Open Access Alessandra Cepparulo Paolo Pasimeni; 34 06 10.1016/j.ejpoleco.2012.07.002 34 06 10.1007/s11127-008-9324-8 34 01 Unstructured citation Antolin-Diaz, J., and P. Surico (2022) “The Long-Run Effects of Government Spending”, CEPR Discussion Paper 17433. 34 01 Unstructured citation Benoit, E. (1978) “Growth and Defense in Developing Countries”, Economic Development and Cultural Change 26(2): 271–280. 34 06 10.1080/14751798.2017.1311039 34 06 10.1017/s1755773921000102 34 01 Unstructured citation Becker, J., and J. P. Dunne (2021) “Military Spending Composition and Economic Growth”, Defence and Peace Economics 34(3): 259–271. 34 06 10.1177/00223433231215785 34 01 Unstructured citation Buti, M., and G. Papaconstantinou (2022) “European Public Goods: How Can We Supply More?”, Policy Brief 3, Luiss School of European Political Economy, https://leap.luiss.it/wp-content/uploads/2022/06/PB3.22-European-Public-Goods.-How-can-we-supply-more.pdf 34 01 Unstructured citation Cepparulo, A., and P. Pasimeni (2024) “Defence Spending in the European Union” Discussion Paper 199, European Commission, https://economy-finance.ec.europa.eu/publications/defence-spending-european-union_en 34 06 10.1007/s00181-017-1300-z 34 01 Unstructured citation Ciaffi, G., M. Deleidi, and M. Mazzucato (2024) “Measuring the Macroeconomic Responses to Public Investment in Innovation: Evidence from OECD Countries”. Industrial and Corporate Change 33(2): 363–382. 34 01 Unstructured citation Council of the European Union (7371/22) “A Strategic Compass for Security and Defence—For a European Union that Protects its Citizens, Values and Interests and Contributes to International Peace and Security”. 34 01 Unstructured citation Council Decision (CFSP) (2017) “Council Decision 2017/2315 of 11 December 2017”, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32017D2315&from=EN 34 01 Unstructured citation Deleidi, M., and M. Mazzucato (2019) “Mission-Oriented Innovation Policies: A Theoretical and Empirical Assessment for the US Economy”, Departmental Working Papers of Economics - University ‘Roma Tre’ 0248, Department of Economics - University Roma Tre. 34 06 10.1016/j.respol.2020.104151 34 01 Unstructured citation Draghi, M. (2024a) The Future of European Competitiveness. Part A: A Competitiveness Strategy for Europe. Brussels: European Commission. 34 01 Unstructured citation Draghi, M. (2024b) The Future of European Competitiveness. Part B: In-depth Analysis and Recommendations. Brussels: European Commission. 34 01 Unstructured citation Dunne, J. P., R. Smith, and D. Willenbockel (2005) “Models of Military Expenditure and Growth: A Critical Review”, Defence and Peace Economics 16(6): 449–460. 34 06 10.15355/epsj.11.2.50 34 06 10.1080/10242694.2019.1636182 34 01 Unstructured citation European Commission (2017) JOIN. 41 Final Improving Military Mobility in the European Union. Brussels: European Commission. 34 01 Unstructured citation European Commission (2018) JOIN. 5 Final On the Action Plan on Military Mobility. Brussels: European Commission. 34 01 Unstructured citation European Commission (2022a) JOIN. 48 Action Plan on Military Mobility 2.0. Brussels: European Commission. 34 01 Unstructured citation European Commission (2022b) JOIN. 24 Final On the Defence Investment Gaps Analysis and Way Forward. Brussels: European Commission. 34 01 Unstructured citation European Commission (2024) JOIN. 10 Final A New European Defence Industrial Strategy: Achieving EU Readiness through a Responsive and Resilient European Defence Industry. Brussels: European Commission. 34 01 Unstructured citation European Council (1999a) “Declaration of the European Council on Strengthening the Common European Security and Defence”, European Council, Cologne 3–4 June 1999, https://www.europarl.europa.eu/summits/kol1_en.htm 34 01 Unstructured citation European Council (1999b) “Presidency Conclusions”, Helsinki European Council, 10–11 December 1999, https://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/ACFA4C.htm 34 01 Unstructured citation European Council (March 2024) “Conclusions—21 and 22 March 2024”, https://www.consilium.europa.eu/media/70880/euco-conclusions-2122032024.pdf 34 01 Unstructured citation EDA (2018) Factsheet: Capability Development Plan. Brussels: EDA, https://eda.europa.eu/publications-and-data/factsheets/factsheet-capability-development-plan 34 01 Unstructured citation EDA (2021) Annual Report. Brussels: EDA. 34 01 Unstructured citation EDA (2022) 2022 Coordinated Annual Review on Defence Report. Brussels: EDA. 34 01 Unstructured citation EDA (2023) Annual Report. Brussels: EDA. 34 01 Unstructured citation EU (2014) “The Mechanism for Financing Military Operations (Athena). Summaries of EU Legislation”, https://eur-lex.europa.eu/EN/legal-content/summary/the-mechanism-for-financing-military-operations-athena.html 34 06 10.1080/07036337.2023.2183395 34 01 Unstructured citation Fuest, C., and J. Pisani-Ferry (2019) “A Primer on Developing European Public Goods”, EconPol Policy Report 16(3), https://www.econstor.eu/bitstream/10419/219519/1/econpol-pol-report-16.pdf 34 06 10.1080/07036337.2023.2239998 34 01 Unstructured citation Letta, E. (2024) Much More Than a Market, https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf 34 01 Unstructured citation Malizard, J. (2015) “Does Military Expenditure Crowd Out Private Investment? A Disaggregated Perspective for the Case of France”, Economic Modelling 46: 44–52. 34 01 Unstructured citation Mazur, S. (2021) “Security and Defence Heading 5 of the 2021–2027 MFF”, Briefing 2021–2027 MFF, European Parliamentary Research Service, https://www.europarl.europa.eu/RegData/etudes/BRIE/2021/690545/EPRS_BRI(2021)690545_EN.pdf 34 01 Unstructured citation Mazzucato, M. (2013) The Entrepreneurial State: Debunking Public vs Private Sector Myths. London: Anthem Press. 34 01 Unstructured citation Mazzucato, M. (2018) “Mission-oriented Innovation Policies: Challenges and Opportunities”, Industrial and Corporate Change 27(5): 803–815. 34 01 Unstructured citation Moretti, E., C. Steinwender, and J. Van Reenen (2023) “The Intellectual Spoils of War? Defense R&D, Productivity, and International Spillovers”, Review of Economics and Statistics, 1–46. 34 06 10.1016/s0169-7218(10)02013-7 34 01 Unstructured citation Musgrave, R. A. (1939) “The Nature of Budgetary Balance and the Case for the Capital Budget”, American Economic Review 29(2): 260–271. 34 01 Unstructured citation NATO. (2014). Wales Summit Declaration Issued by the Heads of State and Government Participating in the Meeting of the North Atlantic Council in Wales, https://www.nato.int/cps/en/natohq/official_texts_112964.htm 34 01 Unstructured citation Oates, W. E. (1999) “An Essay on Fiscal Federalism”, Journal of Economic Literature 37(3): 1120–1149. 34 01 Unstructured citation Oates, W. E. (2005) “Toward a Second-Generation Theory of Fiscal Federalism”, International Tax and Public Finance 12: 349–373. 34 01 Unstructured citation Pivetti, M. (1989) “Military Expenditure and Economic Analysis: A Review Article”, Contributions to Political Economy 8(1): 55–67. 34 01 Unstructured citation Pivetti, M. (1992) “Military Spending as a Burden on Growth: an ‘Underconsumptionist’ Critique”, Cambridge Journal of Economics 16(4): 373–384. 34 01 Unstructured citation Smith, R. P., and P. Dunne (1994) “Is Military Spending a Burden? A Marxo-Marginalist Response to Pivetti”, Cambridge Journal of Economics 18(5): 515–521. 34 06 10.1080/10242694.2022.2091191 34 01 Unstructured citation Wyplosz, C. (2016) “The Six Flaws of the Eurozone”, Economic Policy 31(87): 559–606. 34 06 10.1177/0022343318808841 12 03 06 10.11647/obp.0434.11 169 180 12 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 10. Sustainable Mobility and Industrial Policy 1 A01 21 0000000227486472 Dario Guarascio Dario Guarascio Associate Professor of Economic Policy at the Department of Economics and Law 40 02be6w209 Sapienza University of Rome Dario Guarascio is Associate Professor of Economic Policy at the Department of Economics and Law—Sapienza University of Rome—and external affiliate of the Sant’Anna School of Advanced Studies in Pisa and of the National Institute for Public Policy Analysis (INAPP). Dario’s research covers economics of innovation, digitalization and labour markets, European economy, and industrial policy. He is Associate Editor of the journals Structural Change and Economic Dynamics, Journal of Industrial and Business Economics, and Economia & Lavoro and former member of the Commissions of the Ministry of Labour and Social Policy for the reform of social security. 2 A01 21 0000000188615090 Annamaria Simonazzi Annamaria Simonazzi Former Professor of Political Economy 40 02be6w209 Sapienza University of Rome Annamaria Simonazzi is Former Professor of Political Economy at La Sapienza University of Rome and Cnel Expert Advisor in the X Council. She is President of the Giacomo Brodolini Foundation, Managing Director of Economia & Lavoro and member of the editorial board of the web magazine www.inGenere.it. She has published widely on European macroeconomic issues, industrial policy, employment, welfare, and gender economics. 01 eng 03 00 Focusing on the automotive industry, this chapter addresses the problem of Europe’s vulnerability (e.g., import dependency, technological backwardness in key domains) and the hypothesis of the obsolescence of its growth and production model. First, we analyze the evolution of the Sino-German relationships highlighting the emergence of two divergent trajectories: while a well-tailored combination of industrial and trade policies allowed China to become the leader in electric vehicle (EV) production, the German development model, mostly driven by the choices of key carmakers, slowed innovation, fostered fragmentation within the European Union (EU) and created the conditions for the current vulnerability. Second, we identify the key elements— i.e., increasing demand for affordable EVs, investments in infrastructure for the provision of public goods, building-up a European Directorate for Resource Security—of a European industrial policy for sustainable mobility which may help achieve the multiple goals of decarbonizing the economy, increasing resilience, and reducing inequalities between and within countries. 30 00 Focusing on the automotive industry, this chapter addresses the problem of Europe’s vulnerability (e.g., import dependency, technological backwardness in key domains) and the hypothesis of the obsolescence of its growth and production model. First, we analyze the evolution of the Sino-German relationships highlighting the emergence of two divergent trajectories: while a well-tailored combination of industrial and trade policies allowed China to become the leader in electric vehicle (EV) production, the German development model, mostly driven by the choices of key carmakers, slowed innovation, fostered fragmentation within the European Union (EU) and created the conditions for the current vulnerability. Second, we identify the key elements— i.e., increasing demand for affordable EVs, investments in infrastructure for the provision of public goods, building-up a European Directorate for Resource Security—of a European industrial policy for sustainable mobility which may help achieve the multiple goals of decarbonizing the economy, increasing resilience, and reducing inequalities between and within countries. 20 00 Open Access Dario Guarascio Annamaria Simonazzi; 34 01 Unstructured citation Alim, A. N., P. Nilsson, and P. Campbell (2024) “Volkswagen Considers Partnership to Produce Mass Market Electric Vehicles”, March 13, Financial Times, https://www.ft.com/content/0985f16c-105c-4b62-aa80-3658fa9b629a 34 01 Unstructured citation Alim, A. M., and S. Jones (2024) “German Companies’ Dependence on China Will Last Decades, Warns Siemens”, 14 April, Financial Times, https://www.ft.com/content/e8634f5c-5a28-4741-a13d-024665456f43? 34 01 Unstructured citation Autor, D. H, D. Dorn, and G. H. Hanson (2016) “The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade”, BNER 21906. 34 01 Unstructured citation Baqaee, D., J. Hinz, B. Moll, M. Schularick, F. A. Teti, J. Wanner, and S. Yang (2024) “What If? The Effects of a Hard Decoupling from China on the German Economy”, Kiel Policy Brief 170. 34 06 10.1111/jcms.13599 34 01 Unstructured citation Beattie, A. (2024) “Europe’s New Anti-subsidy Weapon Is Powerful but Hard to Control: The EU Foreign Subsidies Regulation Is Looking to Score Some Notable Hits”, 9 May, Financial Times, https://www.ft.com/content/db880189-6556-427d-9c80-b4af3c8917d2? 34 01 Unstructured citation Celi, G., A. Ginzburg, D. Guarascio, and A. Simonazzi (2018) Crisis in the European Monetary Union. Oxford: Routledge. 34 01 Unstructured citation Celi, G., D. Guarascio, J. Reljic, A. Simonazzi, and F. Zezza (2022) “The Asymmetric Impact of War: Resilience, Vulnerability and Implications for EU Policy”, Intereconomics 57(3): 141–147. 34 01 Unstructured citation De Cecco, M. (1978) “Il sistema monetario internazionale”, in M. Carmagnani and A. Vercelli (eds.), Economia e storia. Florence: La Nuova Italia, pp. 810–830. 34 01 Unstructured citation De Quant, S., S. Tordoir, and S. Vallée (2024) “Caught in Geopolitical Fragmentation: How to De-risk Germany’s Economic Model”, Working Paper 02/2024. 34 01 Unstructured citation Deutsche Bundesbank (2024) “Risks Facing Germany as a Result of its Economic Ties with China”, Monthly Report, January. 34 06 10.1177/10245294231207990 34 01 Unstructured citation Guarascio, D., J. Reljic, G. Cucignatto, G. Celi, and A. Simonazzi (2024) “Between Scylla and Charybdis. Long-term Drivers of EU Structural Vulnerability, Review of Keynesian Economics 12(4): forthcoming. 34 01 Unstructured citation Hvistendahl, M., J. Ewing, and J. Liu (2024) “A Pivot to China Saved Elon Musk. It also Binds Him to Beijing”, 27 March, New York Times, https://www.nytimes.com/2024/03/27/world/asia/elon-musk-tesla-china.html 34 01 Unstructured citation Janeway, W.H. (2024) “Is Techno-Monopoly Inevitable?”, 5 April, Project Syndicate, https://www.project-syndicate.org/onpoint/us-big-tech-monopolies-market-power-from-key-innovations-by-william-h-janeway-2024-04 34 01 Unstructured citation Li, G., and P. Campbell (2024) “BYD Loses EV Throne to Tesla as Sales slip”, 2 April, Financial Times, https://www.ft.com/content/4f1a2188-ced0-4018-998d-5148209a5f5e 34 01 Unstructured citation Matthes, J. (2023) “Entwicklung des Konkurrenzdrucks durch China auf dem EU-Markt: Update einer Vorläuferstudie” [Evoluzione della pressione competitiva della Cina sul mercato UE], IW-Report 39/2023. 34 01 Unstructured citation McMorrow, R., and G. Li (2024) “The Steve Jobs of China Turns Car Salesman. in Xiaomi’s EV Evolution”, 5 April, Financial Times, https://www.ft.com/content/f0664662-ea9f-4bd6-a5c1-6c76c99b6ccd 34 01 Unstructured citation Moscoso, L., and I. Stoyanova (2024) “The Foreign Subsidies Regulation—100 Days Since the Start of the Notification Obligation for Concentrations”, Competition FSR Brief 1, https://competition-policy.ec.europa.eu/document/download/22197012-2036-4b1e-8b02-0eb8b2d6e666_en?filename=kdar24001enn_competition_FSR_brief_1_2024_100-days-of-FSR-notification-obligation.pdf 34 01 Unstructured citation Nilsson, P. (2024) “German Car Parts Suppliers Plan Job Cuts amid Costly EV Transition”, 18 January, Financial Times, https://www.ft.com/content/40585c6c-741c-4450-8f06-8d367839594c 34 06 10.2139/ssrn.4304165 34 01 Unstructured citation Pavlinek, P. (2023) “Transition of the Automotive Industry towards Electric Vehicle Production in the East European Integrated Periphery”, Empirica 50: 35–73. 34 01 Unstructured citation Russo, M., F. Alboni, J. C. Sanginés, M. De Domenico, G. Mangioni, S. Righi, and A. Simonazzi (2023) “Regionalisation and Cross-region Integration. Twin Dynamics in the Automotive International Trade Networks”, Structural Change and Economic Dynamics 67: 98–114. 34 01 Unstructured citation Sandbu, M. (2022) “Europe Is Learning that You Can’t Separate Trade and Politics”, 6 November, Financial Times, https://www.ft.com/content/a1b97de4-b366-4a0e-aa58-93a6b6fa8b2a 34 01 Unstructured citation Simonazzi, A., J. Carreto Sanginés, and M. Russo (2022) “The World to Come: Key Challenges for the Automotive Industry”, Economia & Lavoro 56(1): 7–23. 34 01 Unstructured citation Szalavetz, A. (2022) “Transition to Electric Vehicles in Hungary: A Devastating Crisis or Business as Usual?”, Technological Forecasting and Social Change 184: 122029. 