The Return of Industrial Policy: Europe's New Strategy for Economic Sovereignty

EU industrial policy economic sovereignty energy crisis 2026

For much of the post-Cold War era, 'industrial policy' was a term economists used with barely concealed disdain — a shorthand for government meddling in markets that invariably produced inefficiency, misallocated capital, and politically motivated decisions dressed up as strategic planning. The European Union's official position for most of this period was that its role was to enforce competition rules and single market principles, not to pick economic winners.

That consensus has been shattered by the twin pressures of the decade: first China's systematic use of state resources to build dominant positions in sectors from solar panels to electric vehicles; and now the energy security crisis exposed by Russia's weaponisation of gas in 2022 and deepened by the Iran conflict of 2026. Europe now operates explicit industrial policies in energy, semiconductors, defence, and strategic raw materials.

The EU's Innovation Fund is directing billions toward industrial decarbonisation. The Chips Act has committed public money to domestic semiconductor production.

The Critical Raw Materials Act has identified and is attempting to secure European access to strategic minerals. ReArm Europe is mobilising defence industrial capacity.

This is industrial policy — the state directing resources toward specific economic outcomes — regardless of what it is called. The theoretical concerns about government failure remain valid: states are not reliably good at identifying winning technologies, and subsidies have a way of becoming permanent.

But the practical argument for strategic intervention has become harder to deny in a world where competitors have long since abandoned the idea that markets alone should determine strategic industrial structures.