The European Central Bank (ECB) has published an analysis of EU industrial policy, arguing that targeted support can improve productivity and reduce critical dependencies but requires clear objectives, coordination and credible limits. Uncoordinated national interventions risk subsidy races, distorted competition and financial fragmentation, with implications for monetary policy transmission. The evidence reviewed is stronger for support to foundational research than for production subsidies. Research on EU state aid finds gains in recipient firms’ employment and revenues but no improvement in investment or productivity, alongside adverse effects on competitors that do not receive support.
The article recommends distinguishing productivity goals from resilience objectives and targeting identifiable market failures or critical supply dependencies rather than broadly designated strategic sectors. Common EU instruments should take priority to limit distortions across the Single Market. Support should include sunset clauses, with funding for capital intensive activities conditional on predefined milestones, targets and exit criteria. These interventions should complement structural reforms and deeper market integration, not replace them. Europe’s reliance on credit and guarantees through national banks can favour established firms, while fragmented equity markets constrain innovative businesses. The emphasis on mobilising private risk capital and enabling firms to expand across borders aligns with ECB President Christine Lagarde’s August remarks at the World Economic Forum’s International Business Council, where she identified single market and capital market fragmentation as barriers to scaling firms and spreading new technologies.