34 01 Unstructured citation Weissmann, J. (2016) “Did Donald Trump Win the Election Because of Trade? A New Study Suggests It Helped”, 2 December, Slate, https://slate.com/business/2016/12/study-suggests-job-losses-to-china-helped-donald-trump-win-the-election.html 34 01 Unstructured citation White, E., M. Pooler, A. A. Lakshmi, and C. Murray (2024) “China’s Plan to Sell Cheap EVs to the Rest of the World”, 5 June, Financial Times, https://www.ft.com/content/c77fefa3-7f47-429b-8149-50aa60f39498?emailId=edd2675d-ec77-423b-89f1-680005d5b02d&segmentId=22011ee7-%E2%80%A61/16 13 03 06 10.11647/obp.0434.12 181 186 6 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 11. Financing Structural Investment after 2027 1 A01 Sophie Barbier Sophie Barbier Sophie Barbier is the Head of European Affairs at the French Caisse des Dépôts (CDC) Group. She graduated from the National School of Administration (ENA) and completed a Master’s degree in Economics from the Ecole Normale Supérieure de Cachan and Nanterre University. Previously, she worked at the Forecasting Department in the French Ministry for Finance and in the Asset-Liability Team in CDC. She is currently involved in the implementation of EU programs within CDC, such as the InvestEU program and the blending instrument under the Connecting Europe Facility. 2 A01 Helmut von Glasenapp Helmut von Glasenapp Helmut von Glasenapp studied business administration in Germany, after an apprenticeship in banking. He gained his first business experience with Treuhandanstalt, the former privatization agency in the eastern part of Germany. In 1993 he joined KfW in the Berlin office. From 1997 until 2005, he invested on behalf of KfW in Venture Capital and Private Equity Funds and managed a part of the innovation financing division of KfW Frankfurt. In 2005 he was asked to assist the European Commission as a Seconded National Expert notably to prepare an Equity Promotional Programme for SMEs. In 2007 he continued in Brussels as head of the KfW Liaison Office to the European Union before he was appointed as member of the EU Task Force for Greece of the European Commission until 2015. He joined the Brussels based Secretariat General of the European Long Term Investors Association in 2016 and was elected as ELTI Secretary General in October 2016. 01 eng 03 00 An investment can be described as structural if it contributes to financing the structural transformation of the economy and thus making it sustainably competitive. Experience shows that private investments alone are not sufficient due to externalities associated with this type of investment. A mixed public and private financing method is essential and it will help to accelerate the transformation. The challenge of the next European Union (EU) Multiannual Financial Framework (“post-2027”) will be to promote the development of this f inancing method. In this respect, the European budget will have to rely on four pillars: prioritize and plan, activate expenditure, decentralize implementation and strengthen steering. It is on this basis that Europe will be able to finance its structural investments and achieve the structural transformation necessary to maintain and develop its long-term competitiveness within the framework of a new European Competitiveness Pact. 30 00 An investment can be described as structural if it contributes to financing the structural transformation of the economy and thus making it sustainably competitive. Experience shows that private investments alone are not sufficient due to externalities associated with this type of investment. A mixed public and private financing method is essential and it will help to accelerate the transformation. The challenge of the next European Union (EU) Multiannual Financial Framework (“post-2027”) will be to promote the development of this f inancing method. In this respect, the European budget will have to rely on four pillars: prioritize and plan, activate expenditure, decentralize implementation and strengthen steering. It is on this basis that Europe will be able to finance its structural investments and achieve the structural transformation necessary to maintain and develop its long-term competitiveness within the framework of a new European Competitiveness Pact. 20 00 Open Access Sophie Barbier Helmut von Glasenapp; 34 01 Unstructured citation Attali, B. (2022) “Investing for the Long Term, a Short-term Emergency (Some Food for Thought)”, Eltia, https://www.eltia.eu/images/20201210_texte_VF_EN_FINAL.pdf 34 01 Unstructured citation Attali, B. (2024) “Investing in the Future: Putting the Long Term at the Heart of our Decisions”, Report of the Commission, May, https://www.caissedesdepots.fr/en/news/investing-future-long-term-heart-decisions 34 01 Unstructured citation Confrontations Europe (2024) 30 idées pour 2030. Paris: Descartes et Cie. 34 01 Unstructured citation European Council (2024) “Conclusions”, April 17 and 18, https://www.consilium.europa.eu/media/m5jlwe0p/euco-conclusions-20240417-18-en.pdf 34 01 Unstructured citation European Long-Term Investors (2024) “Strategic Outlook—Activating the EU Budget for Long-term Needs”, Eltia, https://www.eltia.eu/images/2024_02_29_Strategic_outlook.pdf 34 01 Unstructured citation Letta, E. (2024) Much More Than a Market, https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf 34 01 Unstructured citation Meade J. E. (1952) “External Economies and Diseconomies in a Competitive Situation”, The Economic Journal, 62(245): 54–67. 01 URL https://www.openbookpublishers.com/ Open Book Publishers 01 Open Book Publishers 01 Publisher's website: home page https://www.openbookpublishers.com/ 02 Publisher's website: webpage for this title https://www.openbookpublishers.com/books/10.11647/OBP.0434 Cambridge, UK 04 01 20241211 Floriana Cerniglia Francesco Saraceno. Copyright of individual chapters are maintained by the chapter author(s). 02 WORLD 06 15 9781805114383 03 9781805114383 06 15 9781805114390 03 9781805114390 06 15 9781805114406 03 9781805114406 06 15 9781805114413 03 9781805114413 WORLD 09 Open Book Publishers 02 Publisher's website: webpage for this product https://www.openbookpublishers.com/books/10.11647/obp.0434 29 Publisher's website: download the title https://books.openbookpublishers.com/10.11647/obp.0434/ 20 08 20241211 01 urn:uuid:0967df79-737b-4a44-a585-248974c6310a 03 01 01 thoth-work-id urn:uuid:a5a08fcc-4060-4738-abe7-c93ec292e390 01 thoth-publication-id urn:uuid:0967df79-737b-4a44-a585-248974c6310a 15 9781805114413 03 9781805114413 06 10.11647/OBP.0434 13 2023513492 23 1478292248 00 EB E101 10 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ 10 01 Series ID 85c48355-467d-436d-90c9-fe97626c22c8 02 23996676 01 Series URL https://www.openbookpublishers.com/series/2399-6676 03 13 01 02 Open Reports Series 01 01 Investing in the Structural Transformation 2024 European Public Investment Outlook 1 B01 21 000000019972716X Floriana Cerniglia Floriana Cerniglia Full Professor of Economics 40 03h7r5v07 Università Cattolica del Sacro Cuore Floriana Cerniglia is a Full Professor of Economics at Università Cattolica del Sacro Cuore (Milan) and Director of CRANEC (Centro di ricerche in analisi economica e sviluppo economico internazionale). She is the Co-Editor-in-Chief of Economia Politica (Journal of Analytical and Institutional Economics). She received her PhD from the University of Warwick (UK) and her research interests are in public economics and in macroeconomic policies. She has published in leading international journals and she has coordinated and participated in a number of peer-reviewed research projects. 2 B01 21 0000000301214329 Francesco Saraceno Francesco Saraceno Deputy Department Director at OFCE 40 05fe7ax82 Sciences Po, Paris Francesco Saraceno is Deputy Department Director at OFCE, the research centre in economics at Sciences Po in Paris, and Professor of Practice at LEAP-Luiss, Rome. He holds PhDs in Economics from Columbia University and the Sapienza University of Rome. His research focuses on the relationship between inequality, macroeconomic performance, and European macroeconomic policies. From 2000 to 2002 he was a member of the Council of Economic Advisors for the Italian Prime Minister’s Office. He teaches international and European macroeconomics at Sciences Po, where he manages the Economics concentration of the Master’s in European Affairs, and in Rome (Luiss). He is Academic Director of the Sciences Po-Northwestern European Affairs Program. He advises the International Labour Organization (ILO) on macroeconomic policies for employment and participates in IMF training programmes on fiscal policy. 01 eng 00 210 03 09 44 11 10 10 BUS039000 B2 Economics 04 HD3616.E8 93 LBBM3 10 BUS051000 B2 European Studies 93 KCB 93 1D 10 BUS068000 B2 Politics and Sociology 10 BUS032000 10 POL024000 20 Public investment; Structural transformation; European economy; Fiscal policy; Sustainable growth 01 06 02 00 The fifth volume in the European Public Investment Outlook series explores how Europe can drive structural transformation through strategic public investment. Reflecting on the lessons from the 2008–2020 polycrisis and recent economic challenges, this timely book examines fiscal policy's role in both stabilization and long-term economic devel 03 00 The fifth volume in the European Public Investment Outlook series explores how Europe can drive structural transformation through strategic public investment. Reflecting on the lessons from the 2008–2020 polycrisis and recent economic challenges, this timely book examines fiscal policy's role in both stabilization and long-term economic development.Part I, ‘State of the Art’, reviews current public investment and industrial policies in major European economies, including France, Germany, Italy, and Spain. It provides detailed analyses of each country's approach to fostering structural transformation through public investment.Part II, ‘Challenges’, addresses the diverse obstacles and opportunities facing Europe’s industrial policy. It emphasizes a multidimensional strategy to overcome bottlenecks in key sectors and drive transformation. Topics include the role of industrial policy in the green transition, creating a cohesive strategy for Europe, enhancing economic security, trends in European Union defence spending, sustainable mobility, and financing structural investment beyond 2027.This volume is essential reading for researchers, economists, and policymakers focused on understanding and implementing effective public policy in Europe, and will further appeal to anyone interested in EU governance and public investment strategies more broadly. 30 00 The fifth volume in the European Public Investment Outlook series explores how Europe can drive structural transformation through strategic public investment. Reflecting on the lessons from the 2008–2020 polycrisis and recent economic challenges, this timely book examines fiscal policy's role in both stabilization and long-term economic development.Part I, ‘State of the Art’, reviews current public investment and industrial policies in major European economies, including France, Germany, Italy, and Spain. It provides detailed analyses of each country's approach to fostering structural transformation through public investment.Part II, ‘Challenges’, addresses the diverse obstacles and opportunities facing Europe’s industrial policy. It emphasizes a multidimensional strategy to overcome bottlenecks in key sectors and drive transformation. Topics include the role of industrial policy in the green transition, creating a cohesive strategy for Europe, enhancing economic security, trends in European Union defence spending, sustainable mobility, and financing structural investment beyond 2027.This volume is essential reading for researchers, economists, and policymakers focused on understanding and implementing effective public policy in Europe, and will further appeal to anyone interested in EU governance and public investment strategies more broadly. 04 00 List of Figures List of Tables Acknowledgements Preface Introduction PART I—STATE OF THE ART 1. Public Investment and Industrial Policy: A Case for More European Union Coordination 2. Public Investment and Industrial Policy in France 3. Germany: Additional Investment Needs Require Reform of the Debt Brake 4. Italy, NRRP, and Industrial Policy 5. Public Investment and Structural Transformation in Spain PART II—CHALLENGES 6. A New Industrial Policy as the Key to the Green Transition 7. A “True” Industrial Policy for Europe is a Technology and Innovation Policy 8. Industrial Policy and Security. The European Union and the Double Challenge: Strengthening Competitiveness and Enhancing Economic Security 9. Trends in Defence Spending in the European Union 10. Sustainable Mobility and Industrial Policy 11. Financing Structural Investment after 2027 Contributor Biographies 20 00 Open Access 01 00 03 02 https://books.openbookpublishers.com/10.11647/obp.0434_frontcover.jpg 1 03 06 10.11647/obp.0434.00 1 2 2 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 Preface 1 A01 21 0000000178327458 Alberto Quadrio Curzio Alberto Quadrio Curzio 2 A01 Xavier Ragot Xavier Ragot 01 eng 20 00 Open Access Alberto Quadrio Curzio Xavier Ragot; 2 03 06 10.11647/obp.0434.01 3 9 7 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 Introduction 1 A01 21 000000019972716X Floriana Cerniglia Floriana Cerniglia Full Professor of Economics 40 03h7r5v07 Università Cattolica del Sacro Cuore Floriana Cerniglia is a Full Professor of Economics at Università Cattolica del Sacro Cuore (Milan) and Director of CRANEC (Centro di ricerche in analisi economica e sviluppo economico internazionale). She is the Co-Editor-in-Chief of Economia Politica (Journal of Analytical and Institutional Economics). She received her PhD from the University of Warwick (UK) and her research interests are in public economics and in macroeconomic policies. She has published in leading international journals and she has coordinated and participated in a number of peer-reviewed research projects. 2 A01 21 0000000301214329 Francesco Saraceno Francesco Saraceno Deputy Department Director at OFCE 40 05fe7ax82 Sciences Po, Paris Francesco Saraceno is Deputy Department Director at OFCE, the research centre in economics at Sciences Po in Paris, and Professor of Practice at LEAP-Luiss, Rome. He holds PhDs in Economics from Columbia University and the Sapienza University of Rome. His research focuses on the relationship between inequality, macroeconomic performance, and European macroeconomic policies. From 2000 to 2002 he was a member of the Council of Economic Advisors for the Italian Prime Minister’s Office. He teaches international and European macroeconomics at Sciences Po, where he manages the Economics concentration of the Master’s in European Affairs, and in Rome (Luiss). He is Academic Director of the Sciences Po-Northwestern European Affairs Program. He advises the International Labour Organization (ILO) on macroeconomic policies for employment and participates in IMF training programmes on fiscal policy. 01 eng 20 00 Open Access Floriana Cerniglia Francesco Saraceno; 34 06 10.11647/obp.0328.08 34 01 Unstructured citation Blanchard, O. J. (2016) “Rethinking Macro Policy: Progress or Confusion?”, in O. J. Blanchard et al. (eds), Progress and Confusion: The State of Macroeconomic Policy, pp. 287–290. Cambridge, MA: MIT Press. 34 01 Unstructured citation Blot, C., J. Créel, H. Kempf, S. Levasseur, X. Ragot, and F. Saraceno (2024) “Sailing in All Weather Conditions the Next 25 Years: Challenges for the Euro”, Paper Presented at the European Parliament ECON Committee Monetary Dialogue, February, https://www.europarl.europa.eu/thinktank/en/document/IPOL_STU(2024)747835 34 06 10.11647/obp.0386.11 34 06 10.11647/obp.0328 34 06 10.11647/obp.0386 34 01 Unstructured citation Draghi, M. (2024) The Future of European Competitiveness. Brussels: European Commission, https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en 34 06 10.11647/obp.0280.07 34 06 10.11647/obp.0222.07 34 01 Unstructured citation Holston, K., T. Laubach, and J. C. Williams (2023) “Measuring the Natural Rate of Interest after COVID-19”, Federal Reserve Bank of New York Staff Report 1063 (June), https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr1063.pdf 34 01 Unstructured citation Lucas, R. E. (2003) “Macroeconomic Priorities”, American Economic Review 93(1): 1–14. 34 01 Unstructured citation Mazzucato, M. (2013) The Entrepreneurial State. London: Anthem Press. 34 01 Unstructured citation Platzer, J., and M. Peruffo (2022) “Secular Drivers of the Natural Rate of Interest in the United States: A Quantitative Evaluation”, IMF Working Papers 2022(030), https://www.imf.org/en/Publications/WP/Issues/2022/02/11/Secular-Drivers-of-the-Natural-Rate-of-Interest-in-the-United-States-A-Quantitative-512755 34 01 Unstructured citation Saraceno, F. (2023) Oltre Le Banche Centrali. Inflazione, Distribuzione e Politiche Economiche. Rome: Luiss University Press. 3 03 06 10.11647/obp.0434.02 13 30 18 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 1. Public Investment and Industrial Policy A Case for More European Union Coordination 1 A01 21 0000000269174194 Andrea Brasili Andrea Brasili Senior Economist 40 03zxry661 European Investment Bank Andrea Brasili is a Senior Economist at the EIB (Luxembourg) where his research interests are both micro (firm level) data analysis and macroeconomic developments, in particular those related to fiscal policy. He received his PhD in Public Economics from the University of Pavia (Italy). Before joining the EIB, he worked in the private sector (in Italian banks and asset management companies) as a research economist, whilst still collaborating with academia. 