Growth Imperative and Economic Outcomes vs Sacred Cows
Competition, Industrial Policy, Trade, Digital, Defence – “All Together Now?”
Based on Keynote at DG Grow’s Internal Market Conference, 19 March 2026
I am not a macro or a trade economist, I am an “Industrial Organization” economist – one of those who by virtue of this qualification would never tend to venture outside of the Competition Policy castle. “We know what we are doing, we understand markets best, we have tools and methods” –no need to look left or right because, you know, we are enforcing the law.
My claim to fame here (!) is that I have been one of the few to argue from those lofty heights we badly needed to look “left and right” across policy tools.[1] It seemed obvious to me: what we do in competition analysis is assessing competitive constraints (“which competitive forces constrain the exercise of market power?”); so events around trade and industrial policies that shape flows and competitive advantages should be absolutely “in scope”. But truly for a long time we have not cared one bit in antitrust about anything beyond the set of tools and conventions we developed for ourselves (toy tests for market definition, theory-based theories of harm). Calling for a broader view, for getting industrial policy and trade thinking into the analysis was a maverick view, fiercely resisted in a field dominated by lawyers whose objective is “predictability of the rules”. But to me it seemed obvious and necessary if we care about outcomes, rather than just maintaining the sanctity of the tools, and preserving consistency with precedent.
There is now movement towards recognising the need to connect policy tools.[2] The sacred cow of “one issue, one instrument” is receding. But progress is slow (and more in the form of exhortations rather than prescriptions[3]). As change accelerates (geopolitical upheaval, AI transformation, fundamental weakening of Europe’s economic model) there’s a still quite a gap between where we are and the kind of policy alignment which the moment demands.
What the moment demands
We are not living in ordinary times. Are we being led by outcomes (“where do we need to be?”, or by “preserving consistency with established principles”? Worse, how much deference are we paying to “sacred cows”? Given Europe’s bleak economic predicament today, shouldn’t the posture be “whatever works”? Are we being held back by form rather than substance? My view is that policymaking is not enough of a joined-up effort, indeed there is remarkable lack of mutual support across policy areas; compounded by deference to a number of residual “sacred cows” we cannot quite let go of. I mention as examples below three areas close to my heart: failure to pull together on “demand-side tools” in industrial policy because of deference to an obsolete free trade posture; a vision that digital policy is separate and distinct from industrial policy; and the defensive posture of competition policy when its role and relevance are being questioned, instead of “getting stuck in” with the job of seeing where it can add value.
The predicament
Over 18 months after the Letta/Draghi reports, and countless statements on the need to “improve competitiveness”, indicators are not improving[4] and there is an inescapable reality staring at us: “the Continent’s old growth model no longer works, and we need a plan that matches the scale of this shift”. We need growth, and improving productivity must be priority number one, two and three for Europe today. Multiple shocks are exacerbating unfavourable fundamentals: China’s overcapacity and fast-growing trade surplus, reflected in a massive increase in good exports to Europe in product categories that are our own “crown jewels”; decline in our exports, with no trade policy that meets the moment; weakness in domestic demand;[5] deepening energy crisis. These shocks compound our perennial systemic issues: lack of integration across Member States, lack of Capital Market Union – and I would add our “digital colony” status: often forgotten in macro analyses, we are de facto a digital colony of the US and this has shrunk our ability to capture value and build our own digital assets.[6] Europe has a “lack of scale” problem in digital as well, and this is a major drawback when we stand poised on the verge of a major technological revolution with AI. And yet, exasperatingly, we continue to fail to address any of it – see the recent debacle around the 28th Regime (which was meant to create a European “Delaware Inc”, “EU-Inc” for startups, but ended in a fudge).
Are we throwing everything at it?
This should be a time of emergency, war-like effort. We keep talking about completing/deepening the Single Market thought it is unclear how (requires taking real power away from national capitals). Creating a Capital Markets Union. Unanimity of decision making is a drag and appetite has grown for a “two-speed Europe / 6-club / “coalition of the willing”. Maybe.
