Europe can assume a greater role, but must uphold its ambitions and forge partnerships with parts of the Global South.
The world order is shifting rapidly
In the aftermath of the collapse of the Soviet Union, with Putin’s Russia attempting to reassert influence through its aggressive war in Ukraine, the old bipolar world has disintegrated. The United States, once hailed as the sole remaining superpower, now finds its economic strength constrained by internal challenges, including Donald Trump’s second presidency. China aims to become the preeminent global power but often acts with narrow self-interest, prioritising investments that secure raw materials or political influence. This leaves the European Union to take on a leading role with its Green Industrial Deal. However, the EU faces hesitation among member states, with populism supplanting Sustainable Development Goals (SDGs) as a unifying framework in some nations, and national policies often overlooking the need for cooperation within and beyond Europe.
The European Union, which was awarded the Nobel Peace Prize in 2012, has underinvested in ensuring the security of its members and neighbours in a world where new conflicts can easily escalate into wars. It has also fallen short in supporting clean growth and social stability.
A new industrial policy, as outlined in two publications the author wrote together with Dani Rodrik and Christian Ketels, should provide three things:
(i) a comprehensive approach that encompasses not only manufacturing but also broader inputs and related service industries;
(ii) goals that are not measured solely by GDP but by their contribution to economic welfare;
(iii) the European Green Deal as the cornerstone of industrial policy.
A forward-looking industrial policy is a challenging task, especially if political factions and member states fail to collaborate. Traditional mainstream parties have struggled to appeal to voters in the new world order, facing competition from both right-wing and left-wing extremists. Green parties seldom remain in government for extended periods, and similarly, progressive new liberal parties often play a role only in coalition governments. These liberal parties tend to lose influence when public deficits or debt levels rise, while green parties frequently lose relevance once initial environmental progress is achieved, particularly when new challenges emerge. Consequently, guidelines from the European Commission and independent experts are increasingly important, and there is a growing need for direct democratic measures.
Onward to a new Green Deal?
The European Green Deal is an ambitious framework with the aim of reducing the EU’s net greenhouse gas emissions by 50 percent by 2050. It encompasses a green recovery strategy, a just transition fund, RepowerEU, and a Green Deal Industrial Plan. Member states must help shape the specific details of these initiatives. The transition fund is intended to empower and support countries with lower economic capacities, while RepowerEU serves as Europe’s response to the challenges posed by the global energy market and the disruptions caused by Russia’s invasion of Ukraine. Russian fossil fuel imports should be phased out, energy conservation should be enforced, and efficiency increased, while clean energy must become the norm. A green industrial plan should mitigate the opposition of countries with large manufacturing sectors that are still reliant on fossil fuels.
Europe vs. China and the US
A comparison of Europe’s efforts with those of China and the United States reveals the distinctiveness of the European approach, which blends top-down and bottom-up measures while striving to balance social and ecological goals. However, it also highlights that the EU lags behind the US in productivity. The objectives of the European Green Deal are challenging to implement, and each country has its own approach. The policy in the US appears more successful in the short term, due to extensive use of fossil energy and the introduction of new customs duties and restrictive trade policies.
However, short-term success based on outdated technologies is unlikely to serve as a sustainable long-term strategy, even if, for now, the US continues to see higher growth in GDP and productivity, as well as stronger support for start-ups and consistently low unemployment. Migrants are welcomed to bolster growth in the US, despite anti-immigration movements and calls for remigration from political conservatives, including the president Donald Trump.
China continues to record relatively high growth, with a rising share of manufacturing. It produces green products and technologies alongside traditional “brown” products, such as small electric vehicles, while remaining dependent on coal and new nuclear reactors. At the same time, inequality is rising, and China remains an autocratic regime. Property prices are escalating, new debt is obscured, and international investments are driven more by Chinese policy goals than by profit.
The European approach could prove to be ambitious yet successful
Europe maintains open markets and does not neglect poorer regions or countries; instead, it supports them and does not abandon international agreements even when they seem less advantageous. The EU encourages trade and investment with the Global South, although not aggressively enough. Europe could adopt a more strategic industrial policy, enhance support for emerging climate-friendly technologies, and secure the sustainable use and upgrading of rare materials. The development of green industrial policy must be accelerated, while any regression must be prevented. This would also help curb the rise of dangerous populism and bolster centrist political movements, rather than reverting to old, conservative, and narrow objectives. A new industrial policy must have multiple aims, and these must be pursued and effectively managed.