2 A01 21 000000016940380X Tuna Dökmeci Tuna Dökmeci PhD candidate in Economics 40 0031wrj91 European University Institute Tuna Dökmeci is a PhD candidate in Economics at European University Institute (Italy), and a trainee at the EIB (Luxembourg). Her research focuses on industrial policy, industrial organization, and competition policy. 3 A01 Atanas Kolev Atanas Kolev Principal Advisor at the Economics Department 40 03zxry661 European Investment Bank Atanas Kolev is Principal Advisor at the Economics Department of the EIB. He has worked on a wide range of topics related to investment and investment financing at the firm-, sector-, and economy-wide levels. He has been an organiser and contributor to the annual economics conference of the EIB on topics like economic and social cohesion, investment in the energy sector, adaptation to climate change, public investment, and infrastructure investment. Atanas Kolev is currently a coordinator, reviewer, and economics editor for the EIB Annual Investment Report. He holds an Economics PhD from Universitat Autònoma de Barcelona. 4 A01 21 0000000281939399 Debora Revoltella Debora Revoltella Director of the Economics Department 40 03zxry661 European Investment Bank Debora Revoltella has been Director of the Economics Department of the European Investment Bank since April 2011. The Department comprises thirty economists and provides economic analysis and studies to support the bank in defining its policies and strategies. Before joining the EIB, Debora worked for many years at CESEE, was head of the research department in COMIT, and later worked as Chief Economist for CESEE in UniCredit. Debora holds a PhD in Economics and has also worked as Adjunct Professor at Bocconi University. She is a member of the Steering Committees of the Vienna Initiative and CompNet, an alternate member of the Board of the Joint Vienna Institute, and a member of the boards of SUERF and the Euro 50 Group. 5 A01 21 0000000270067740 Jochen Schanz Jochen Schanz Senior Economist 40 03zxry661 European Investment Bank Jochen Schantz is Senior Economist at the European Investment Bank. After completing a PhD in game theory at the European University Institute, he worked at Lehman Brothers, the Bank of England, and the Bank for International Settlements on monetary and financial stability. At the European Investment Bank, he focuses on public investment and human capital. 6 A01 21 0009000575440400 Annamaria Tueske Annamaria Tueske Economist at the Economics Department 40 03zxry661 European Investment Bank Annamaria Tueske is an Economist at the Economics Department of the EIB. Her current work focuses on public investment, climate and energy economics and sustainable finance. Prior to joining the EIB, Annamaria worked at the University of Luxembourg, at the OECD and at the Fiscal Council of Hungary. Her academic training focused on industrial organization, networks, and transport economics, she graduated from the Toulouse School of Economics. 7 A01 21 0000000295108991 Wouter Van Der Wielen Wouter Van Der Wielen Economist in the Economics Department 40 03zxry661 European Investment Bank Wouter Van Der Wielen is an Economist in the Economics Department of the European Investment Bank (EIB). He is responsible for impact studies of public and private sector policy support schemes and contributes macroeconomic analyses to the EIB’s f lagship publications, such as the EIB Investment Report. Prior to joining the EIB, he worked as an economic analyst at the European Commission’s Joint Research Centre, where he was principally responsible for the research developing macro-fiscal models accounting for output and employment effects of fiscal reforms. His main areas of expertise are macroeconomics, fiscal policy and labour economics. He holds a PhD in Economics as well as an MSc of Advanced Studies in Economics from KU Leuven. 01 eng 03 00 Europe needs more investment. Speeding up the climate transition and relaunching EU innovation capabilities require special efforts. Coupled with strategic autonomy and the need to secure stable and clean energy sources, these issues highlight the increasing importance of European public goods (EPGs) and policies that extend beyond national boundaries, as they involve externalities and network effects. However, Europe’s current institutional structure and mechanisms may struggle to meet this challenge. This essay examines public investment trends in the EU, arguing that while public investments have increased, greater coordination and coherence are needed. Three critical axes are identified: the provision of EPGs, policy coordination at national levels, and sufficient funding. Improving the coordination of public investment, particularly in research and development (R&D) and the climate transition, is key to unlocking Europe’s full potential. This chapter emphasizes the importance of initiatives like Important Projects of Common European Interest (IPCEIs) in fostering collaboration across countries and sectors, but argues for expanded and more integrated efforts moving forward. 30 00 Europe needs more investment. Speeding up the climate transition and relaunching EU innovation capabilities require special efforts. Coupled with strategic autonomy and the need to secure stable and clean energy sources, these issues highlight the increasing importance of European public goods (EPGs) and policies that extend beyond national boundaries, as they involve externalities and network effects. However, Europe’s current institutional structure and mechanisms may struggle to meet this challenge. This essay examines public investment trends in the EU, arguing that while public investments have increased, greater coordination and coherence are needed. Three critical axes are identified: the provision of EPGs, policy coordination at national levels, and sufficient funding. Improving the coordination of public investment, particularly in research and development (R&D) and the climate transition, is key to unlocking Europe’s full potential. This chapter emphasizes the importance of initiatives like Important Projects of Common European Interest (IPCEIs) in fostering collaboration across countries and sectors, but argues for expanded and more integrated efforts moving forward. 20 00 Open Access Andrea Brasili Tuna Dokmeci Atanas Kolev Debora Revoltella Jochen Schanz Annamaria Tueske Wouter Van Der Wielen; 34 01 Unstructured citation Buti M., A. Coloccia, and M. Messori (2023) “European Public Goods”, June 9, CEPR, https://cepr.org/voxeu/columns/european-public-goods 34 01 Unstructured citation Bergeaud, A. (2024) “The Past Present and Future of EU Productivity”, Prepared for the ECB Central Banking Forum, July 2024, https://www.ecb.europa.eu/pub/pdf/sintra/ecb.forumcentbankpub2024_Bergeaud_paper.en.pdf 34 06 10.11647/obp.0386 34 01 Unstructured citation Demertzis, M., D. Pinkus, and N. Ruer (2024) “Accelerating Strategic Investment in the European Union beyond 2026”, Bruegel Report, January 24, https://www.bruegel.org/system/files/2024-01/Report 01 2024.pdf 34 01 Unstructured citation Draghi, M. (2023) “The Next Flight of the Bumblebee: The Path to Common Fiscal Policy in the Eurozone”, 15th Annual Feldstein Lecture at the NBER Summer Institute 2023 in Cambridge, October 10, NBER, https://www.nber.org/reporter/2023number3/next-flight-bumblebee-path-common-fiscal-policy-eurozone 34 01 Unstructured citation Draghi, M. (2024) The Future of European Competitiveness. Brussels: European Commission, https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en 34 01 Unstructured citation European Commission (2020) “A New Industrial Strategy for Europe”, COM(2020) 102, March 10, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52020DC0102 34 01 Unstructured citation European Commission (2021) “Updating the 2020 New Industrial Strategy: Building a stronger Single Market for Europe’s recovery”, SWD(2021) 352, May 5, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52021SC0352 34 01 Unstructured citation European Commission (2022) “Framework for State Aid for Research and Development and Innovation”, 2022/C 414/01, October 28, https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=OJ%3AC%3A2022%3A414%3AFULL#:~:text=This Framework provides guidance on,)(c) of the Treaty. 34 01 Unstructured citation Fuest, C., and J. Pisani-Ferry (2019) “A Primer on Developing European Public Goods (A Report to Ministers Bruno Le Maire and Olaf Scholz)”, November 3, https://www.bruegel.org/sites/default/files/wp-content/uploads/2019/11/European-public-goods-primer.pdf 34 01 Unstructured citation Letta, E. (2024) Much More Than a Market, https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf 34 01 Unstructured citation Nicolaides, P. (2018) “State Aid and EU Funding: Are They Compatible?”, In-Depth Analysis Requested by the CONT Committee, Policy Department for Budgetary Affairs, April, https://www.europarl.europa.eu/cmsdata/142819/Briefing_State Aid and EU funding_Final.pdf 34 01 Unstructured citation Wyplosz, C. (2024) “Which European Public Goods?”, IPOL | Economic Governance and EMU Scrutiny Unit, March, https://www.europarl.europa.eu/RegData/etudes/IDAN/2024/755722/IPOL_IDA(2024)755722_EN.pdf 34 01 Unstructured citation Von der Leyen, U. (2024) “Statement at the European Parliament Plenary by President Ursula von der Leyen, Candidate for a Second Mandate 2024–2029”, European Commission, https://ec.europa.eu/commission/presscorner/detail/ov/STATEMENT_24_3871 4 03 06 10.11647/obp.0434.03 31 44 14 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 2. Public Investment and Industrial Policy in France 1 A01 21 0009000979785667 Vincent Charlet Vincent Charlet Vincent Charlet is the Executive Director of La Fabrique de l’industrie, a think tank he contributed to launch in 2011. Supported by the French manufacturers’ associations, co-chaired by Louis Gallois (former president of Stellantis, former CEO of Airbus Group) and Pierre-André de Chalendar (former CEO of Saint-Gobain), La Fabrique de l’industrie publishes robust studies on the performance, transformations, and assets of industrial companies and on the professional trajectories of their employees. After training as an engineer, Vincent Charlet devoted himself to the analysis of public systems and the management of change. He first participated in initiatives aimed at renovating the research and innovation system in France (evaluation, construction of indicators, foresight). He notably led the FutuRIS project, a prospective operation supported equally by major private R&D players, public research establishments. and the State, from 2006 to 2011. 2 A01 Mathieu Plane Mathieu Plane Deputy Director of the Analysis and Forecasting Department at the OFCE Research Center in Economics 40 05fe7ax82 Sciences Po, Paris Mathieu Plane is a Deputy Director of the Analysis and Forecasting Department at the OFCE Research Center in Economics, Sciences Po, Paris. He is in charge of economic forecasts for the French economy and works on economic policy issues. He teaches at Sciences Po, Paris and at the University of Paris Pantheon-Sorbonne. He was, in 2013–2014, economic advisor to the Ministers of Economy, Industry, and the Digital Sector. He has recently published, in collaboration with other authors of OFCE, 25 Years of Monetary Union: The Eurozone through Its Crises; Growth Up Against Fiscal Recovery: Economic Outlook for the French Economy 2024–2025, and French Economy 2025 by Éditions La Découverte, Repères collection. 3 A01 21 0000000301214329 Francesco Saraceno Francesco Saraceno Deputy Department Director at OFCE 40 05fe7ax82 Sciences Po, Paris Francesco Saraceno is Deputy Department Director at OFCE, the research centre in economics at Sciences Po in Paris, and Professor of Practice at LEAP-Luiss, Rome. He holds PhDs in Economics from Columbia University and the Sapienza University of Rome. His research focuses on the relationship between inequality, macroeconomic performance, and European macroeconomic policies. From 2000 to 2002 he was a member of the Council of Economic Advisors for the Italian Prime Minister’s Office. He teaches international and European macroeconomics at Sciences Po, where he manages the Economics concentration of the Master’s in European Affairs, and in Rome (Luiss). He is Academic Director of the Sciences Po-Northwestern European Affairs Program. He advises the International Labour Organization (ILO) on macroeconomic policies for employment and participates in IMF training programmes on fiscal policy. 01 eng 03 00 This chapter first traces the long-term evolution of public investment in France, noting how this is mostly channelled through local governments and how, while comparatively high with respect to other advanced economies, the public capital stock and the general government net wealth have been steadily decreasing since the Global Financial Crisis of 2008. After the COVID-19 shock, despite the 2021 “Plan de Relance” and the 2022 “Build the France of 2030” program, public investment has remained surprisingly flat. The chapter then discusses the recent evolutions in French industrial policy objectives. The Lisbon Strategy was centred on boosting productivity through innovation and climbing the value added ladder. The response to the crisis of 2008 marks a first change, with a strong emphasis on price competitiveness and cost reduction (including through corporate tax reduction). Since the early days of the pandemics, then, the notion of “industrial sovereignty” has very quickly eclipsed that of competitiveness, with policies aimed at reindustrialization especially in strategic sectors. The chapter concludes that these frequent changes indicate an excessive short-term focus among French policy makers, incompatible with managing long-term structural transformation. 30 00 This chapter first traces the long-term evolution of public investment in France, noting how this is mostly channelled through local governments and how, while comparatively high with respect to other advanced economies, the public capital stock and the general government net wealth have been steadily decreasing since the Global Financial Crisis of 2008. After the COVID-19 shock, despite the 2021 “Plan de Relance” and the 2022 “Build the France of 2030” program, public investment has remained surprisingly flat. The chapter then discusses the recent evolutions in French industrial policy objectives. The Lisbon Strategy was centred on boosting productivity through innovation and climbing the value added ladder. The response to the crisis of 2008 marks a first change, with a strong emphasis on price competitiveness and cost reduction (including through corporate tax reduction). Since the early days of the pandemics, then, the notion of “industrial sovereignty” has very quickly eclipsed that of competitiveness, with policies aimed at reindustrialization especially in strategic sectors. The chapter concludes that these frequent changes indicate an excessive short-term focus among French policy makers, incompatible with managing long-term structural transformation. 20 00 Open Access Vincent Charlet Mathieu Plane Francesco Saraceno 34 01 Unstructured citation Blot, C., J. Créel, H. Kempf, S. Levasseur, X. Ragot, and F. Saraceno (2024) “Sailing in All Weather Conditions the Next 25 Years: Challenges for the Euro”, Paper Prepared for the European Parliament ECON Committee Monetary Dialogue, February. 34 06 10.11647/obp.0222.01 34 01 Unstructured citation Charlet, V. (2024) Ce que l’industrie attend des banques. Paris: Presses des Mines. 34 01 Unstructured citation European Commission (2023) “EU Budget: Commission Proposes Strategic Technologies for Europe Platform (STEP) to Support European Leadership on Critical Technologies”, European Commission. 34 01 Unstructured citation Pisani-Ferry, J., and S. Mahfouz (2023) “Les Incidences Économiques de l’action Pour Le Climat”, May 22, France Strategie, Rapport à La Première Ministre, https://www.strategie.gouv.fr/publications/incidences-economiques-de-laction-climat 34 06 10.11647/obp.0280.02 34 01 Unstructured citation Von der Leyen, U. (2022) “State of the Union”, 14 September, European Commission, https://state-of-the-union.ec.europa.eu/state-union-2022_en 34 01 Unstructured citation White House (2023) Building a Clean Energy Economy: A Guidebook to the Inflation Reduction Act’s Investments in Clean Energy and Climate Action. Washington, DC: The White House, https://www.whitehouse.gov/wp-content/uploads/2022/12/Inflation-Reduction-Act-Guidebook.pdf 5 03 06 10.11647/obp.0434.04 45 58 14 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 3. Germany Additional Investment Needs Require Reform of the Debt Brake 1 A01 Katja Rietzler Katja Rietzler Head of the Unit of Fiscal Policy at the Macroeconomic Policy Institute (IMK) 40 022b5tw91 Hans-Böckler Foundation Katja Rietzler is Head of the Unit of Fiscal Policy at the Macroeconomic Policy Institute (IMK), part of the Hans-Böckler Foundation. She holds a PhD from the Freie Universität, Berlin. Among other topics, her research focuses on fiscal issues of the municipalities, the German tax-system, public investment needs, and fiscal rules. In addition, she is a member of the IMK’s modelling team. As an expert she regularly participates in parliamentary hearings on issues such as tax legislation, annual budgets, or the debt brake and its implementation. 