And because the really useful stuff is too hard, what happens is diversion to other targets that “look like doing something” – what Riedeker, Guttenberg and Tordoir describe as Europe being “firmly focused on the wrong diagnosis” (Europe is chasing the wrong fix for its growth crisis – POLITICO). There’s a lot of emphasis on deregulation/simplification (“growth will return when the red tape is cut”), but the Omnibuses are estimated to deliver limited cost savings (12bn a year or around 0.07% of GDP, “not a growth strategy, a rounding error”). Also a lot of effort around signing trade deals – understandable in the circumstances, but all of Mercosur, India and Australia are not projected to make a major difference either (small contribution to GDP). The heavy lifting needs to come from national capitals, which still control the levers of industrial policy, fiscal policy and defence policy.
All this said, even with all the constraints, are we throwing all available tools at the problem, given the gravity of the situation, supporting the effort across functions? My view is we are still too attached to the wisdom of “one issue one tool” and focused on narrow garden patches, instead of coming out swinging, “as a pack” to support Europe. Three areas illustrate this point (to which I would also add the mess that is defence procurement, though I do not expand on this further – recommend instead the recent CEPR-Competition RPN webinar Europe’s Defence Strain: Demand Signals, Procurement Hurdles, Tech Opportunities | CEPR).
Demand side tools – a growth strategy we are too reluctant to use, for all the wrong reasons
Industrial policy is not just about supply-side tools: incentives, subsidies, state aid. A European industrial strategy should leverage Europe’s greatest asset: demand, our 450m consumer market (and 25m businesses). Demand-side management is an absolutely legitimate tool to direct customers to a sector/product and attract investment. The IRA (Inflation Reduction Act) in the US is a famous and successful example – making tax credits for new EVs contingent on domestic manufacturing and sourcing requirements (among other things), it spurred significant private investment in clean energy (estimated at over $420 bn as of early 2025). =
Demand-side management/incentives have been recently discussed in three places, and received much pushback. In my view this is unwarranted, and reflects both lack of courage, of joined up thinking and “team effort”.
(a) French-style bonuses for EV cars
The CER-Delors-Bertelsmann Institute paper by Tordoir, Redeker and Guttenberg (How Buy European Rules Can Help Save the European Car Industry[7]) made the case in October 2025 that the European car industry faced a “perfect storm”, hammered by China (now 20% of the European EV market) and beset by weak European demand (20% below pre-pandemic level), yet it remains central to productivity and R&D in Europe. Their recommendation was a joint European industrial strategy built around demand: “instead of sliding into a costly muddle or regulatory rollbacks, bailouts, and fragmented national subsidies” they advocated for an expansive EV contribution programme to households which would have involved a contribution to purchases of European EV vehicles in a number of countries were coming up for renewal.
The suggestion was to “Europeanize the French eco-bonus”, i.e. steer demand towards European EVs by limiting bonuses to EVs produced in low-carbon supply chains. Notable was the emphasis on the solution as “WTO proof” – i.e. because this was formulated as demand support open to all producers based on “qualitative criteria” (bonuses of between 2-4k would be given for EVs produced through “supply chains which met the French carbon-scoring for emissions at every level of the supply chain”). The approach was described as “elegant” and preferable to “blunt” local content rules as it “would steer demand while being easier to justify under WTO”. The proposal was not taken up.
(b) Industry Acceleration Act (IAA) proposal
The IAA proposal to “increase the share of European supply into European selected industry sectors to 20% by 2035” was finally unveiled by EVP Séjourné on 3 March, after much controversy and delay. It contains “made in EU” and/or low carbon requirements for public procurement and public support schemes – applying to strategic energy and emission-intensive sectors (steel, cement, aluminium, cars, possibly chemicals in future), and net zero technologies facing competition from abroad. It was hailed by Séjourné as a “change in doctrine” (“without strong industrial base we won’t have climate transition and we won’t have strategic autonomy”), and by Director General Jorna as a “new generation of European law”.
The gestation was painful – the “Made in Europe” pitch faced a big negative campaign around “French protectionism” and aggressive pushback by multiple sections of European industry who see themselves as “globalists” (as well as by institutions and governments fearful of retaliation from the US). A few key tech sectors were originally included (quantum, AI, chips) but then carved off at the last minute under heavy lobbying (perhaps they will reappear in the Digital Sovereignty package underway in a different DG – to my point). The Act is yet to be approved and strong headwinds are anticipated from a few Member States.
