The triple formula to “reset” European industry: technology, sustainability, and infrastructure

Every major industrial revolution requires incentives, solid sources of funding, and laws capable of driving dynamism with quality standards and efficient value chains. For Europe to compete with the US and China, it must intensify its innovation ratios and modernize its logistics networks without giving up the ambitious challenge of decarbonizing its internal market. Some companies are already showcasing success stories in their reconversion processes

Ignacio J. Domingo

The global industry is under review, with the European industry being no exception. It is one of the most pressured by economic uncertainty, geopolitical tension, and the transformative impulses of value chains.  The development and modernization of essential public service infrastructure and the maritime, air and road transport channels will be decisive in adding mobility to both domestic and cross-border businesses. Just as with technology, the lever generating future prosperity, AI (its innovative manna), possesses the recipe for productivity with which companies and their economies must explore an increasingly competitive world order.

In recent decades, and due to multiple factors, Europe has lost industrial muscle compared to the U.S. and China. Despite exercising commercial leadership, it lacks the influence required to tackle a major challenge: adapting to a global restructuring amid a sharp strategic shift led by the new acronym ESG (Energy, Security and Geopolicy). The classic Environmental, Social and Governance criteria have not disappeared. Only now they coexist peacefully with the former within a renewed and uncertain international geostrategic landscape. 

Various geopolitical and economic factors have put the European roadmap, and the corporate and productive tactics of the internal market under review. The trigger for this restructuring was pulled a year ago by two former Italian prime ministers - Mario Draghi and Enrico Letta - with their ambitious recommendations to restore competitiveness and accelerate the unification of European capital markets. And now tangible effects have begun to be reflected. Despite the tension that energy security and geopolitics demand, business leaderships capable of adding resilience to value chains are necessary. Solutions can be found through commercial alliances with friendly suppliers (friendshoring), risk de-escalation tactics (de-risking), and the restoration of secure supply networks (self-reliance) to address industrial challenges in a volatile and disruption-prone investment climate. 

Connecting the European business network

The European ecosystem is not adequately interconnected. Draghi and Letta highlighted the Eu’s competitive deficit in their mentioned reports. Experts like Martin Wolff, former Chief of The Financial Times also commented on it: "The transatlantic productivity gap emerged in the 1990s due to Europe's inability to capitalize on the first technological revolution, led by the Internet, with the generation of technological signatures and the digitalization of its economy. Now, the key lies in smoothing out regulatory excesses and putting rules of the game in place that balance efficiency and dynamism." 

Draghi touched on another two key points to boost the domestic market: on one hand, innovation, the instrument that reduces manufacturing costs, and on the other, subsidies, which have taken root in China and the U.S. Both, with a poor reputation in Europe, have distanced the Old Continent from the competitive race between the two superpowers. Indeed, a year after Mario Draghi's report, European companies are still paying much more for energy than in the U.S. or China, which undermines its competitiveness.

Retail energy prices in Central and Eastern Europe remain between 40% and 70% higher than pre-crisis levels, and affordability is the biggest risk to the EU’s energy resilience.

Nevertheless, the Draghi report issued another clear warning to navigators: the EU would be mistaken if it renounces decarbonizing its economy, as Washington intends, in contrast to the defense of energy neutrality expressed by Beijing.    

In this context, Andrew McAfee from MIT emphasized that "the great problem of EU industry" is its regulatory excess, which "restricts its productive capacity." This is in line with the thesis of technologist Adam Thierer who argues that the European ecosystem lacks resources, as Draghi claims, while imposing too many "burdens on companies in a fragmented market."  

The challenge is to rewrite the rules, warns Wolff. But also to increase public investment, as demanded by the former president of the ECB, who requested resources of 800 billion euros per year and the mutualization of guarantees, such as Eurobonds, to fund geostrategic projects and private projects, as market analysts claim. At McKinsey, they insist that capital funds "can become the additional engine that transforms the European landscape" and estimate that at least 100 billion euros annually would be the minimum contribution that would provide the EU with a competitive boost. 

After all, "the gap between its GDP and that of its transatlantic partner nearly doubled between 2002 and 2023, reaching 30%, with almost 70% of this lag attributed to the sluggishness of its productivity,” McKinsey warns. Draghi's calculation is also eloquent. The EU demands an increase in investment from 22% to 27% of its GDP, and well executed subsidies in R&D&I. The Jacques Delors Institute adds a third element to this: committing to infrastructure plans with which Europe can build highly competitiveness safe conducts.

Industry has returned to the Old Continent

Sebastian Dullien from the Institute of Macroeconomic Policy (IMK) in Düsseldorf proclaims that "industrial policy has returned" to Europe and, very specifically, to Germany. It is a bit late, he acknowledges, because of the reorientation of value chains and economic agendas in other latitudes, like the U.S. and China, although it has also been evident in South Korea and India, with billions in subsidies and restructured laws to boost strategic sectors. 

Everyone with that technological stamp, including their necessary high-end chips, and, to a large extent, with sustainable features and productive advances towards mobility. 

In his view, the EU must accelerate initiatives such as the Net-Zero Industry Law; expand the grants map for Important Projects of Common European Interest (IPCEIs) as essential instruments to strengthen industrial competitiveness through disruptive innovations in sectors critical for energy security; and also develop more effective national support  to encourage the deployment of renewable energies, industrial decarbonization, and the production of clean technologies, as part of the objectives of the Clean Industrial Pact. The IMF also emphasizes the coordinating and unifying role of Brussels in terms of criteria and strategies.  

The road map still has obstacles to overcome. Dawn Capital has identified 73,000 medium-sized manufacturing companies in Europe that have not fully adopted essential measures to drive the industrial transition: incorporating professional talent and a technical workforce, promoting automation processes and productive planning, designing value chains adapted to business cycles, and creating infrastructures and data centers in line with current demands. 

Leaving business as usual behind is not easy. But, halfway through 2025 there are companies and sectors that stimulate industrial transformation. The European Commission, in its “Communication: a competitiveness compass for the EU”, has highlighted five priority segments: renewable energy, medical biotechnology, technology and AI, e-commerce and logistics, and robotics and advanced manufacturing, while the market research firm Statista presents its first ranking of the transformative success of SMEs in European industry. 

From the World Economic Forum (WEF), the managing body of the Davos summits, there is a call to Brussels and the European private sector to identify the specific needs of each industry so that AI tools capable of accelerating the integration of productive processes can be incorporated into them. According to experts, “the key lies in first designing, and then implementing the corporate strategies that make AI a daily business tool, with operational rules -a clear message to community institutions- that are well calibrated to accelerate its development." 

The WEF uses a recent study by Bitkom, an employers' association that promotes digital initiatives in German industry, as an illustrative example of its recommendation to Europe, which reveals that only about 20% of German companies successfully use AI in their daily operations, while almost 80% remain stuck in the pilot phase or have not yet started. This is in contrast to success stories such as the Siemens Digital Lighthouse factory in Erlangen that has implemented AI, digital twins, and robotics in more than 100 processes in its value chain, achieving a 69% increase in productivity and a 42% reduction in energy consumption in four years.

Ignacio J. Domingo has spent most of his 30 years of professional practice analyzing geopolitical, international economic and capital market issues in Expansión and collaborating with media channels such as El Confidencial, Capital, Estrategias de Inversión and El Diario.es, among others. He received the award as a first runner-up for the Citigroup Award, which recognizes the best annual economic reporting.