2 A01 Andrew Watt Andrew Watt General Director 40 00r5yyv69 European Trade Union Institute Andrew Watt is General Director, European Trade Union Institute (ETUI), and former Head of the Unit of European Economic Policy at the Macroeconomic Policy Institute (IMK), part of the Hans-Böckler Foundation. He holds a PhD from the University of Hamburg. His main research fields are European economic and employment policy and comparative political economy, with a particular interest in the interaction between wage-setting and macroeconomic policy. Recent work has focused on reform of the economic governance of the euro area, emphasizing the need to coordinate monetary, fiscal, and wage policy in order to achieve balanced growth and favourable employment outcomes. He has served as advisor to numerous European and national institutions, including the European. 01 eng 03 00 In recent quarters, German public investment has increased slightly in real terms. However, this development is driven largely by special effects such as the reclassification of public transport companies and increased military spending. Additional investment needs are estimated to be as high as 1.4% of GDP, and cannot be met without a substantial reform of the debt brake. Economists have recently come up with numerous reform proposals, but there is still no political majority for a reform. While European fiscal rules do not require much f iscal tightening in Germany, they do constrain the use of credit to finance the necessary additional public investment. Instead of a big push, the more likely scenario is continued incremental progress, or “muddling through”. 30 00 In recent quarters, German public investment has increased slightly in real terms. However, this development is driven largely by special effects such as the reclassification of public transport companies and increased military spending. Additional investment needs are estimated to be as high as 1.4% of GDP, and cannot be met without a substantial reform of the debt brake. Economists have recently come up with numerous reform proposals, but there is still no political majority for a reform. While European fiscal rules do not require much f iscal tightening in Germany, they do constrain the use of credit to finance the necessary additional public investment. Instead of a big push, the more likely scenario is continued incremental progress, or “muddling through”. 20 00 Open Access Katja Rietzler Andrew Watt; 34 01 Unstructured citation Bardt, H., S. Dullien, M. Hüther, and K. Rietzler (2020) “For a Sound Fiscal Policy: Enabling Public Investment”, IMK Report 152e, March, https://www.imk-boeckler.de/fpdf/HBS-007619/p_imk_report_152e_2020.pdf 34 01 Unstructured citation Braun, H. (2021). “Das ist der Plan für Deutschland nach Corona”, Handelsblatt, January 26, https://www.handelsblatt.com/meinung/gastbeitraege/gastkommentar-das-ist-der-plan-fuer-deutschland-nach-corona/26850508.html 34 01 Unstructured citation Bundesministerium der Finanzen, BMF (2024a) “Vorläufiger Abschluss des Bundeshaushalts 2023”, Monatsbericht des BMF, January, https://www.bundesfinanzministerium.de/Monatsberichte/2024/01/Inhalte/Kapitel-3-Analysen/3-2-vorlaeufiger-abschluss-bundeshaushalt-2023.html 34 01 Unstructured citation Bundesministerium der Finanzen, BMF (2024b) “Abweichungen des Ergebnisses der Steuerschätzung Oktober 2024 vom Ergebnis der Steuerschätzung Mai 2024 ”, Anlage 2 zu Pressemitteilung 15 des BMF, https://www.bundesfinanzministerium.de/Content/DE/Downloads/Steuern/ergebnis-167-steuerschaetzung-02.pdf?__blob=publicationFile&v=6 34 01 Unstructured citation Bundesrechnungshof (2023) “Bericht nach § 88 Absatz 2 BHO an das Bundesministerium der Finanzen zur Steuerung und Kontrolle der Umsetzung des Deutschen Aufbau- und Resilienzplans”, Bonn, December 8, https://www.bundesrechnungshof.de/SharedDocs/Downloads/DE/Berichte/2024/umsetzung-darp-volltext.pdf?__blob=publicationFile&v=3 34 01 Unstructured citation Darvas, Z., L. Welslau, and J. Zettelmeyer (2024) “The Implications of the European Union’s New Fiscal Rules”, Policy Brief 10/24, https://www.bruegel.org/system/files/2024-07/PB 10 2024.pdf 34 01 Unstructured citation Dullien, S., T. Bauermann, L. Endres, A. Herzog-Stein, K. Rietzler, and S. Tober (2024a) “Schuldenbremse reformieren, Transformation beschleunigen. Wirtschaftspolitische Herausforderungen 2024”, IMK Report 187, January, https://www.econstor.eu/bitstream/10419/283062/1/p-imk-report-187-2024.pdf 34 01 Unstructured citation Dullien, S., S. Gerards-Iglesias, M. Hüther, and K. Rietzler (2024b) “Herausforderungen für die Schuldenbremse. Investitionsbedarfe in der Infrastruktur und für die Transformation”, IMK Policy Brief 168, https://econpapers.repec.org/paper/imkpbrief/168-2024.htm 34 06 10.11647/obp.0222.03 34 01 Unstructured citation Deutsche Bundesbank (2022) “Die Schuldenbremse des Bundes: Möglichkeiten einer stabilitätsorientierten Weiterentwicklung”, Deutsche Bundesbank, Monatsbericht, April. 34 01 Unstructured citation European Commission (2024a) “European Economic Forecast Spring 2024’, Institutional Paper 286, May, https://economy-finance.ec.europa.eu/document/download/c63e0da2-c6d6-4d13-8dcb-646b0d1927a4_en?filename=ip286_en.pdf 34 01 Unstructured citation European Commission (2024b) “2024 Country Report – Germany”, Commission Staff Working Document, SWD(2024) 605, June 19, https://economy-finance.ec.europa.eu/document/download/0826d6c6-4c97-44be-8b9e-1a0b5c4361c8_en?filename=SWD_2024_605_1_EN_Germany.pdf 34 01 Unstructured citation Fuest, C., M. Hüther, and J. Südekum (2024) “Folgen des Verfassungsurteils: Investitionen schützen. Vorteile eines Sondervermögens”, Frankfurter Allgemeine Zeitung, January 12, https://www.faz.net/aktuell/wirtschaft/folgen-des-haushaltsurteils-investitionen-schuetzen-19440915.html 34 01 Unstructured citation Hentze, T., and B. Kauder (2024) “Reformansätze für die Schuldenbremse”, ifo Schnelldienst 2/2024, 13–15, https://www.ifo.de/DocDL/sd-2024-02-haushaltspolitik-reform-schuldenbremse.pdf 34 01 Unstructured citation Hüther, M. (2024) “Ein gesamtstaatlicher »Transformations- und Infrastrukturfonds« zur Stabilisierung der Schuldenbremse”, Wirtschaftsdienst 104(1): 14–20. 34 01 Unstructured citation International Monetary Fund, IMF (2023) “Germany. Staff Report for the 2023 Article IV Consultation”, June 28, IFO, https://www.imf.org/-/media/Files/Publications/CR/2023/English/1DEUEA2023001.ashx 34 01 Unstructured citation Paetz, C., and S. Watzka (2024) “The New Fiscal Rules: Another Round of Austerity for Europe?”, IMK Policy Brief 176. 34 01 Unstructured citation Raffer, C., and H. Scheller (2024) KfW Kommunalpanel 2024. Frankfurt am Main: Kreditanstalt für Wiederaufbau, https://www.kfw.de/PDF/Download-Center/Konzernthemen/Research/PDF-Dokumente-KfW-Kommunalpanel/KfW-Kommunalpanel-2024.pdf 34 06 10.11647/obp.0280.03 34 06 10.11647/obp.0328.03 34 06 10.11647/obp.0386.03 34 01 Unstructured citation Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, SVR (2024) “Die Schuldenbremse nach dem BVerfG-Urteil: Flexibilität erhöhen – Stabilität wahren”, Policy Brief 1/2024, https://www.sachverstaendigenrat-wirtschaft.de/fileadmin/dateiablage/PolicyBrief/pb2024/Policy_Brief_2024_01.pdf 34 01 Unstructured citation Wissenschaftlicher Beirat beim BMWK (2023) Finanzierung von Staatsaufgaben: Herausforderungen und Empfehlungen für eine nachhaltige Finanzpolitik, Gutachten des Wissenschaftlichen Beirats beim Bundesministerium für Wirtschaft und Klimaschutz (BMWK). Berlin: BMWK, https://www.bmwk.de/Redaktion/DE/Publikationen/Ministerium/Veroeffentlichung-Wissenschaftlicher-Beirat/gutachten-wissenschaftlicher-beirat-finanzierung-von-staatsaufgaben.pdf?__blob=publicationFile&v=14 6 03 06 10.11647/obp.0434.05 59 76 18 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 4. Italy, NRRP, and Industrial Policy 1 A01 21 0000000302218057 Giovanni Barbieri Giovanni Barbieri Research Fellow at CRANEC (Centro di ricerche in analisi economica e sviluppo economico internazionale—Research Center in Economic Analysis and International Economic Development) 40 03h7r5v07 Università Cattolica del Sacro Cuore Giovanni Barbieri is a Research Fellow at CRANEC at Università Cattolica del Sacro Cuore. He holds a PhD in Institutions and Policies (2017, Università Cattolica del Sacro Cuore, Milano). He was previously Adjunct Professor of History of International and Commercial Institutions at the University of Palermo (DEMS) and Visiting Scholar at Scuola Normale’s ‘Istituto Ciampi’ in Florence (2022). His main expertises are International Relations Theory and International Political Economy (IPE). 2 A01 21 000000019972716X Floriana Cerniglia Floriana Cerniglia Full Professor of Economics 40 03h7r5v07 Università Cattolica del Sacro Cuore Floriana Cerniglia is a Full Professor of Economics at Università Cattolica del Sacro Cuore (Milan) and Director of CRANEC (Centro di ricerche in analisi economica e sviluppo economico internazionale). She is the Co-Editor-in-Chief of Economia Politica (Journal of Analytical and Institutional Economics). She received her PhD from the University of Warwick (UK) and her research interests are in public economics and in macroeconomic policies. She has published in leading international journals and she has coordinated and participated in a number of peer-reviewed research projects. 3 A01 Franco Mosconi Franco Mosconi Jean Monnet Professor of Industrial Economics 40 02k7wn190 Università di Parma Franco Mosconi is the Jean Monnet Professor of Industrial Economics at the University of Parma. He is a columnist for the Corriere di Bologna, the Bologna-based daily newspaper of Corriere della Sera. His research areas include European industrial policy and Industrial districts and clusters, topics on which he has extensively published in both national and international literature. 01 eng 03 00 This chapter assesses the National Recovery and Resilience Plan (NRRP) as an industrial policy tool within the Next Generation EU framework, despite limited explicit reference to an industrial strategy. The NRRP emerges during a unique moment for the European Union (EU), characterized by the suspension of the Stability and Growth Pact and the relaxation of state aid restrictions, which have collectively expanded public intervention opportunities. This marks a significant shift from the post-1990s ideological emphasis on competition over state involvement, particularly in Italy, where reductions in capital expenditure since 2009 have constrained public infrastructure and private investment. This chapter delves into the current landscape highlighting the potential for a more effective approach to industrial strategy using public investment. By focusing on “Mission 1” (Competitiveness) and “Mission 4” (Education and Research), the chapter aims to elucidate the NRRP’s industrial policy direction including reinforcing the special economic zones (SEZs) established in 2017. 30 00 This chapter assesses the National Recovery and Resilience Plan (NRRP) as an industrial policy tool within the Next Generation EU framework, despite limited explicit reference to an industrial strategy. The NRRP emerges during a unique moment for the European Union (EU), characterized by the suspension of the Stability and Growth Pact and the relaxation of state aid restrictions, which have collectively expanded public intervention opportunities. This marks a significant shift from the post-1990s ideological emphasis on competition over state involvement, particularly in Italy, where reductions in capital expenditure since 2009 have constrained public infrastructure and private investment. This chapter delves into the current landscape highlighting the potential for a more effective approach to industrial strategy using public investment. By focusing on “Mission 1” (Competitiveness) and “Mission 4” (Education and Research), the chapter aims to elucidate the NRRP’s industrial policy direction including reinforcing the special economic zones (SEZs) established in 2017. 20 00 Open Access Giovanni Barbieri Floriana Cerniglia Franco Mosconi; 34 06 10.1007/s10842-019-00322-3 34 01 Unstructured citation Andreoni, A. (2017) “Strategies for Emerging Technologies and Strategic Sectors: Evidence from OECD Countries and Some Critical Reflections on the Italian Case”, L’Industria. Rivista di Economia e Politica Industriale 1: 3–14, https://doi.org/10.1430/87136 34 01 Unstructured citation Barbieri, G., and S. J. Gahn (2023) “Le piattaforme tecno-scientifiche europee: sviluppi recenti in Italia”, in A. Quadrio Curzio, A. Silvani, M. Fortis, and F. Cerniglia (eds) (2023) Le piattaforme tecnico-scientifiche in Europa. Ricerca, economia, innovazione. Bologna: Il Mulino, Collana Fondazione Edison, pp. 297–318. 34 06 10.11647/obp.0328.04 34 01 Unstructured citation Barbieri, G., F. Cerniglia, and F. Mosconi (2024) “Italy and Industrial Policy at the Time of the NRRP”, CRANEC Working Paper 01/2024, https://centridiricerca.unicatt.it/cranec-home-pubblicazioni-22134 34 06 10.1080/09538259.2024.2368210 34 01 Unstructured citation Barbini, M., et al. (2024) “L’anno della crescita differenziata. Le regioni italiane nel 202”, Informazioni Svimez 4. 34 01 Unstructured citation Bianchi, P., and S. Labory (2016) Towards a New Industrial Policy. Milan: McGraw-Hill Education. 34 01 Unstructured citation Bratta, B., et al. (2020) “The Impact of Digitalization Policies. Evidence from Italy’s Hyper-depreciation of Industry 4.0 Investments”, Ministero dell’Economia e delle Finanze, DF Working Paper 20, https://www.finanze.gov.it/export/sites/finanze/.galleries/Documenti/Varie/dfwp6-1_ultimo.pdf 34 01 Unstructured citation Buba, J., and M. D. Wong (2017) Special Economic Zones: An Operational Review of their Impacts. Washington, DC: World Bank Group. 34 01 Unstructured citation Capriati, M., M. Deleidi, and G. Viesti (2022) “Che impatto macroeconomico può avere il PNRR nel Mezzogiorno?”, Menabò 174, https://eticaeconomia.it/che-impatto-macroeconomico-puo-avere-il-pnrr-nel-mezzogiorno/ 34 06 10.11647/obp.0328 34 01 Unstructured citation Cerniglia, F., A. Silvani, and A. Quadrio Curzio (2023) “La ricerca del Centro Cranec dell’Università Cattolica”, in A. Quadrio Curzio, A. Silvani, M. Fortis, and F. Cerniglia (eds), Le piattaforme tecnico-scientifiche in Europa. Ricerca, economia, innovazione. Bologna: Il Mulino, Collana Fondazione Edison, pp. 263–277. 34 01 Unstructured citation Chiapperini, C., and G. Viesti (2024) “Il PNRR e i divari territoriali”, Menabò 210, https://eticaeconomia.it/il-pnrr-e-i-divari-territoriali/ 34 01 Unstructured citation Coco, G. (2020) “Investimenti, disintermediazione, capacità: come superare la retorica delle politiche per il Mezzogiorno”, in G. Coco, and C. De Vincenti (eds), Una questione nazionale. Il Mezzogiorno da “problema” a “opportunità”. Bologna: Il Mulino, pp. 203-226 34 01 Unstructured citation Coco, G., and A. Lepore (2018) “Per un nuovo modello di intervento pubblico nel Mezzogiorno”, in G. Coco and A. Lepore (eds), Il risveglio del Mezzogiorno. Nuove politiche per lo sviluppo. Bari: Laterza, pp. 175-196 34 01 Unstructured citation Di Tommaso, M. R., L. Rubini, E. Barbieri, and C. Pollio (2024) Industry Organization and Industrial Policy. Production and Innovation, Development and Public Interest. Bologna: Il Mulino. 