(c) “Buy European” clause for IT services in the revised Procurement Directive
With others, I have argued strongly in favour of a “Buy European” rule to be introduced in public procurement for IT services – to further the cause of digital sovereignty.[8] The proposal is actually modest, for a share of 20-30% of procurement demand being funnelled to European suppliers – tough it has attracted huge lobby pushback and has been attacked as another instance of the Commission sliding into “protectionism”.
These demand-side initiatives have been aggressively resisted (by industry, institutions and politicians) essentially on a common argument: that going in the direction of “Buy European” is a dangerous slide into “protectionism” and a flagrant breach of WTO rules that would put Europe “outside the law”. “We are the Continent that abides by the rules! We uphold the rule of law!” I cannot count the times I have heard this. But we cannot succumb to that. The “WTO fealty” argument is a perfect example of the kind of sacred cow that is accepted without questioning by most, infects much thinking, and it is a true barrier to actually doing something in our current predicament. First, there are local content rules pretty much everywhere (“Buy American” is a law since the 1930s). What would be new or different? Second. the pushback is old-fashioned neoliberal free-trade lore (“Europe stands for free markets, protectionism and national champions are bad, free trade is engraved onto our souls and in our laws, we respect the rule of law when others no longer do”, etc.). These free trade narratives are reactivated by lobbyists rehashing neoliberal ideology and appealing to claims that “local-content requirements are simply prohibited” under WTO.
As background, the WTO was introduced during the ascendancy of the Reagan/Thatcher revolution (mid 1990s), fully in the spirit of Chicago free-market theory and in line with globalist free trade. Its purpose was limiting government action and constraining their policy space, with huge deference to the private sector and the default assumption that markets are self-correcting. This is not what Europe needs to follow right now. It reflects a deceased worldview in current circumstances.
First, the fiction that WTO rules admit no exception ever is a myth. EU primary law recognises situations where Europe can do what is required: for instance Article 346 TFEU allows Member States to take measures necessary to protect their essential security interests and relieves them of obligations that would otherwise apply. Second, Europe never actually put WTO compliance above domestic priorities: the EU’s compliance rate when the WTO found it to be in breach of the rules is far below 100%, and the same is true of others. The idea that fealty to WTO rules is the top priority for the EU is a fiction. And given current geopolitical dynamics, it shouldn’t be. Like every other WTO Member, Europe needs to put political economy first. We are fighting for our sovereignty, and compliance with an external institution that doesn’t care about our sovereignty is not the way. And third, the most recent WTO Conference in Yaoundé which was meant to initiate overdue reforms just ended in failure – the institution is in a profound crisis, who is going to “come after the EU” for doing what others do in any case?
So what are European leaders scared of? Why do they listen to obsolete dogma, instead of adopting the bold posture that Europe is practically at war, we must address our declining economic performance, we are good global citizens and respect the law but will do whatever it takes to stave our decline? Limited European preferences are defensible, and must be defended. We will not be bullied and preached to in ways that are contrary to European interest.
Yet have we heard this defence? From anyone? Has DG Trade supported this position? Have we heard the WTO “chestnut” being challenged, at a time when there is universal call for reform of the institution in any case, and for revisiting the whole issue of “discrimination”? We saw tech sectors being dropped at the last minute from the IAA – why was that? Did anyone from DG Connect support the inclusion? DG Competition seems to have had nothing to say in favour of these initiatives – when it could actually say something useful e.g. on procompetitive ways of driving demand, or on how joint purchasing would not raise antitrust issues. Maybe there was furious activity internally, but in the public policy discourse we have not seen cross-section support for these initiatives - just a lot of opaque lobbying.
Rebuilding our digital infrastructure IS industrial policy
Europe has allowed its digital infrastructure to be built essentially by three American hyperscalers. While all effort was on digital regulation, the Continent was being carpeted with datacenters, cloud and connectivity assets we don’t own or control. Europe’s own incipient efforts shrivelled. The assumption in policy circles (where anyone thought about this at all) was that cloud was passive/neutral infrastructure much like water or electricity, and no one clocked it was in fact the launch pad for a myriad adjacent services which embedded the same hyperscalers deep into our European businesses and the public administration. Today, with AI as a disruptive force and a vision that Europe could potentially be a leader in “industrial AI” (because of our exceptional competences in engineering and machinery, plus a wealth of industrial domain-specific data), we will be forced to build on hyperscalers’ infrastructure if the push towards sovereign tech initiatives does not succeed.