The EU’s industrial policy aims to enhance the competitiveness of European industry, enabling it to continue driving sustainable growth and employment in Europe. The digital transition and the shift towards a carbon-neutral economy have prompted the adoption of strategies designed to improve framework conditions for EU industries. The impact of the COVID-19 pandemic and the war in Ukraine have also sparked fresh reflection on economic recovery, reconstruction, and resilience. Many of these new goals could be achieved through partnerships with the Global South, particularly with neighbouring African countries. Such collaboration could support a fair transition, promote technology exchange, and develop a fair migration strategy that helps reduce overpopulation in Africa while addressing the ageing populations of affluent European countries.
Europe’s relationship with its southern neighbours, particularly Africa, presents both a burden and an opportunity. Africa is geographically closer to Europe than China or the United States, but faces overpopulation and a desire among many to migrate to Europe. The international capital markets unfairly penalise Africa, often suspecting corruption and dictatorial interference. This dynamic presents a unique opportunity for Europe to engage through a policy of guidance and support.
All these elements, when combined, could boost welfare and establish Europe and its neighbours as a significant power in the new world order. Europe should remember that, together with its neighbours, it constitutes a formidable force, with a positive balance of payments. However, the continent is also vulnerable to populism and often progresses two steps forward only to take one step back. Technological openness is beneficial, but it should not be an excuse for investing in outdated technologies. Europe suffers from the influence of a legacy automotive sector reliant on internal combustion engines, with job losses and production declines felt not only in Germany.
The new European Commission faces a formidable challenge, but also an opportunity to reshape Europe’s role in the new world order. Ursula von der Leyen and her team could help the EU assume a significant leadership role. The mission letter for Wopke Hoekstra, the new Commissioner for Climate, Net Zero, and Clean Growth, outlines the complexity of this task, emphasising the need to balance security, prosperity, and democracy within the “green and digital transition” while sustaining Europe’s unique quality of life
Reforms present opportunities for Europe and its neighbours
We are living in a new world order that brings new challenges for businesses and individuals, requiring decarbonisation and the resolution of political conflicts before they escalate into wars. This new context also demands understanding cultural differences and recognising that, while poverty is decreasing, progress is uneven and not universal. To avoid populist backlash and new forms of autocracy, policies must be carefully crafted and effectively communicated.
Europe has a distinct role and opportunity in this environment: it lacks military power, but was founded on the principles of resolving conflicts peacefully and promoting an economic model where peace, climate change mitigation, and reducing income inequality are high priorities. In theory, Europe follows a ‘Beyond GDP’ approach within the framework of the SDGs. In practice, this requires shifting policy towards greater cooperation, putting historical conflicts behind, and embracing new partnerships. Supporting peace in Ukraine will necessitate pressure on Russia, but also on Ukraine—total victory is impossible, and concepts like neutrality and guarantees are needed, as seen in the past. A similar approach applies to the conflict between Israel and its neighbours: while there is no justification for an attack on Israel, forced settlement in other territories must also be addressed.
Migration policy also needs careful consideration. Leaving one’s country is never an easy choice. In times of war and tragedy, migration is often the only option, as is the case for many fleeing Afghanistan, Sudan, and other African nations. European countries are often the preferred destination, and there are humanitarian calls to accommodate these migrants.
However, cultural differences can lead to populist backlash, and populist parties gain ground as a result. This is happening despite Europe’s dependence on immigration: hospitals, care centres, and the construction and manufacturing sectors all rely on migrant labour. Without immigration, Europe’s population would shrink—a situation Japan has faced with its “lost decades” of declining prosperity. Investing more in Africa, particularly in education, would help reduce overpopulation and lead to more qualified migrants, less dependent on social welfare and better equipped to contribute to both Europe and their home countries. Embracing cultural differences would also foster innovation and generate new solutions.
This article is part of the Project “EU Forward” Social Europe runs in cooperation with the Friedrich-Ebert-Stiftung.
Karl Aiginger is Director of the Policy Crossover Center: Vienna – Europe (www.europaplattform.at). He is also Professor at the Vienna University of Economics and Business and Honorary Professor at the University of Linz. He is founding editor-in-chief of the Journalof Industry, Competition and Trade (JICT). He was Director of the Austrian Institute of Economic Research (WIFO) from 2005 until 2016.