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A Stable Euro Requires an Ambitious Industrial Policy

After years of falling behind in cutting-edge technologies, Europe now has a chance to transform its economy in the aftermath of the COVID-19 pandemic. The case for an EU-level industrial policy is stronger than ever, and the survival of the eurozone itself may depend on it.

BARCELONA – The idea of a European industrial policy has been back on the agenda at least since the release of a Franco-German manifesto on the issue in early 2019. But whereas that document focused primarily on global competitiveness, an equally strong argument for reviving industrial policy is that it is necessary for the survival of the euro.

Since the introduction of the single currency, the industrial share of the economy in terms of value added has remained stable in Germany while declining markedly in France, Spain, and Italy. Germany’s massive economic-policy response to the COVID-19 shock is bound to reinforce this tendency.

Industry, broadly construed to include digital services, is the key to increasing productivity, implying that the European Union’s southern members will need to embark upon an industrial revival. Otherwise, their relative lack of competitiveness will deepen imbalances within the eurozone, and raise the prospect of permanent north-to-south transfers, threatening the bloc’s political sustainability.

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