Evolution of European Industrial Policy: Past, Present and Perspective

Amid widening gaps in innovation and productivity growth, growing geopolitical tensions, and high ambitions for green and digital transitions, industrial policy has re-emerged as a central pillar of European strategy. This paper traces its evolution from post-war sectoral interventions through decades of market-led deregulation, to the current integrated approach embodied in the EU's Competitiveness Compass and supporting instruments. It argues for a development perspective centred on the economy's capacity to adapt and innovate. Organised around three complementary pillars of evolutionary change, this involves fostering novelty through innovation policies, accumulating productive resources (including human capital and infrastructure) and shaping the selection environment through regulation and market integration. The paper examines key policy instruments, including Important Projects of Common European Interest (IPCEIs), FDI-screening and the Carbon Border Adjustment Mechanism (CBAM). Key challenges and limitations include the persistent fragmentation and weak coordination between member states, inadequate funding mechanisms, and mounting conflict between competitive and protectionist approaches. An integrated approach is advocated, leveraging the Single Market, rule-based governance, and Europe's institutional diversity in order to scale up successful strategies, securing long-term competitiveness and strategic autonomy.