ROME – Over the last three years, the European Union, faced with the imperative of calming roiled markets and laying the foundations for a sound recovery, has concentrated largely on financial stability and reducing fiscal deficits and debt. Now, with financial tensions easing and confidence returning, Europe’s leaders should shift their focus in 2014 back to the real economy and the industrial base. February’s meeting of the European Council of Ministers will be a good place to start.
To decide the best way forward, Europe’s leaders should look to the past. Investment in manufacturing – historically one of the main drivers of growth in Europe – holds the key to revitalizing the European economy.
Over the last decade, industrial policy has been sidelined in favor of the financial and service sectors. Manufacturing was deemed a pursuit of the past, and Europe was no longer considered a suitable location for competitive industry. Many European countries have since undergone deindustrialization. Industrial production in Italy, for example, has declined by about 20% since 2007.
Nonetheless, the industrial sector continues to play a key role in the EU economy, employing more than 34 million people and accounting for 80% of exports, while providing a substantial share of private investment in research and development. Industrial manufacturing thus affects every other sector of Europe’s economy, including the service sector.