On November 26, 2024, industrial leaders and government officials from Italy and France issued stark warnings about the weakening state of European manufacturing, particularly in the steel and automotive sectors. The ministers stressed that the EU’s industrial base, a crucial component of its economy, is facing significant challenges that could threaten long-term competitiveness. These challenges include outdated policies, high energy costs, and the ongoing issue of unfair competition from countries outside Europe. As the global economic landscape continues to shift, both Italy and France have emphasized the need for swift and coordinated actions to revitalize their critical industries.
At the heart of the discussion was the issue of the Carbon Border Adjustment Mechanism, a European policy designed to protect the EU's internal markets from carbon-intensive imports. While the CBAM aims to support Europe’s environmental goals, Italian Minister of Enterprises Adolfo Urso and French Industry Minister Marc Ferracci warned that its current structure could undermine the competitiveness of European industries. If left unaddressed, this mechanism could further discourage investment in key sectors like steel production, which are energy-intensive and face rising costs due to environmental regulations. The ministers proposed a review of the CBAM framework to ensure it doesn’t disproportionately affect European businesses, particularly in manufacturing-heavy industries.
The two ministers also expressed the urgent need for a sustainable transition within these industries, one that would allow for green transformation without sacrificing Europe’s industrial backbone. Urso stated that Italy and France must work together to position Europe at the center of global production networks, creating the conditions necessary for strategic self-sufficiency. This would involve investing in innovation, improving the industrial supply chain, and ensuring that employment levels in critical sectors like steel and automotive remain robust. Europe’s steel industry, which has already faced years of stagnation, is at a crossroads. Without decisive policy interventions, these sectors may struggle to compete with both emerging economies and established competitors like the US and China.
The automotive sector, another cornerstone of European industry, also faces significant challenges. The EU automotive industry is grappling with issues such as declining production levels, shifting demand patterns, and a lag in technological innovation compared to competitors. The French, German, and Italian business associations have collectively warned that the risk of deindustrialization in Europe is higher than ever. They pointed out that the EU's growth since 2010 has been markedly slower than that of the US. While the US economy has expanded by 37.5% during this period, the EU has only seen 20.9% growth, highlighting a growing gap in industrial output and innovation. This decline in industrial performance is especially pronounced in high-tech sectors like energy and digital technology, where the US has made significant strides in innovation, leaving Europe struggling to keep up.
The business associations, including MEDEF (France), BDI (Germany), and Confindustria (Italy), called on EU member states to take immediate action. They proposed a “Catch-up Test,” a strategy aimed at comparing Europe’s key economic results with those of the US in critical areas such as innovation, energy policy, and industrial competitiveness. The associations argued that Europe must accelerate investments in research and development, reduce bureaucratic hurdles, and unlock substantial funding for innovation, such as the €800 billion earmarked in the latest Draghi report. Without these urgent reforms, they warned, Europe risks losing its economic influence on the global stage.
The ministers and business leaders also highlighted the importance of enhancing internal demand within the EU. Europe’s economy has been heavily dependent on exports, but with global trade tensions and competition from countries with lower production costs, this reliance is no longer sustainable. The EU needs to stimulate domestic demand to support growth and reduce vulnerability to external economic shocks. This strategy would also involve improving the supply chains for industries like steel and automotive, ensuring that these sectors can meet future demand without being stifled by inefficiencies or external disruptions.
Furthermore, the current state of European steel prices and market dynamics is a significant concern. While steel prices have remained relatively stable in the short term, the market is seeing low buying interest, suggesting that there may be limited growth potential without a broader recovery in demand. For industries that rely on steel as a raw material, such as construction and automotive, rising prices or supply chain disruptions could lead to further cost increases, affecting the overall competitiveness of European businesses. This is particularly concerning given the ongoing global economic uncertainties and the potential for further trade restrictions or tariffs.
As the European Commission prepares to review and adjust its economic policies, the urgency of revitalizing the continent’s industrial sectors could not be more pressing. With the right combination of policy adjustments, investment in R&D, and a renewed focus on strategic self-sufficiency, Europe could reverse the trends of industrial decline. However, failure to act swiftly could leave European industries unable to compete with the emerging powers in Asia and the US, ultimately putting at risk the continent’s economic future and its global standing.
In light of these developments, Italy and France are signaling their intent to take a leading role in shaping Europe’s industrial future. Their commitment to addressing the core challenges facing their key sectors, such as steel and automotive, marks an important step in safeguarding the continent’s manufacturing capacity and ensuring that Europe remains a competitive player in the global economy. The coming months will likely be critical in determining whether these efforts can turn the tide and restore Europe’s industrial strength.
