Brussels Fiddles while Europe’s Industry Burns

Günther Kornfellner
3 September 2026
German version

Europe, once a premiert world supplier of industrial goods, has turned into a continent of rules and regulations. While battery factories are springing up in Shenzhen and billions are flowing into semiconductor plants in Texas, Brussels is debating further reporting requirements, sustainability standards and approval procedures. One could easily conclude that today Europe’s most important exports are regulations.

This transatlantic divide was highlighted at the meeting of G20 Finance Ministers in Asheville, North Carolina (31 August 31– 1 September 2026). Elon Musk summed it up nicely. He criticized Europe’s restrictive policies, which he said stifle innovation. Entrepreneurs, according to Musk, should be “relatively free from regulation,” meaning that new things should be legal by default rather than illegal by default.

All participants (except China) acknowledged the “significant common obstacles to robust economic growth…. including regulatory and administrative burdens, inefficient tax systems, insufficient investment, high capital costs, and shortcomings in labor supply, skills, and mobility.”

For Europe’s political elite, these seem to be nothing but empty words. Under Brussels‘ leadership, Europe’s deindustrialization is steadily advancing. It didn’t come with a bang, either. It progressed quietly. Factories don’t disappear overnight. More often than not, they are simply no longer being built. Investment decisions are made against Europe long before jobs are lost. Production lines are relocated to North America or Asia because energy is cheaper there, capital is more readily available and political decisions are quick and industry friendly. It is only years later that a failure to invest turns into a plant closure and a footnote in the statistics becomes a national debate.

Germany and Austria are navigating this process with remarkable composure. The political elite like to talk about transformation, resilience, and sustainable growth. Far less often is it acknowledged that industrial competitiveness is not guaranteed. It must be continuously safeguarded and renewed.

For decades, the European model of success worked remarkably well. Germany developed into the industrial engine of Europe, while countries like Austria became the highly productive powerhouse of German value chains. Affordable energy, open global markets, and technological excellence enabled a level of prosperity that many have long taken for granted.

Today, all of these prerequisites are crumbling at once.

Energy prices remain among the highest in the industrialized world. While American companies benefit from cheap natural gas and China supports its industry with enormous financial subsidies and investments, the EU is primarily explaining to its companies why higher costs are actually a competitive advantage in the long run. However, this convinces neither investors nor production managers.

The argument that Europe is a pioneer in climate protection is unhelpful and counterproductive. Moral leadership is difficult to export, whereas industrial facilities are surprisingly easy to move.

Global competition has also undergone a fundamental shift. China is no longer the West’s cheap manufacturing base. Today, the country is a technological competitor and is already the market leader in numerous future-oriented industries such as batteries, solar panels, and electric mobility. While Europe is still debating what an industrial policy might look like, Beijing has been consistently implementing one for years.

Moreover, Europe is under the illusion that nearly every economic challenge can be solved with additional regulation.

Of course, environmental, consumer, and data protection standards make sense. But every new law comes with a cost. And while Washington offers companies billions in investment incentives and Beijing systematically promotes strategic industries, Europe often demands forms, proof and documentation first.

The burden of this regulation falls primarily on small and medium-sized enterprises. Large corporations can distribute additional regulations to their specialized compliance and legal teams. Family-owned businesses, on the other hand, often have to meet the same requirements with the very same employees who should actually be innovating, serving customers, or tapping into new markets. Regulation ties up resources where they are most urgently needed for growth.

Hardly any industry illustrates the practical impact of this structural competitive disadvantage more clearly than the German automotive industry. Once synonymous with engineering prowess and industrial excellence, the industry must now simultaneously grapple with electrification and autonomous driving—two developments that are fundamentally transforming established business models. At the same time, Chinese manufacturers are increasingly pushing into core European markets with technologically mature and competitively priced vehicles.

Volkswagen illustrates this trend impressively. Just a few years ago, the company was considered the epitome of German industrial expertise. Today, cost-cutting programs, discussions about plant locations, and job cuts dominate the headlines. The planned reduction of initially around 35 000 jobs quickly escalated into far more extensive restructuring. Several plants are up for closure. What was once sold as short-term consolidation increasingly appears to be a fundamental realignment of German industry.

What is remarkable here is not so much the crisis itself as the political reaction to it. While companies talk about competitiveness, politicians prefer to discuss issues of distribution. They argue over who should bear the costs, rather than why they arose in the first place.

Following the G20 summit in Asheville, North Carolina, German Finance Minister Lars Klingbeil visited the BMW plant in Spartanburg, in neighboring South Carolina. Instead of investing in Germany, the BMW Group now operates its largest plant worldwide in Spartanburg, employing over 11 000 people.

Austria exhibits a similarly familiar reflex. The Republic has benefited from Germany’s industrial success for decades. Consequently, declines in German production have an immediate impact on Austrian supplier companies. Nevertheless, short-term crisis management often takes precedence over long-term economic policy.

Hardly any other European country distributes government aid as generously as Austria. Subsidy programs are implemented more quickly than structural reforms. Budget deficits grow more reliably than productivity. Consolidation is achieved primarily through new revenue, and much less frequently through reduced spending. The result is hardly surprising: rising public debt coupled with declining competitiveness.

One could describe this as an economic policy variation on Austria’s famous talent for improvisation. If something doesn’t work, the first response is to throw money at it. Only much later does the question arise as to why it didn’t work in the first place.

Yet Europe’s real weakness runs deeper.

For years, productivity has been growing more slowly than in the United States. European companies invest less in future technologies, the capital market remains fragmented, and promising startups often leave the continent just as they are poised to become global companies.

Europe has excellent universities, outstanding researchers and innovative entrepreneurs. What’s missing is not so much creativity as the ability to scale up. The continent produces ideas—America produces global market leaders.

Perhaps the greatest competitive disadvantage, however, remains political in nature.

The European Union has a single market for goods, but still no truly integrated single market for capital. It has a common currency, but no common industrial policy. It formulates ambitious strategies, yet regularly fails to implement them.

Mario Draghi articulated this diagnosis with unusual clarity in his 2024 report. Europe’s problem, he said, is not a lack of innovation, but a lack of competitiveness. Research is funded, companies are founded, and patents are filed, yet all too rarely do these efforts give rise to global corporations.

His solution is correspondingly radical.

Europe must invest several hundred billion euros more each year—not in short-term economic stimulus programs, but in energy infrastructure, semiconductors, artificial intelligence, quantum technologies, and defense. The capital market must finally be harmonized so that companies can raise equity capital more easily. Approval procedures must be drastically shortened, reporting requirements reduced, and the single market consistently prioritized. Above all, however, Europe needs a genuine common industrial policy that promotes strategic technologies just as resolutely as China and the United States have been doing for some time.

Rarely have Europe’s experts been so united in their economic assessment. The real challenge lies not in the radical nature of their proposals, but in the fact that they would have to be implemented. Draghi’s proposals call for precisely what Europe has failed to achieve for decades: less national vanity, more joint financing and the courage to make economic competitiveness a political priority once again. Instead, member states defend their individual interests with admirable consistency, even if this causes the entire European economy to lose its appeal.

Germany and Austria are prime examples of a broader European problem. Both countries still rely on the industrial capital of past decades and often confuse current strength with future competitiveness. Europe’s greatest danger, therefore, is not that the continent is unaware of its problems. It lies in the fact that it analyzes, comments on, and regulates them, while other economies have long since solved them.

Klingbeil was unable to return home after the G20 summit because the German government plane was broken. The defective government plane could symbolize a broken German economy. And if Germany is stranded, so is Europe.