34 01 Unstructured citation Draghi, M. (2024) The Future of European Competitiveness. Brussels: European Commission, https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en 34 01 Unstructured citation European Commission (2005) “Implementing the Community Lisbon Programme: A Policy Framework to Strengthen EU Manufacturing—Towards a More Integrated Approach for Industrial Policy”, COM(2005) 464, October 5, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A52005DC0474 34 01 Unstructured citation European Commission (2012) “A Stronger European Industry for Growth and Economic Recovery Industrial Policy Communication Update”, COM(2012) 582, October 10, https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2012:0582:FIN:EN:PDF 34 01 Unstructured citation European Commission (2014) “For a European Industrial Renaissance”, COM(2014) 14, January 22, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52014DC0014&from=ET 34 01 Unstructured citation European Commission (2017) “Investing in a Smart, Innovative and Sustainable Industry: A Renewed EU Industrial Policy Strategy”, COM(2017) 479, September 13, https://eur-lex.europa.eu/resource.html?uri=cellar:c8b9aac5-9861-11e7-b92d-01aa75ed71a1.0001.02/DOC_1&format=PDF 34 01 Unstructured citation European Commission: Directorate-General for Research and Innovation and M. Mazzucato (2018) Mission-oriented Research & Innovation in the European Union—A Problem-solving Approach to Fuel Innovation-led Growth. Brussels: Publications Office, https://data.europa.eu/doi/10.2777/360325 34 01 Unstructured citation European Commission (2020) “A New Industrial Strategy for Europe”, COM(2020) 102, March 10, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52020DC0102 34 01 Unstructured citation European Commission (2021a) “Communication from the Commission. Criteria for the Analysis of the Compatibility with the Internal Market of State Aid to Promote the Execution of Important Projects of Common European Interest”, 2021/C 528/02, December 30, https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52021XC1230(02) 34 01 Unstructured citation European Commission (2021b) “Communication from the Commission on a New Funding Strategy to Finance NextGenerationEU”, COM(2021) 250, April 14, https://commission.europa.eu/document/download/a42a05ab-e656-4cf4-9d0b-b4d2825618ee_en?filename=com2021_250_en_act_part1_v3.pdf 34 01 Unstructured citation European Commission (2022) “A Chips Act for Europe”, COM(2022) 45, February 8, https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX%3A52022DC0045#:~:text=The EU Chips Act proposes,to future supply chain disruptions 34 01 Unstructured citation Governo Italiano (2021) Italia Domani: Piano Nazionale di Ripresa e Resilienza, https://www.italiadomani.gov.it/content/sogei-ng/it/it/home.html 34 01 Unstructured citation Guerrieri, P., and P. C. Padoan (2024) Sovereign Europe. An Agenda for Europe in a Fragmented Global Economy. Brookfield, VT: Edward Elgar. 34 01 Unstructured citation Jacquemin, A. (1987) The New Industrial Organization: Market Forces and Strategic Behaviour. Cambridge, MA: The MIT Press. 34 01 Unstructured citation Junker, J. C. (2017) “State of the Union Address”, Brussels, September 13, https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_17_3165 34 06 10.1146/annurev-economics-081023-024638 34 01 Unstructured citation Letta, E. (2024) Much More Than a Market, https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf 34 01 Unstructured citation Lucchese, M., and M. Pianta (2021) “Il Piano Nazionale di Ripresa e Resilienza in una prospettiva di politica industriale”, Moneta e Credito 74(294): 177–190. 34 01 Unstructured citation Ministero dell’Università e della Ricerca (2022) “NRRP, MUR: l’impatto della conoscenza grazie a un nuovo modo di fare ricerca e innovazione”, MUR, June 26, https://www.mur.gov.it/it/news/martedi-28062022/pnrr-mur-limpatto-della-conoscenza-grazie-un-nuovo-modo-di-fare-ricerca-e 34 01 Unstructured citation Ministero per gli Affari Europei (2023) “Terza relazione sullo stato di attuazione del Piano Nazionale di Ripresa e Resilienza”, June 20, Italia Domani, https://www.italiadomani.gov.it/content/sogei-ng/it/it/strumenti/documenti/archivio-documenti/terza-relazione-al-parlamento-sullo-stato-di-attuazione-del-pian.html 34 01 Unstructured citation Ministero per gli Affari Europei (2024) “Quarta relazione sullo stato di attuazione del Piano Nazionale di Ripresa e Resilienza”, https://www.affarieuropei.gov.it/media/7411/iv_relazione_al_parlamento_sezi.pdf 34 01 Unstructured citation Ministero per gli Affari Europei (2024) “Quinta relazione sullo stato di attuazione del Piano Nazionale di Ripresa e Resilienza”, Nota sintetica. https://www.affarieuropei.gov.it/media/7594/quinta_relazione_nota_sintetica.pdf 34 01 Unstructured citation Mosconi, F. (2015) The New European Industrial Policy. Global Competitiveness and the Manufacturing Renaissance. New York: Routledge. 34 01 Unstructured citation Mosconi, F. (2022) “European Industrial Policy from 2000 to 2020”, in J. C. Christophe Defraigne, J. Wouters, E. Traversa, and D. Zurstrassen (eds), EU Industrial Policy in the Multipolar Economy. Brookfield, VT: Edward Elgar, pp. 173-209 34 01 Unstructured citation Nisticò, R., and F. Prota (2023) “Sviluppo industriale per poli? Le zone economiche speciali in Italia e nel NRRP”, Stato e mercato 2: 227–263, https://dx.doi.org/10.1425/108269 34 06 10.1177/0486613420938207 34 06 10.1093/icc/dtz075 34 01 Unstructured citation Pianta, M. (2021) “La politica industriale al tempo del PNRR”, il Mulino 2: 152–162, https://doi.org/10.1402/101106 34 01 Unstructured citation Presidenza del Consiglio dei Ministri (2022) “Seconda relazione istruttoria sul rispetto del vincolo di destinazione alle regioni del Mezzogiorno di almeno il 40 per cento delle risorse allocabili territorialmente”, June 30, Dipartimento per le Politiche di Coesione, https://politichecoesione.governo.it/media/2954/seconda-relazione-destinazione-mezzogiorno-risorse-pnrr_dati-al-30_06_2022.pdf 34 01 Unstructured citation Prodi, R. (2003) “Industrial Policy in an Enlarged Europe, Speech Delivered at the Conference Industrial Policy in an Enlarged Europe by the President of the European Commission”, Speech Given in Brussels, January 21. 34 01 Unstructured citation PWC (2024) Dalle Zone Economiche Speciali regionali e interregionali alla ZES unica, https://www.pwc.com/it/it/assets/docs/pwc-dalle-ZES-regionali-e-interregionali-alla-ZES-unica.pdf 34 01 Unstructured citation Quadrio Curzio, A., A. Silvani, M. Fortis, and F. Cerniglia (2023) (eds) Le piattaforme tecnico-scientifiche in Europa. Ricerca, economia, innovazione. Bologna: Il Mulino, Collana Fondazione Edison. 34 01 Unstructured citation Resta, F. (2023) “Università e impresa: dal PNRR nuove reti per la ricerca”, in A. Quadrio Curzio A., A. Silvani, and F. Cerniglia (eds), Le piattaforme tecnico-scientifiche in Europa. Ricerca, economia, innovazione. Bologna: Il Mulino, Collana Fondazione Edison, pp. 64–75. 34 01 Unstructured citation Rodrik, D. (2004) “Industrial Policy for the Twenty-First Century”, John F. Kennedy School of Government, Cambridge, MA, September, https://drodrik.scholar.harvard.edu/files/dani-rodrik/files/industrial-policy-twenty-first-century.pdf 34 01 Unstructured citation Viesti, G. (2023) Riuscirà il PNRR a rilanciare l’Italia?. Rome: Donzelli editore. 34 01 Unstructured citation Viesti, G. (2024) “La ZES unica: dal mito alla dura realtà”, Menabò 208, https://eticaeconomia.it/la-zes-unica-dal-mito-alla-dura-realta/ 34 01 Unstructured citation von der Leyen, U. (2019a) “Speech by President-elect von der Leyen in the European Parliament Plenary on the Occasion of the Presentation of her College of Commissioners and their Programme”, Strasbourg, November 27. 34 01 Unstructured citation von der Leyen, U. (2019b) “A Union that Strives for More. My Agenda for Europe, by Candidate for President of the European Commission 2019–2024”, Strasbourg, July 16. 34 01 Unstructured citation White House (2022) Inflation Reduction Act Guidebook. Washington, DC: White House, https://www.whitehouse.gov/cleanenergy/inflation-reduction-act-guidebook/ 7 03 06 10.11647/obp.0434.06 77 95 19 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 5. Public Investment and Structural Transformation in Spain 1 A01 21 0000000328013447 Ignacio Alvarez Ignacio Alvarez Associate Professor of Applied Economics 40 01cby8j38 Universidad Autónoma de Madrid Ignacio Alvarez was the Secretary of State for Social Rights of the Government of Spain between January 2020 and November 2023. He holds a PhD in International Economics from the University Complutense of Madrid. He is currently Associate Professor of Applied Economics at the Autonomous University of Madrid. He has also worked as a Research Associate at the Complutense Institute of International Studies (ICEI), Visiting Professor of Labor Economics at the Spanish National University of Distance Education (UNED) and Assistant Professor at the University of Valladolid. He has been visiting researcher at the University Paris VII-Denis Diderot, at the Lisbon School of Economics and Management and at the University of South-Eastern Norway, and has participated in several European Union research projects (“Inclusive Growth through Wage Coordination”; “Collectively Agreed Wages in the New European Economic Governance”; “Collectively Agreed Wages in Europe”), as well as in several national projects. His research currently focuses on the study of the relationship between income distribution, demand, and economic growth. His academic articles have been published, among other journals, in the Socio-Economic Review, Cambridge Journal of Economics, Structural Change and Economic Dynamics, Review of Keynesian Economics, Work, Employment and Society, International Labour Review, and the Journal of Post Keynesian Economics. 2 A01 21 0000000222181004 Jorge Uxó Jorge Uxó Associate Professor of Applied Economics 40 02p0gd045 Universidad Complutense de Madrid Jorge Uxó has a PhD in Economics by the University Complutense of Madrid. He is currently Associate Professor of Applied Economics at the Complutense University of Madrid and Vice-President of the Spanish Productivity Board. He has been visiting researcher at the University of Coimbra (Centre for Social Studies), University of Alcalá and the European Trade Union Institute (ETUI) and has participated in European Union and national research projects, mainly focused on Macroeconomics and Economic Policy in Spain and the EMU and Post Keynesian Economics. His academic articles have been published, among other journals, in Cambridge Journal of Economics, Structural Change and Economic Dynamics, Review of Keynesian Economics, Review of Political Economy, International Labour Review, Journal of Post Keynesian Economics, Applied Economics or Metroeconomica. 01 eng 03 00 During the decade of 2010–2019, public investment experienced a profound decline in Spain, because of the fiscal austerity policies implemented during the Great Recession. Even with the recovery of economic growth starting in 2015, public investment did not improve and the net capital stock decreased. The COVID-19 pandemic introduced an important change in trend, with a general turnaround in fiscal policies accompanying the disbursement of Next Generation EU funds. These European Union funds will allow the implementation of an industrial transformation strategy focused on key specific sectors with high pulling power and strong multiplier effects. 30 00 During the decade of 2010–2019, public investment experienced a profound decline in Spain, because of the fiscal austerity policies implemented during the Great Recession. Even with the recovery of economic growth starting in 2015, public investment did not improve and the net capital stock decreased. The COVID-19 pandemic introduced an important change in trend, with a general turnaround in fiscal policies accompanying the disbursement of Next Generation EU funds. These European Union funds will allow the implementation of an industrial transformation strategy focused on key specific sectors with high pulling power and strong multiplier effects. 20 00 Open Access Ignacio Álvarez Jorge Uxó; 34 01 Unstructured citation Auerbach, A., and Y. Gorodnichenko (2012) “Fiscal Multipliers in Recession and Expansion”, NBER Working Paper 17447, National Bureau of Economic Research, Cambridge, Massachusetts. 34 01 Unstructured citation Bouabdallah, O. Dorrucci, E. Hoendervangers, L. and Nerlich, C. (2024) “Mind the Gap: Europe’s Strategic Investment Needs and How to Support Them”, The ECB Blog, 27 June, https://www.ecb.europa.eu/press/blog/date/2024/html/ecb.blog240627~2e939aa430.en.html 34 01 Unstructured citation Consejo Económico y Social (2020) La inversión pública en España: situación actual y prioridades estratégicas, Colección Informes, Número 01/2020, Consejo Económico y Social. 34 01 Unstructured citation Darvas, Z., L. Welslau, and J. Zettelmeyer (2024) “Incorporating the Impact of Social Investments and Reforms in the EU’s New Fiscal Framework”, Bruegel Working Paper 07/2024, https://www.bruegel.org/working-paper/incorporating-impact-social-investments-and-reforms-european-unions-new-fiscal 34 01 Unstructured citation Di Bucchianico, S., (2019) “A Bit of Keynesian Debt-to-GDP Arithmetic for Deficit-capped Countries”, Bulletin of Political Economy 13(1): 55–83. 34 01 Unstructured citation Fatas, A., and Mihov, I. (2009) “Why Fiscal Stimulus Is Likely to Work”, International Finance 12(1): 57–73 34 01 Unstructured citation Fernández-Cerezo, A., E. Moral-Benito, and J. Quintana (2023) “The Recovery, Transformation and Resilience Plan and its Macroeconomic Impact from a Sectoral Standpoint”, Economic Bulletin, Bank of Spain, 2023/Q1, https://repositorio.bde.es/bitstream/123456789/29539/1/be2301-art12e.pdf 34 06 10.1111/joes.12241 34 01 Unstructured citation Fundación BBVA-IVIE (2019) El stock de capital en España y sus comunidades autónomas. Evolución de la edad media de las inversiones y envejecimiento del capital, Fundación BBVA-IVIE. 34 01 Unstructured citation Gobierno de España (2023) Plan de Recuperación, Transformación y Resiliencia. IV Informe de Ejecución del Plan de Recuperación, Gobierno de España, December. 34 01 Unstructured citation International Monetary Fund (2014) “Is It Time for an Infrastructure Push? The Macroeconomic Effects of Public Investment”, in World Economic Outlook, October 2014: Legacies, Clouds, Uncertainties. Washington, DC: International Monetary Fund, pp. 75–112. 34 06 10.4337/ejeep.2023.0115 34 01 Unstructured citation Motyovszki, G., P. Pfeiffer, and J. Veld (2024) “The Implications of Public Investment for Debt Sustainability”, Discussion Paper 204 (June), Directorate-General for Economic and Financial Affairs, European Commission, https://economy-finance.ec.europa.eu/system/files/2024-06/dp204_en.pdf 34 01 Unstructured citation Pérez, F., and J. F. de Guevara (eds) (2024) El stock de capital en España y sus Comunidades Autónomas 1995-2023. Cambios recientes en la composición de la inversión y en las respuestas a la crisis, Documentos de Trabajo 1-2024, Fundación BBVA. 34 01 Unstructured citation Rosnick, D., and M. Weibstrot (2015) “Has Austerity Worked in Spain?”, Center for Economic and Policy Research, https://cepr.net/documents/Spain-2015-12.pdf 34 06 10.1016/j.strueco.2024.03.005 8 03 06 10.11647/obp.0434.07 99 108 10 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 6. A New Industrial Policy as the Key to the Green Transition 1 A01 Karl Aiginger Karl Aiginger Professor 40 03yn8s215 Vienna University of Economics and Business Honorary Professor 40 052r2xn60 Johannes Kepler University of Linz Karl Aiginger was born in Vienna on October 23, 1948. He is director of the Policy Crossover Center: Vienna—Europe (www.euiopaplattform.at). He is Professor at the Vienna University of Economics and Business and is an Honorary Professor at the University of Linz. He is Editor-in-Chief of the Journal of Industry, Competition and Trade (JICT). He has been the Director of the Austrian Institute of Economic Research (WIFO) from 2005 to 2016 and Coordinator of the research project “New Dynamics for Europe: Reaping the Benefits of Socio-ecological Transition”—WWWforEurope (http://Synthesis-Report-Part-I.foreurope.eu). He had temporary commitments at Stanford University, MIT, UCLA, and at the University of Changsha (Hunan, China). His research foci are industrial economics, competitiveness, and strategies of firms, regions and countries. The Policy Crossover Center published studies on “More or Less Europe”, Europe taking the lead in responsible globalization, and a European partnership policy with the South and the East. 01 eng 03 00 The world is changing quickly. The former Soviet Union is gone and its successor, Russia, is seeking to reclaim parts of Soviet territory using military force. The United States (US) as a sole remaining superpower cannot take the lead, due to populism, failed democracy, and a lack of resilience. China is on the rise, but autocratic, longing for resources and facing a declining population. Europe is less dynamic and innovative, not yet seen as unified with common goals. New middle powers are gaining shares in production, but are themselves very different. The problems the world faces are changing: peace is no longer guaranteed, global warming is accelerating, poverty is on the decline but re emerging in other ways, and migration policy is becoming more and more important. The green transition may be an engine of change and new dynamics, but there are also many backlashes. In this situation, a new industrial policy is needed—one very different from that of the past. We begin by describing the past policy as an isolated policy, along with the questions of whether such a policy is needed in a capitalistic economy and whether it should focus on “important sectors” (the sectoral or French approach) or “important activities” (the horizonal or German approach). We then turn to the increasing importance of international exports/ investments and the necessity for a green transition, but also new forms of protectionism and backlashes. This chapter builds on Aiginger and Rodrik (2020) with respect to “industrial policy for the 21st century”, as well as on Aiginger and Ketels (2024) for its “reloading” after the most recent changes in the policy environment. 