This is a quintessential industrial policy mission. The notorious gap in productivity growth that opened up between Europe and the US after 2000 can be tied back to a different level of investment per worker in technology – essentially, Silicon Valley – which also meant digitization was adopted and diffused much more limitedly across Europe. To increase productivity, Europe cannot just hope to build on others’ infrastructure – as rents from the value chain are captured by others and value is being extracted and leaked to other destinations. We need to power up demand to attract investment in European assets. This is not just the job of DG Connect or one digital Commissioner. Creating the conditions for demand to “pull” and investment to engage is also an industrial strategy project. We have sought to make this point repeatedly but there is reluctance to engage on grounds it’s “someone else’s patch”. The carveout of all tech components (quantum, AI, chips) from the IAA proposal is telling. “We will punt all this to a different silo”. Why not come at it from multiple places?
Competition policy is on the defensive and struggles to move on from the past
Competition policy was “dragged into the modern era” in the early 2000s when major effort was expended by economists (like myself) to adopt a “more economic approach”. It was not all abject pursuit of clients’ interests, there was also a hope that “more economics” would actually improve the quality of enforcement. The main effect however was to erect a system of beliefs and establish a technocratic set of tools that we felt very self-righteous about, and became the orthodoxy. In the main, it was a softer version of “Chicago” views and theories of harm founded on neoclassical theory. Economists have roamed the planes since then, with derivative “tests”, “empirical analyses” we declared “robust”, and little baby models we described as “stylized” (for which we often hired academics happy to lend their name).
During the Biden years a different set of “animating values” for antitrust emerged in the US (the “neo-Brandeisians”, focusing directly on fighting corporate power), which left Europe looking somewhat behind the times (apart from the CMA, an enthusiastic adopter of “progressive” views during the Coscelli years). That era is over in the US for now, as federal US agencies have pretty much relinquished a lot of their role in the midst of brutal decimation of leadership, pursuit of ideology and capture by lobbyists. The gyrations of US antitrust over the last decade have been truly extraordinary.
But where are we in Europe? Questions around the role of competition policy have intensifiedin light of the “competitiveness” imperative: Europe’s growth is anaemic, European companies are sub-scale, we have no champions, should we allow European businesses to consolidate while DG Comp just goes on vacation for a while? The Competition Bubble puts up its routine defence at the numerous legal and economic events that are regulators’ megaphone: “We know what we are doing, we protect competition, competition drives growth, level playing field, eliminating barriers to entry, we have our established tools”. Oh and “we need to preserve independence against politicization”, as independent (read: technocratic) agencies are best at the job – in juxtaposition to the US and the UK (where the CMA has been “tamed” to pursue “growth” by the government after years of being complained about by the City as a rogue agency into which deals went to die).
The message that “we know what we are doing, competition drives growth not concentration or monopoly” is directionally true of course, but there is the broader environment we find ourselves in. The fact that Europe struggles so comprehensively with an economic model which is no longer viable should be cause to revisit the thinking, no? Yes, it is not the fault of competition policy that Europe’s businesses are subscale and underinvested. But enforcement that spends its time processing a lot of routine mergers with no issue, snags a few into the “concern” net and then lets them go with some (mostly ineffectual) remedies, blocks one a year or less sometimes on strongly held ideological positions (the dogma on telecom consolidation is a mystery to me), opens less than a conduct case a year, takes forever on cartels, and has achieved extremely modest results on digital regulation, is not having a great impact. Regulators are defending their “independence” – to do what? What is the contribution to European growth?
Yes, there is some sign of movement. Of sorts. The Merger Guidelines are being updated for the first time in 20 years, and this is hailed as a major event. In a legal world in which “certainty” is the highest value, the idea that these Guidelines will be updated to include a few lines e.g. on “dynamic competition” may seem newsworthy. Apologies for not taking that very seriously. Reality is we were looking at mergers in that way already, no one stopped at static effect in dynamic industries, so the practical implications will be very limited notwithstanding the copious client-led submissions and the farraginous update process. Nothing really turns on it in practice. There is talk of “giving more weight to efficiency defences” as a means to allow for industry’s consolidation urges through the back door. Rivers of ink and pay-to-speak conferences on that.