30 00 The world is changing quickly. The former Soviet Union is gone and its successor, Russia, is seeking to reclaim parts of Soviet territory using military force. The United States (US) as a sole remaining superpower cannot take the lead, due to populism, failed democracy, and a lack of resilience. China is on the rise, but autocratic, longing for resources and facing a declining population. Europe is less dynamic and innovative, not yet seen as unified with common goals. New middle powers are gaining shares in production, but are themselves very different. The problems the world faces are changing: peace is no longer guaranteed, global warming is accelerating, poverty is on the decline but re emerging in other ways, and migration policy is becoming more and more important. The green transition may be an engine of change and new dynamics, but there are also many backlashes. In this situation, a new industrial policy is needed—one very different from that of the past. We begin by describing the past policy as an isolated policy, along with the questions of whether such a policy is needed in a capitalistic economy and whether it should focus on “important sectors” (the sectoral or French approach) or “important activities” (the horizonal or German approach). We then turn to the increasing importance of international exports/ investments and the necessity for a green transition, but also new forms of protectionism and backlashes. This chapter builds on Aiginger and Rodrik (2020) with respect to “industrial policy for the 21st century”, as well as on Aiginger and Ketels (2024) for its “reloading” after the most recent changes in the policy environment. 20 00 Open Access Karl Aiginger 34 01 Unstructured citation Acemoglu D. (2023) “Letter from America: When Industry Means Hard Work”, Royal Economic Society, https://res.org.uk/newsletter/letter-from-america-when-industry-means-hard-work/ 34 06 10.1007/s10842-024-00415-8 34 06 10.1007/s10842-019-00322-3 34 06 10.1080/02692170601005507 34 01 Unstructured citation Austin, B., E. Glaeser, and L. Summers (2018) “Saving the Heartland: Place-based Policies in 21st Century America. Brookings Papers of Economic Activity”, Brookings, https://www.brookings.edu/articles/saving-the-heartland-place-based-policies-in-21st-century-america/ 34 06 10.1353/eca.2022.0005 34 01 Unstructured citation Aiyar, S., and A. Ilyna (2023) “Geoeconomic Fragmentation and the Future of Multilateralism”, IMF Staff Discussion Notes 2023(001), https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2023/01/11/Geo-Economic-Fragmentation-and-the-Future-of-Multilateralism-527266 34 01 Unstructured citation Birdsall, N. M., J. E. L. Campos, C. S. Kim, W. M. Corden, L. MacDonald, H. Pack, J. Page, R. Sabor, and J. E. Stiglitz (1993) The East Asian Miracle: Economic Growth and Public Policy: Main Report (English). A World Bank Policy Research Report. Washington, DC: World Bank Group, http://documents.worldbank.org/curated/en/975081468244550798/Main-report 34 01 Unstructured citation Chang, H. J. (2002) Kicking Away the Ladder: Development Strategy in Historical Perspective. London: Anthem Press. 34 06 10.3386/w17842 34 01 Unstructured citation Draghi, M. (2024) The Future of European Competitiveness. Brussels: European Commission, https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en 34 01 Unstructured citation Economist, The (2024) “Can India, Indonesia, and Saudi Arabia be the Next Great Economies”, The Economist, 4 January, https://www.economist.com/leaders/2024/01/04/can-india-indonesia-and-saudi-arabia-be-the-next-great-economies 34 01 Unstructured citation Gil, I. S., and M. Raiser (2012) Golden Growth: Restoring the Lustre of the European Economic Model. Washington, DC: World Bank Group. 34 01 Unstructured citation Irwin, D. A. (2020) “The Washington Consensus Stands Test of Time Better than Populist Policies”, 4 December, Peterson Institute for International Economics, https://www.piie.com/blogs/realtime-economics/washington-consensus-stands-test-time-better-populist-policies 34 06 10.1051/shsconf/202317602009 34 01 Unstructured citation Javorcik, B. S., L. Kitzmueller, H. Schweiger, and M. A. Yildirim (2023) “Economic Costs of Friend-shoring”, CID Faculty Working Paper 422, https://growthlab.hks.harvard.edu/publications/economic-costs-friend-shoring 34 06 10.1146/annurev-economics-081023-024638 34 01 Unstructured citation Kelsey, T. (2023) “When Missions Fail: Lessons in ‘High Technology’ from Post-War Britain”, Blavatnik School of Government Working Paper 2023–056, https://www.bsg.ox.ac.uk/sites/default/files/2023-12/BSG-WP%E2%80%932023-056-When-Missions-Fail.pdf 34 01 Unstructured citation Ketels, C., and E. Duch (2022) “Industrial Policy in a New Global Reality: Towards a More Location- and Sector-Driven Approach”, Private Sector Development Blog, 11 July, https://blogs.worldbank.org/psd/industrial-policy-new-global-reality-towards-more-location-and-sector-driven-approach 34 01 Unstructured citation Ketels. C., M. E. Porter, and A. Kapoor (2022) Competitiveness Roadmap for India @ 100. Delhi: Economic Advisory Council of the Prime Minister, https://www.hbs.edu/ris/Publication%20Files/Report_Competitiveness_Roadmap-25_August_2022_Web_Version_690d1fab-dce8-48a0-8cd5-6d6a63a6d5eb.pdf 34 01 Unstructured citation Kose, M. A, and F. Ohnsorge (2023) Falling Long Term Growth Prospects: Trends, Expectations, and Policies. Washington, DC: World Bank, https://openknowledge.worldbank.org/handle/10986/39497 34 06 10.2307/j.ctvc776tv 34 01 Unstructured citation Mazzucato, M. (2021) Mission Economy: A Moonshot Guide to Changing Capitalism. London: Allen Lane. 34 01 Unstructured citation Nayyar, D., and G. Nayyar (2024) “Made in India: Industrial Policy in a Changing World”, Journal of Industry, Competition and Trade 24(1): 13. 34 06 10.1007/s10842-024-00420-x 34 01 Unstructured citation Rodrik, D. (2015) “Premature Deindustrialization”, NBER Working Paper 20935, https://www.nber.org/system/files/working_papers/w20935/w20935.pdf 34 01 Unstructured citation Rodrik, D., and J. Stiglitz (2024) “A New Growth Strategy for Developing Nations”, Harvard, https://drodrik.scholar.harvard.edu/sites/scholar.harvard.edu/files/dani-rodrik/files/a_new_growth_strategy_for_developing_nations.pdf 34 06 10.1007/s10842-024-00418-5 34 01 Unstructured citation Yellen, J. (2022) “Remarks at Microsoft in New Delhi”, US Department of the Treasury, 11 November, https://home.treasury.gov/news/press-releases/jy1096 9 03 06 10.11647/obp.0434.08 109 134 26 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 7. A “True” Industrial Policy for Europe Is a Technology and Innovation Policy 1 A01 Reda Cherif Reda Cherif Senior Economist 40 05m4rmw09 International Monetary Fund Affiliated Researcher at the Bennett Institute for Public Policy 40 013meh722 University of Cambridge Senior Research Advisor at the Center of Technology and Industrialization for Development (TIDE) 40 052gg0110 University of Oxford Reda Cherif is a Senior Economist at the International Monetary Fund (IMF), an Affiliated Researcher at the Bennett Institute for Public Policy at the University of Cambridge, a Senior Research Advisor at the Center of Technology and Industrialization for Development (TIDE), University of Oxford, and a Fellow at the Royal Society for the Arts. He joined the IMF in 2008, as part of the Economist Program, and worked in several departments: in the Fiscal Affairs Department, where he was an economist on the Gabon program; in the Middle East and Central Asia Department, where he covered Saudi Arabia, Qatar and Bahrain; and in the African Department, where he worked in the Regional Studies Division, issuing analytical work on trade, competition and oil economies. He has published numerous articles on the energy transition, public debt dynamics, commodity exporters, development, industrial policy, growth, and innovation. His work was published in the Journal of Development Economics and World Development among others, and it was featured in the Economist, Financial Times and National Geographic. He is the co-editor, with Fuad Hasanov and Min Zhu, of Breaking the Oil Spell, a book studying economic diversification in oil exporters. Reda holds an MSc in Economics from the London School of Economics and a PhD in Economics from the University of Chicago. 2 A01 21 0000000220234547 Fuad Hasanov Fuad Hasanov Senior Economist 40 05m4rmw09 International Monetary Fund Adjunct Professor of Economics 40 05vzafd60 Georgetown University Affiliated Researcher at the Bennett Institute for Public Policy 40 013meh722 University of Cambridge Fuad Hasanov is a Senior Economist at the International Monetary Fund (IMF), an Adjunct Professor of Economics at Georgetown University, an Affiliated Researcher at the Bennett Institute for Public Policy at the University of Cambridge, and a Senior Research Advisor at the Technology and Industrialization for Development (TIDE) Centre at the University of Oxford. Before joining the IMF in 2007, Fuad was an Assistant Professor of Economics at Oakland University in Rochester, Michigan. His recent research focuses on natural resources, growth and innovation, and industrial policy. He is the co-editor, with Reda Cherif and Min Zhu, of Breaking the Oil Spell that examines economic diversification in oil-exporting countries. Fuad received a PhD, MS, and BA in economics from the University of Texas at Austin. 3 A01 21 0000000219794731 Xun Li Xun Li Research Analyst 40 05m4rmw09 International Monetary Fund Xun Li is a Research Analyst at the International Monetary Fund (IMF). At the IMF, Xun has contributed to surveillance and policy formulation to promote sustainable economic growth in Europe. Xun holds a Master in Public Administration from Columbia University School of International and Public Affairs, specializing in renewable energy financial modeling and energy and environmental economic analysis. 01 eng 03 00 Since the Global Financial Crisis of 2008, the “core” European countries have been losing their competitive edge in global markets for sophisticated products such as electronics and green transportation and power technologies, while also missing out on the earlier revolution in information and communication technology (ICT). Meanwhile, the “periphery” European countries have been slowing down and, in pre-crisis years, have mostly channelled their investment into non-tradable industries, concentrating their resources in relatively lower productivity and lower skill activities. The slowdown in growth and convergence highlights the need to reignite productivity and economic dynamism. Lessons from the Asian economic miracles and Europe’s own growth experience suggest the importance of developing sophisticated sectors. The development of these sectors is riddled with both government and market failures, requiring adequate policies to tackle them. We argue that a “true” industrial policy for Europe is a technology and innovation policy (TIP) that focuses on correcting market failures to spur innovation, scale up, and support production networks in sophisticated industries across Europe while reorienting the engines of growth of “periphery” economies toward sophisticated sectors and their complex value chains. TIP’s guiding principles are a focus on global markets, competition, and a strict accountability framework, where the “hard” tools such as tariffs and subsidies may not be necessary and may be potentially counterproductive. 30 00 Since the Global Financial Crisis of 2008, the “core” European countries have been losing their competitive edge in global markets for sophisticated products such as electronics and green transportation and power technologies, while also missing out on the earlier revolution in information and communication technology (ICT). Meanwhile, the “periphery” European countries have been slowing down and, in pre-crisis years, have mostly channelled their investment into non-tradable industries, concentrating their resources in relatively lower productivity and lower skill activities. The slowdown in growth and convergence highlights the need to reignite productivity and economic dynamism. Lessons from the Asian economic miracles and Europe’s own growth experience suggest the importance of developing sophisticated sectors. The development of these sectors is riddled with both government and market failures, requiring adequate policies to tackle them. We argue that a “true” industrial policy for Europe is a technology and innovation policy (TIP) that focuses on correcting market failures to spur innovation, scale up, and support production networks in sophisticated industries across Europe while reorienting the engines of growth of “periphery” economies toward sophisticated sectors and their complex value chains. TIP’s guiding principles are a focus on global markets, competition, and a strict accountability framework, where the “hard” tools such as tariffs and subsidies may not be necessary and may be potentially counterproductive. 20 00 Open Access Reda Cherif Fuad Hasanov Xun Li; 34 01 Unstructured citation Adler, D. 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Frie (2024) “Stepping Up Venture Capital to Finance Innovation in Europe”, IMF Working Paper 24/146. 34 01 Unstructured citation Atlas of Economic Complexity, The (2024) Harvard University, Growth Lab, https://atlas.cid.harvard.edu. 34 01 Unstructured citation Bergeaud, A. (2024) “The Past, Present, and Future of European Productivity”, Working Paper, ECB Forum on Central Banking, July 1–3, https://www.ecb.europa.eu/pub/pdf/sintra/ecb.forumcentbankpub2024_Bergeaud_paper.en.pdf 34 01 Unstructured citation Ali-Yrkkö, J., R. Cherif, F. Hasanov, N. Kuosmanen, and M. Pajarinen (2021) “Knowledge Spillovers from Superstar Tech-Firms: The Case of Nokia”, IMF Working Paper 2021/258, https://www.imf.org/en/Publications/WP/Issues/2021/10/29/Knowledge-Spillovers-From-Superstar-Tech-Firms-The-Case-of-Nokia-501347 34 01 Unstructured citation Cherif, R., and F. Hasanov (2018) “Public Debt Dynamics: The Effects of Austerity, Inflation, and Growth Shocks”, Empirical Economics 54(3): 1087–1105. 34 01 Unstructured citation Cherif, R., and F. Hasanov (2019a) “Return of the Policy That Shall Not Be Named: Principles of Industrial Policy”, IMF Working Paper 2019/74, https://www.imf.org/en/Publications/WP/Issues/2019/03/26/The-Return-of-the-Policy-That-Shall-Not-Be-Named-Principles-of-Industrial-Policy-46710 34 01 Unstructured citation Cherif, R., and F. Hasanov (2019b) “Principles of True Industrial Policy”, Journal of Globalization and Development 10(1): 1–22. 34 01 Unstructured citation Cherif, R., and F. Hasanov (2019c) “The Leap of the Tiger: Escaping the Middle‐income Trap to the Technological Frontier”, Global Policy 10(4): 497–511. 34 01 Unstructured citation Cherif, R., and F. Hasanov (2024) “The Pitfalls of Protectionism: Import Substitution vs. Export-Oriented Industrial Policy”, Journal of Industry, Competition and Trade 24(1): 1–34. 34 01 Unstructured citation Cherif, R., F. Hasanov, and A. Pande (2017) “Riding the Energy Transition: Oil Beyond 2040”, IMF Working Paper 2017/120, https://www.imf.org/en/Publications/WP/Issues/2017/05/22/Riding-the-Energy-Transition-Oil-Beyond-2040-44932 34 01 Unstructured citation Cherif, R., F. Hasanov, and A. Pande (2021) “Riding the Energy Transition: Oil beyond 2040”, Asian Economic Policy Review 16(1): 117–137. 34 01 Unstructured citation Cherif, R., F. Hasanov, and M. Sarsenbayev (2024) “Call of Duty: Industrial Policy for Post-Oil Era”, IMF Working Paper 2024/74. https://www.imf.org/en/Publications/WP/Issues/2024/03/29/Call-of-Duty-Industrial-Policy-for-the-Post-Oil-Era-546941 34 01 Unstructured citation Cherif, R., F. Hasanov, and P. Aghion (2023) “Fair and Inclusive Markets: Why Dynamism Matters”, IMF Working Paper 2021/29, https://www.imf.org/en/Publications/WP/Issues/2021/02/06/Fair-and-Inclusive-Markets-Why-Dynamism-Matters-50052 34 01 Unstructured citation Cherif, R., F. Hasanov, and M. Zhu (2021) “The Electric Vehicle Revolution Goes Global”, August 30, Project Syndicate, https://www.project-syndicate.org/commentary/electirc-vehicles-in-developing-and-emerging-economies-by-reda-cherif-et-al-2021-08 34 01 Unstructured citation Draghi, M. (2024a) “Radical Change—Is What Is Needed”, Speech at the High-level Conference on the European Pillar of Social Rights, Brussels, April 16, https://geopolitique.eu/en/2024/04/16/radical-change-is-what-is-needed/ 34 01 Unstructured citation Draghi, M. (2024b) The Future of European Competitiveness. Brussels: European Commission, https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en 34 01 Unstructured citation Duchatel, M. 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Industrial Policy and Security The European Union and the Double Challenge: Strengthening Competitiveness and Enhancing Economic Security 1 A01 Paolo Guerrieri Paolo Guerrieri Visiting Professor at PSIA, Paris School of International Affairs 40 05fe7ax82 Sciences Po, Paris Paolo Guerrieri is Visiting Professor at PSIA, Paris School of International Affairs, Sciences Po, Paris. He was Professor of Economics at the University of Rome “La Sapienza” and Visiting Professor at the College of Europe, Bruges (Belgium) and the USD Business School, University of San Diego, California. 2 A01 Pier Carlo Padoan Pier Carlo Padoan Full Professor of Economics retired 40 02be6w209 Sapienza University of Rome Pier Carlo Padoan who has been Italian Minister of Economy and Finance and Member of the Chamber of Deputies of the Italian Republic, is Chairman of UniCredit since April 2021. He is Full Professor of Economics retired at the La Sapienza University of Rome. He is currently Vice President of Istituto Affari Internazionali, Board member of the Institute of International Finance, a member of the Luiss Institute for European Analysis and Policy, and a member of the BoD and Executive Committee of ABI. In 2021 he was also appointed member of the Board of Istituto Luigi Einaudi and of the Committee for Corporate Governance of Borsa Italiana. He is currently a member of the European Financial Services Round Table, and of the Executive Committee of Assonime. In May 2022 he became Chairperson of the High Level Group on Financing Sustainability Transition, which is part of the High Level Groups on EU Policy and Innovation. He has been Deputy Secretary General and Chief Economist of OECD and Executive Director of the International Monetary Fund. He has held academic positions at the University of Rome, College of Europe (Bruges and Warsaw), Université Libre de Bruxelles, University of Urbino, Universidad de la Plata, Chulalongkorn University and University of Tokyo. 01 eng 03 00 This chapter argues that the European Union’s (EU) dual challenge— enhancing both competitiveness and economic security—must form the core of its open strategic autonomy framework, which integrates national security considerations with economic policy. The chapter explores the vulnerabilities and strengths of the EU’s industrial and technological strategies, emphasizing the need for deeper European integration and more robust governance to meet these challenges. Central to this effort is the provision of European public goods (EPGs), such as climate policy, energy security, and technological development, which require stronger EU-level governance and financial resources. To ensure long-term resilience and relevance in a fragmented world, Europe must undertake a profound restructuring of its economic governance and enhance its strategic autonomy. 30 00 This chapter argues that the European Union’s (EU) dual challenge— enhancing both competitiveness and economic security—must form the core of its open strategic autonomy framework, which integrates national security considerations with economic policy. The chapter explores the vulnerabilities and strengths of the EU’s industrial and technological strategies, emphasizing the need for deeper European integration and more robust governance to meet these challenges. Central to this effort is the provision of European public goods (EPGs), such as climate policy, energy security, and technological development, which require stronger EU-level governance and financial resources. To ensure long-term resilience and relevance in a fragmented world, Europe must undertake a profound restructuring of its economic governance and enhance its strategic autonomy. 20 00 Open Access Paolo Guerrieri Pier Carlo Padoan; 34 01 Unstructured citation Aghion, P. (2023) “An Innovation-Driven Industrial Policy for Europe” in S. Tagliapietra and R. Veugelers (eds), Sparking Europe’s New Industrial Revolution: A Policy for Net Zero, Growth and Resilience. Brussels: Bruegel, pp. 29–41, https://www.bruegel.org/sites/default/files/private/2023-08/Bruegel Blueprint 33_chapter 2.pdf 34 06 10.1007/s11135-023-01685-w 34 01 Unstructured citation Beaucillon, C., and S. Poli (2023) “Special Focus on EU Strategic Autonomy and Technological Sovereignty: An Introduction”, European Papers 8(2): 411–416, https://www.europeanpapers.eu/en/europeanforum/special-focus-eu-strategic-autonomy-and-technological-sovereignty-introduction 34 01 Unstructured citation Bergsten, C. F. 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(2022) “Is the Post-War Trading System Ending?”, Policy Contribution 04/2022: 1–12, https://www.bruegel.org/sites/default/files/wp-content/uploads/2022/02/PC-04.pdf 34 01 Unstructured citation European Commission (2020) “European Raw Materials Alliance (ERMA)”, European Commission, https://single-market-economy.ec.europa.eu/industry/industrial-alliances/european-raw-materials-alliance_en 34 01 Unstructured citation European Commission (2021) “Trade Policy Review: An Open, Sustainable and Assertive Trade Policy”, COM(2021) 66, February 18, https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A52021DC0066 34 01 Unstructured citation European Commission (2023a) “A Green Deal Industrial Plan for the Net-Zero Age”, COM(2023) 62, February 1, https:// eur-lex.europa.eu/legal-content/EN/ TXT/HTML/?uri=CELEX:52023DC0062 34 01 Unstructured citation European Commission (2023b) “Joint Communication to the European Parliament, the European Council and the Council on ‘European Economic Security Strategy’, JOIN(2023) 20, June 20, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52023JC0020 34 01 Unstructured citation European Commission (2023c) “Joint Communication to the European Parliament and the European Council on ‘A Secure and Sustainable Supply of Critical Raw Materials in Support of the Twin Transition”, COM(2023) 165, March 16, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM%3A2023%3A165%3AFIN 34 01 Unstructured citation European Commission (2024) “Communication from the Commission to the European Parliament and the European Council on Advancing European Economic Security: An Introduction to Five New Initiatives”, COM(2024) 22, January 24, https://commission.europa.eu/system/files/2024-01/Communication on European economic security.pdf 34 06 10.1162/isec_a_00351 34 01 Unstructured citation Georgieva, K., G. Gopinath, and C. Pazarbasioglu (2022) “Why We Must Resist Geoeconomic Fragmentation and How”, IMF Blog, May 22, https://www.imf.org/en/Blogs/Articles/2022/05/22/blog-why-we-must-resist-geoeconomic-fragmentation 34 01 Unstructured citation Guerrieri, P., and P. C. Padoan (2020) L’economia europea. Tra crisi e rilancio. Bologna: il Mulino. 34 01 Unstructured citation Guerrieri, P., and P. C. Padoan (2024) Sovereign Europe. An Agenda for Europe in a Fragmented Global Economy. Brookfield, VT: Edward Elgar. 34 01 Unstructured citation Hoekman, B. M., and L. Puccio (2019) “EU Trade Policy: Challenges and Opportunities”, RSC Policy Papers 6, https://hdl.handle.net/1814/61589 34 01 Unstructured citation IMF (2022) “Geo-Economic Puzzle: Policy Making in a More Fragmented World”, Finance and Development 59(2). 34 01 Unstructured citation IMF (2023) “Geoeconomic Fragmentation: What’s at Stake for the EU”, IMF Working Papers 245, https://www.imf.org/en/Publications/WP/Issues/2023/11/29/Geoeconomic-Fragmentation-Whats-at-Stake-for-the-EU-541864 34 06 10.1017/s0020818320000636 34 06 10.1080/09692290.2023.2211281 34 06 10.1111/jcms.12932 34 06 10.1111/jcms.13428 34 06 10.1111/1758-5899.13303 34 01 Unstructured citation Sullivan, J. (2023) “Renewing American Economic Leadership”, Speech Given at Brookings Institution, Washington DC, April 27. 34 01 Unstructured citation Tagliapietra, S., and R. Veugelers (eds) (2023) Sparking Europe’s New Industrial Revolution: A Policy for Net Zero, Growth and Resilience. Brussels: Bruegel. 34 01 Unstructured citation Tamma, P. (2020) “Europe Wants ‘Strategic Autonomy’. It Just Has to Decide What That Means”, October 15, POLITICO, https://www.politico.eu/article/europe-trade-wants-strategic-autonomy-decide-what-means/ 34 01 Unstructured citation Tocci, N. (2021) “European Strategic Autonomy: What It Is, Why We Need It, How to Achieve It”, Istituto Affari Internazionali, https://www.iai.it/sites/default/files/9788893681780.pdf 34 06 10.1111/jcms.13366 34 01 Unstructured citation Zuleeg, F. (2023) “Economic Security: A New EU Paradigm?”, Discussion Paper, European Policy Centre, June 8, https://www.epc.eu/en/publications/Economic-security-A-new-EU-paradigm~516bc0 11 03 06 10.11647/obp.0434.10 149 168 20 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 9. Trends in Defence Spending in the European Union 1 A01 21 0000000177063868 Alessandra Cepparulo Alessandra Cepparulo Alessandra Cepparulo obtained her PhD in Political Economics at Sapienza University of Roma. She worked, as a post-doctoral researcher, at different universities in Italy and abroad and as a researcher, in several projects involving Italian national authorities and in international context. She is a Public Economist, whose research interests cover a wide set of issues: public finance and fiscal rules, forecast errors, quality of public expenditures, public investments and PPPs. She is currently working at the European Commission, DG ECFIN, in the unit responsible of fiscal policy and fiscal surveillance. 2 A01 21 0000000153508834 Paolo Pasimeni Paolo Pasimeni Senior Associate Researcher at the Brussels School of Governance 40 006e5kg04 Vrije Universiteit Brussel Paolo Pasimeni is Deputy Chief Economist at the European Commission, DG Internal Market and Industry, and Senior Associate Researcher at the Brussels School of Governance of the Vrije Universiteit Brussel (VUB). Specialized in international macroeconomics, his main field of expertise is the macroeconomic analysis of the single market and of the economic and monetary union (EMU). Expert on monetary, f iscal and structural policies, he has been working on the proposals for EMU reform, in particular on the design of a stabilization capacity. He has also worked on labour market analysis, as well as on the conception of the EU multi-annual budget. Personal webpage: https://brussels-school.be/team/paolo-pasimeni 01 eng 03 00 After more than sixty years of peace, in 2022 Europe has faced a watershed moment in its security, which is leading to higher and more integrated defence spending in the European Union (EU). This article uses new sources of data to illustrate the evolution of defence spending in the EU and its composition. It also looks at the articulation of responsibilities for defence spending in a multi-level governance system, such as the EU. The institutional evolution of defence policy in the EU tries to build on a progressive convergence of foreign policy objectives and points towards some concentration of defence spending at the supra-national level. The key question for the future is to what extent this convergence will hold and to what extent it will be reflected in new provisions for defence in the common budget. 30 00 After more than sixty years of peace, in 2022 Europe has faced a watershed moment in its security, which is leading to higher and more integrated defence spending in the European Union (EU). This article uses new sources of data to illustrate the evolution of defence spending in the EU and its composition. It also looks at the articulation of responsibilities for defence spending in a multi-level governance system, such as the EU. The institutional evolution of defence policy in the EU tries to build on a progressive convergence of foreign policy objectives and points towards some concentration of defence spending at the supra-national level. The key question for the future is to what extent this convergence will hold and to what extent it will be reflected in new provisions for defence in the common budget. 20 00 Open Access Alessandra Cepparulo Paolo Pasimeni; 34 06 10.1016/j.ejpoleco.2012.07.002 34 06 10.1007/s11127-008-9324-8 34 01 Unstructured citation Antolin-Diaz, J., and P. Surico (2022) “The Long-Run Effects of Government Spending”, CEPR Discussion Paper 17433. 34 01 Unstructured citation Benoit, E. (1978) “Growth and Defense in Developing Countries”, Economic Development and Cultural Change 26(2): 271–280. 34 06 10.1080/14751798.2017.1311039 34 06 10.1017/s1755773921000102 34 01 Unstructured citation Becker, J., and J. P. Dunne (2021) “Military Spending Composition and Economic Growth”, Defence and Peace Economics 34(3): 259–271. 34 06 10.1177/00223433231215785 34 01 Unstructured citation Buti, M., and G. Papaconstantinou (2022) “European Public Goods: How Can We Supply More?”, Policy Brief 3, Luiss School of European Political Economy, https://leap.luiss.it/wp-content/uploads/2022/06/PB3.22-European-Public-Goods.-How-can-we-supply-more.pdf 34 01 Unstructured citation Cepparulo, A., and P. Pasimeni (2024) “Defence Spending in the European Union” Discussion Paper 199, European Commission, https://economy-finance.ec.europa.eu/publications/defence-spending-european-union_en 34 06 10.1007/s00181-017-1300-z 34 01 Unstructured citation Ciaffi, G., M. Deleidi, and M. Mazzucato (2024) “Measuring the Macroeconomic Responses to Public Investment in Innovation: Evidence from OECD Countries”. Industrial and Corporate Change 33(2): 363–382. 34 01 Unstructured citation Council of the European Union (7371/22) “A Strategic Compass for Security and Defence—For a European Union that Protects its Citizens, Values and Interests and Contributes to International Peace and Security”. 34 01 Unstructured citation Council Decision (CFSP) (2017) “Council Decision 2017/2315 of 11 December 2017”, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32017D2315&from=EN 34 01 Unstructured citation Deleidi, M., and M. Mazzucato (2019) “Mission-Oriented Innovation Policies: A Theoretical and Empirical Assessment for the US Economy”, Departmental Working Papers of Economics - University ‘Roma Tre’ 0248, Department of Economics - University Roma Tre. 34 06 10.1016/j.respol.2020.104151 34 01 Unstructured citation Draghi, M. (2024a) The Future of European Competitiveness. Part A: A Competitiveness Strategy for Europe. Brussels: European Commission. 34 01 Unstructured citation Draghi, M. (2024b) The Future of European Competitiveness. Part B: In-depth Analysis and Recommendations. Brussels: European Commission. 34 01 Unstructured citation Dunne, J. P., R. Smith, and D. Willenbockel (2005) “Models of Military Expenditure and Growth: A Critical Review”, Defence and Peace Economics 16(6): 449–460. 34 06 10.15355/epsj.11.2.50 34 06 10.1080/10242694.2019.1636182 34 01 Unstructured citation European Commission (2017) JOIN. 41 Final Improving Military Mobility in the European Union. Brussels: European Commission. 34 01 Unstructured citation European Commission (2018) JOIN. 5 Final On the Action Plan on Military Mobility. Brussels: European Commission. 34 01 Unstructured citation European Commission (2022a) JOIN. 48 Action Plan on Military Mobility 2.0. Brussels: European Commission. 34 01 Unstructured citation European Commission (2022b) JOIN. 24 Final On the Defence Investment Gaps Analysis and Way Forward. Brussels: European Commission. 34 01 Unstructured citation European Commission (2024) JOIN. 10 Final A New European Defence Industrial Strategy: Achieving EU Readiness through a Responsive and Resilient European Defence Industry. Brussels: European Commission. 34 01 Unstructured citation European Council (1999a) “Declaration of the European Council on Strengthening the Common European Security and Defence”, European Council, Cologne 3–4 June 1999, https://www.europarl.europa.eu/summits/kol1_en.htm 34 01 Unstructured citation European Council (1999b) “Presidency Conclusions”, Helsinki European Council, 10–11 December 1999, https://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/ACFA4C.htm 34 01 Unstructured citation European Council (March 2024) “Conclusions—21 and 22 March 2024”, https://www.consilium.europa.eu/media/70880/euco-conclusions-2122032024.pdf 34 01 Unstructured citation EDA (2018) Factsheet: Capability Development Plan. Brussels: EDA, https://eda.europa.eu/publications-and-data/factsheets/factsheet-capability-development-plan 34 01 Unstructured citation EDA (2021) Annual Report. Brussels: EDA. 34 01 Unstructured citation EDA (2022) 2022 Coordinated Annual Review on Defence Report. Brussels: EDA. 34 01 Unstructured citation EDA (2023) Annual Report. Brussels: EDA. 34 01 Unstructured citation EU (2014) “The Mechanism for Financing Military Operations (Athena). Summaries of EU Legislation”, https://eur-lex.europa.eu/EN/legal-content/summary/the-mechanism-for-financing-military-operations-athena.html 34 06 10.1080/07036337.2023.2183395 34 01 Unstructured citation Fuest, C., and J. Pisani-Ferry (2019) “A Primer on Developing European Public Goods”, EconPol Policy Report 16(3), https://www.econstor.eu/bitstream/10419/219519/1/econpol-pol-report-16.pdf 34 06 10.1080/07036337.2023.2239998 34 01 Unstructured citation Letta, E. (2024) Much More Than a Market, https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf 34 01 Unstructured citation Malizard, J. (2015) “Does Military Expenditure Crowd Out Private Investment? A Disaggregated Perspective for the Case of France”, Economic Modelling 46: 44–52. 