In fairness relative to the past, when talking of industrial policy in competition circles was anathema, there is slow opening to a vision that industrial policy is more than national champions. There are papers beginning to emerge (as cited) that the two are more open to one another. For me, there’s much further to travel. An “outcome oriented” approach should start from the shared goal: what are all here to pursue? And in particular: is it set in stone? Invariant to time and place? The issue today is growth, and productivity growth. Competition is not a science, it has proceeded and continues to proceed based on articles of faith. We have some rules of thumbs, we claim to have some economic models which are often contrived (have been there), plus what do toy models really tell us. The official line is we enforce to keep prices low, to create level playing fields, to keep markets open, to encourage innovation. Yet we have no real idea of the threshold at which intervention matters, and what intervention. Merger commitments: sell that line of business! What does it do? Mostly, not much. Conduct remedies: “cease and desist” – one a year if we are lucky, after years of investigation and subject to a decade of appeals. What does that do? DMA? What does that do?
The question to me remains: competition policy is not the engine for growth – granted. But how do we orientate it to help pursue the “Draghi mission”? What does it have to say on the positive need to build up lots of infrastructure for instance? It should inform the design of any public build initiative. It should be at the drawing board. It is being kicked forward to think about dynamic effects and ecosystems and efficiencies, hooray – but what is the right “dose” of competition in a world where we have an immediate problem of scale, and we need to pursue growth at all costs? What trade offs are we willing to make?
There is major reluctance to rethink our frames of reference – because we put a premium on “consistency of enforcement”, “rule-based”. But the economy is under existential threat, we are in an energy and defence crisis, the AI revolution is taking us fast to “work as a service” (WaaS), the “Trump doctrine” is leveraging and weaponizing all instruments at once. Europe has urgent essential priorities for which we need all policy areas to pool and pull together. Biden had “all of government”, Trump has “Executive Orders” – we have nothing of the sort but the imperative of a connected approach where the dots are somewhat joined should be the driving principle for all, and the basis on which we pull forward hard – not alas just muddle through.
[1] Caffarra (et al.), 2024-25: What Should Europe’s “Do Something!” Moment Mean for Competition?; Joining competition policy with trade and industrial policy: let’s get specific – part 1 | CEPR; Joining competition policy with trade and industrial policy: Let’s get specific – Part 2 | CEPR; New Commission Mandate: Why “Modernize” Competition Policy in Europe?; Draghi’s real message on European competition enforcement: “Not delivering on innovation and growth” | CEPR; Not a ‘side dish’: New industrial policy and competition | CEPR; Re-joining trade with antitrust | CEPR.
[2] Arjona and Sauri Romero, The power of two: Synergising competition and industrial policies - Concurrences, January 2026. Duso and Peitz, Aligning Competition Policy and Industrial Policy in the EU, March 2026.
[3] For instance, useful to see observations like “Competition policy is no longer formalistic and disconnected from economic outcomes... has evolved over the last two decades … adapted to new market realities …more economic approach – more dynamic approach…not just price but also long term innovation and resilience…”; while “industrial policy interventions were traditionally criticized because of the national champions bias…now industrial policy supports innovation, digitalization. sustainability” (Arjona and Sauri Romero, ibid). Good, true, but where next?
[4] EU industry competitiveness falls across most key indicators, report shows, MLex 11 Feb 2026. see Deloitte Tax PPT Template 16x9 Basic
[5] As described by Schnabel, domestic demand is anaemic, growing in Germany only by less than 1% a year on average over the last 25 years – while corporate profits and savings (highly mobile) were mostly exported and not invested domestically – financing growth elsewhere. Isabel Schnabel, ECB, Vienna Speech 11 February 2026, Made in Europe.
[6] As Schnabel (ibid.) put it: “Europe’s productivity gap with the US widened in the early 2000 not because Europe stopped innovating but because it was slower to adopt information and communication technologies – and one reason is that investment in ICT involves high fixed and organizational costs which US firms operating in a large integrated market could spread over a broader customer base”.
[7] 20251021_Policy_Brief_Europes_Car_Industry_Tordoir_Redeker_Guttenberg_ONLINE.pdf
[8] EuroStack, buy-european-a-framework-for-strategic-procurement-29-september-25.pdf