34 01 Unstructured citation Mazur, S. (2021) “Security and Defence Heading 5 of the 2021–2027 MFF”, Briefing 2021–2027 MFF, European Parliamentary Research Service, https://www.europarl.europa.eu/RegData/etudes/BRIE/2021/690545/EPRS_BRI(2021)690545_EN.pdf 34 01 Unstructured citation Mazzucato, M. (2013) The Entrepreneurial State: Debunking Public vs Private Sector Myths. London: Anthem Press. 34 01 Unstructured citation Mazzucato, M. (2018) “Mission-oriented Innovation Policies: Challenges and Opportunities”, Industrial and Corporate Change 27(5): 803–815. 34 01 Unstructured citation Moretti, E., C. Steinwender, and J. Van Reenen (2023) “The Intellectual Spoils of War? Defense R&D, Productivity, and International Spillovers”, Review of Economics and Statistics, 1–46. 34 06 10.1016/s0169-7218(10)02013-7 34 01 Unstructured citation Musgrave, R. A. (1939) “The Nature of Budgetary Balance and the Case for the Capital Budget”, American Economic Review 29(2): 260–271. 34 01 Unstructured citation NATO. (2014). Wales Summit Declaration Issued by the Heads of State and Government Participating in the Meeting of the North Atlantic Council in Wales, https://www.nato.int/cps/en/natohq/official_texts_112964.htm 34 01 Unstructured citation Oates, W. E. (1999) “An Essay on Fiscal Federalism”, Journal of Economic Literature 37(3): 1120–1149. 34 01 Unstructured citation Oates, W. E. (2005) “Toward a Second-Generation Theory of Fiscal Federalism”, International Tax and Public Finance 12: 349–373. 34 01 Unstructured citation Pivetti, M. (1989) “Military Expenditure and Economic Analysis: A Review Article”, Contributions to Political Economy 8(1): 55–67. 34 01 Unstructured citation Pivetti, M. (1992) “Military Spending as a Burden on Growth: an ‘Underconsumptionist’ Critique”, Cambridge Journal of Economics 16(4): 373–384. 34 01 Unstructured citation Smith, R. P., and P. Dunne (1994) “Is Military Spending a Burden? A Marxo-Marginalist Response to Pivetti”, Cambridge Journal of Economics 18(5): 515–521. 34 06 10.1080/10242694.2022.2091191 34 01 Unstructured citation Wyplosz, C. (2016) “The Six Flaws of the Eurozone”, Economic Policy 31(87): 559–606. 34 06 10.1177/0022343318808841 12 03 06 10.11647/obp.0434.11 169 180 12 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 10. Sustainable Mobility and Industrial Policy 1 A01 21 0000000227486472 Dario Guarascio Dario Guarascio Associate Professor of Economic Policy at the Department of Economics and Law 40 02be6w209 Sapienza University of Rome Dario Guarascio is Associate Professor of Economic Policy at the Department of Economics and Law—Sapienza University of Rome—and external affiliate of the Sant’Anna School of Advanced Studies in Pisa and of the National Institute for Public Policy Analysis (INAPP). Dario’s research covers economics of innovation, digitalization and labour markets, European economy, and industrial policy. He is Associate Editor of the journals Structural Change and Economic Dynamics, Journal of Industrial and Business Economics, and Economia & Lavoro and former member of the Commissions of the Ministry of Labour and Social Policy for the reform of social security. 2 A01 21 0000000188615090 Annamaria Simonazzi Annamaria Simonazzi Former Professor of Political Economy 40 02be6w209 Sapienza University of Rome Annamaria Simonazzi is Former Professor of Political Economy at La Sapienza University of Rome and Cnel Expert Advisor in the X Council. She is President of the Giacomo Brodolini Foundation, Managing Director of Economia & Lavoro and member of the editorial board of the web magazine www.inGenere.it. She has published widely on European macroeconomic issues, industrial policy, employment, welfare, and gender economics. 01 eng 03 00 Focusing on the automotive industry, this chapter addresses the problem of Europe’s vulnerability (e.g., import dependency, technological backwardness in key domains) and the hypothesis of the obsolescence of its growth and production model. First, we analyze the evolution of the Sino-German relationships highlighting the emergence of two divergent trajectories: while a well-tailored combination of industrial and trade policies allowed China to become the leader in electric vehicle (EV) production, the German development model, mostly driven by the choices of key carmakers, slowed innovation, fostered fragmentation within the European Union (EU) and created the conditions for the current vulnerability. Second, we identify the key elements— i.e., increasing demand for affordable EVs, investments in infrastructure for the provision of public goods, building-up a European Directorate for Resource Security—of a European industrial policy for sustainable mobility which may help achieve the multiple goals of decarbonizing the economy, increasing resilience, and reducing inequalities between and within countries. 30 00 Focusing on the automotive industry, this chapter addresses the problem of Europe’s vulnerability (e.g., import dependency, technological backwardness in key domains) and the hypothesis of the obsolescence of its growth and production model. First, we analyze the evolution of the Sino-German relationships highlighting the emergence of two divergent trajectories: while a well-tailored combination of industrial and trade policies allowed China to become the leader in electric vehicle (EV) production, the German development model, mostly driven by the choices of key carmakers, slowed innovation, fostered fragmentation within the European Union (EU) and created the conditions for the current vulnerability. Second, we identify the key elements— i.e., increasing demand for affordable EVs, investments in infrastructure for the provision of public goods, building-up a European Directorate for Resource Security—of a European industrial policy for sustainable mobility which may help achieve the multiple goals of decarbonizing the economy, increasing resilience, and reducing inequalities between and within countries. 20 00 Open Access Dario Guarascio Annamaria Simonazzi; 34 01 Unstructured citation Alim, A. N., P. Nilsson, and P. Campbell (2024) “Volkswagen Considers Partnership to Produce Mass Market Electric Vehicles”, March 13, Financial Times, https://www.ft.com/content/0985f16c-105c-4b62-aa80-3658fa9b629a 34 01 Unstructured citation Alim, A. M., and S. Jones (2024) “German Companies’ Dependence on China Will Last Decades, Warns Siemens”, 14 April, Financial Times, https://www.ft.com/content/e8634f5c-5a28-4741-a13d-024665456f43? 34 01 Unstructured citation Autor, D. H, D. Dorn, and G. H. Hanson (2016) “The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade”, BNER 21906. 34 01 Unstructured citation Baqaee, D., J. Hinz, B. Moll, M. Schularick, F. A. Teti, J. Wanner, and S. Yang (2024) “What If? The Effects of a Hard Decoupling from China on the German Economy”, Kiel Policy Brief 170. 34 06 10.1111/jcms.13599 34 01 Unstructured citation Beattie, A. (2024) “Europe’s New Anti-subsidy Weapon Is Powerful but Hard to Control: The EU Foreign Subsidies Regulation Is Looking to Score Some Notable Hits”, 9 May, Financial Times, https://www.ft.com/content/db880189-6556-427d-9c80-b4af3c8917d2? 34 01 Unstructured citation Celi, G., A. Ginzburg, D. Guarascio, and A. Simonazzi (2018) Crisis in the European Monetary Union. Oxford: Routledge. 34 01 Unstructured citation Celi, G., D. Guarascio, J. Reljic, A. Simonazzi, and F. Zezza (2022) “The Asymmetric Impact of War: Resilience, Vulnerability and Implications for EU Policy”, Intereconomics 57(3): 141–147. 34 01 Unstructured citation De Cecco, M. (1978) “Il sistema monetario internazionale”, in M. Carmagnani and A. Vercelli (eds.), Economia e storia. Florence: La Nuova Italia, pp. 810–830. 34 01 Unstructured citation De Quant, S., S. Tordoir, and S. Vallée (2024) “Caught in Geopolitical Fragmentation: How to De-risk Germany’s Economic Model”, Working Paper 02/2024. 34 01 Unstructured citation Deutsche Bundesbank (2024) “Risks Facing Germany as a Result of its Economic Ties with China”, Monthly Report, January. 34 06 10.1177/10245294231207990 34 01 Unstructured citation Guarascio, D., J. Reljic, G. Cucignatto, G. Celi, and A. Simonazzi (2024) “Between Scylla and Charybdis. Long-term Drivers of EU Structural Vulnerability, Review of Keynesian Economics 12(4): forthcoming. 34 01 Unstructured citation Hvistendahl, M., J. Ewing, and J. Liu (2024) “A Pivot to China Saved Elon Musk. It also Binds Him to Beijing”, 27 March, New York Times, https://www.nytimes.com/2024/03/27/world/asia/elon-musk-tesla-china.html 34 01 Unstructured citation Janeway, W.H. (2024) “Is Techno-Monopoly Inevitable?”, 5 April, Project Syndicate, https://www.project-syndicate.org/onpoint/us-big-tech-monopolies-market-power-from-key-innovations-by-william-h-janeway-2024-04 34 01 Unstructured citation Li, G., and P. Campbell (2024) “BYD Loses EV Throne to Tesla as Sales slip”, 2 April, Financial Times, https://www.ft.com/content/4f1a2188-ced0-4018-998d-5148209a5f5e 34 01 Unstructured citation Matthes, J. (2023) “Entwicklung des Konkurrenzdrucks durch China auf dem EU-Markt: Update einer Vorläuferstudie” [Evoluzione della pressione competitiva della Cina sul mercato UE], IW-Report 39/2023. 34 01 Unstructured citation McMorrow, R., and G. Li (2024) “The Steve Jobs of China Turns Car Salesman. in Xiaomi’s EV Evolution”, 5 April, Financial Times, https://www.ft.com/content/f0664662-ea9f-4bd6-a5c1-6c76c99b6ccd 34 01 Unstructured citation Moscoso, L., and I. Stoyanova (2024) “The Foreign Subsidies Regulation—100 Days Since the Start of the Notification Obligation for Concentrations”, Competition FSR Brief 1, https://competition-policy.ec.europa.eu/document/download/22197012-2036-4b1e-8b02-0eb8b2d6e666_en?filename=kdar24001enn_competition_FSR_brief_1_2024_100-days-of-FSR-notification-obligation.pdf 34 01 Unstructured citation Nilsson, P. (2024) “German Car Parts Suppliers Plan Job Cuts amid Costly EV Transition”, 18 January, Financial Times, https://www.ft.com/content/40585c6c-741c-4450-8f06-8d367839594c 34 06 10.2139/ssrn.4304165 34 01 Unstructured citation Pavlinek, P. (2023) “Transition of the Automotive Industry towards Electric Vehicle Production in the East European Integrated Periphery”, Empirica 50: 35–73. 34 01 Unstructured citation Russo, M., F. Alboni, J. C. Sanginés, M. De Domenico, G. Mangioni, S. Righi, and A. Simonazzi (2023) “Regionalisation and Cross-region Integration. Twin Dynamics in the Automotive International Trade Networks”, Structural Change and Economic Dynamics 67: 98–114. 34 01 Unstructured citation Sandbu, M. (2022) “Europe Is Learning that You Can’t Separate Trade and Politics”, 6 November, Financial Times, https://www.ft.com/content/a1b97de4-b366-4a0e-aa58-93a6b6fa8b2a 34 01 Unstructured citation Simonazzi, A., J. Carreto Sanginés, and M. Russo (2022) “The World to Come: Key Challenges for the Automotive Industry”, Economia & Lavoro 56(1): 7–23. 34 01 Unstructured citation Szalavetz, A. (2022) “Transition to Electric Vehicles in Hungary: A Devastating Crisis or Business as Usual?”, Technological Forecasting and Social Change 184: 122029. 34 01 Unstructured citation Weissmann, J. (2016) “Did Donald Trump Win the Election Because of Trade? A New Study Suggests It Helped”, 2 December, Slate, https://slate.com/business/2016/12/study-suggests-job-losses-to-china-helped-donald-trump-win-the-election.html 34 01 Unstructured citation White, E., M. Pooler, A. A. Lakshmi, and C. Murray (2024) “China’s Plan to Sell Cheap EVs to the Rest of the World”, 5 June, Financial Times, https://www.ft.com/content/c77fefa3-7f47-429b-8149-50aa60f39498?emailId=edd2675d-ec77-423b-89f1-680005d5b02d&segmentId=22011ee7-%E2%80%A61/16 13 03 06 10.11647/obp.0434.12 181 186 6 Creative Commons Attribution-NonCommercial 4.0 International license (CC BY-NC 4.0). 02 https://creativecommons.org/licenses/by-nc/4.0/ Chapter 01 01 11. Financing Structural Investment after 2027 1 A01 Sophie Barbier Sophie Barbier Sophie Barbier is the Head of European Affairs at the French Caisse des Dépôts (CDC) Group. She graduated from the National School of Administration (ENA) and completed a Master’s degree in Economics from the Ecole Normale Supérieure de Cachan and Nanterre University. Previously, she worked at the Forecasting Department in the French Ministry for Finance and in the Asset-Liability Team in CDC. She is currently involved in the implementation of EU programs within CDC, such as the InvestEU program and the blending instrument under the Connecting Europe Facility. 2 A01 Helmut von Glasenapp Helmut von Glasenapp Helmut von Glasenapp studied business administration in Germany, after an apprenticeship in banking. He gained his first business experience with Treuhandanstalt, the former privatization agency in the eastern part of Germany. In 1993 he joined KfW in the Berlin office. From 1997 until 2005, he invested on behalf of KfW in Venture Capital and Private Equity Funds and managed a part of the innovation financing division of KfW Frankfurt. In 2005 he was asked to assist the European Commission as a Seconded National Expert notably to prepare an Equity Promotional Programme for SMEs. In 2007 he continued in Brussels as head of the KfW Liaison Office to the European Union before he was appointed as member of the EU Task Force for Greece of the European Commission until 2015. He joined the Brussels based Secretariat General of the European Long Term Investors Association in 2016 and was elected as ELTI Secretary General in October 2016. 01 eng 03 00 An investment can be described as structural if it contributes to financing the structural transformation of the economy and thus making it sustainably competitive. Experience shows that private investments alone are not sufficient due to externalities associated with this type of investment. A mixed public and private financing method is essential and it will help to accelerate the transformation. The challenge of the next European Union (EU) Multiannual Financial Framework (“post-2027”) will be to promote the development of this f inancing method. In this respect, the European budget will have to rely on four pillars: prioritize and plan, activate expenditure, decentralize implementation and strengthen steering. It is on this basis that Europe will be able to finance its structural investments and achieve the structural transformation necessary to maintain and develop its long-term competitiveness within the framework of a new European Competitiveness Pact. 30 00 An investment can be described as structural if it contributes to financing the structural transformation of the economy and thus making it sustainably competitive. Experience shows that private investments alone are not sufficient due to externalities associated with this type of investment. A mixed public and private financing method is essential and it will help to accelerate the transformation. The challenge of the next European Union (EU) Multiannual Financial Framework (“post-2027”) will be to promote the development of this f inancing method. In this respect, the European budget will have to rely on four pillars: prioritize and plan, activate expenditure, decentralize implementation and strengthen steering. It is on this basis that Europe will be able to finance its structural investments and achieve the structural transformation necessary to maintain and develop its long-term competitiveness within the framework of a new European Competitiveness Pact. 20 00 Open Access Sophie Barbier Helmut von Glasenapp; 34 01 Unstructured citation Attali, B. (2022) “Investing for the Long Term, a Short-term Emergency (Some Food for Thought)”, Eltia, https://www.eltia.eu/images/20201210_texte_VF_EN_FINAL.pdf 34 01 Unstructured citation Attali, B. (2024) “Investing in the Future: Putting the Long Term at the Heart of our Decisions”, Report of the Commission, May, https://www.caissedesdepots.fr/en/news/investing-future-long-term-heart-decisions 34 01 Unstructured citation Confrontations Europe (2024) 30 idées pour 2030. Paris: Descartes et Cie. 34 01 Unstructured citation European Council (2024) “Conclusions”, April 17 and 18, https://www.consilium.europa.eu/media/m5jlwe0p/euco-conclusions-20240417-18-en.pdf 34 01 Unstructured citation European Long-Term Investors (2024) “Strategic Outlook—Activating the EU Budget for Long-term Needs”, Eltia, https://www.eltia.eu/images/2024_02_29_Strategic_outlook.pdf 34 01 Unstructured citation Letta, E. (2024) Much More Than a Market, https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf 34 01 Unstructured citation Meade J. E. (1952) “External Economies and Diseconomies in a Competitive Situation”, The Economic Journal, 62(245): 54–67. 01 URL https://www.openbookpublishers.com/ Open Book Publishers 01 Open Book Publishers 01 Publisher's website: home page https://www.openbookpublishers.com/ 02 Publisher's website: webpage for this title https://www.openbookpublishers.com/books/10.11647/OBP.0434 Cambridge, UK 04 01 20241211 Floriana Cerniglia Francesco Saraceno. 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