Europe building strategic resilience in technology and energy sectors

Global shocks over the past decade, from the COVID-19 pandemic to geopolitical conflicts and energy crises, have revealed how vulnerable modern economies can be when critical technologies, resources, and supply chains are concentrated in a handful of countries. For the European Union (EU), these disruptions have triggered a major rethink of economic governance and the role of industrial policy in safeguarding long-term competitiveness.

A new study titled "Economic Security and the Transformation of European Union Economic Governance: Industrial Policy, Competitiveness, and Strategic Resilience," published in the journal Economies, reveals that economic security is rapidly becoming a defining framework for EU policy, reshaping how the bloc manages industrial development, technological innovation, and strategic supply chains.

From market liberalization to strategic economic security

For decades, EU operated under what economists describe as a "regulatory state" model. In this framework, EU institutions focused largely on creating rules that ensured fair competition, open markets, and economic integration among member states. Industrial policy interventions were relatively limited, as policymakers believed that market forces would allocate resources efficiently and that state involvement in production structures could distort competition.

However, the past decade has challenged many of those assumptions. Rising geopolitical tensions, technological rivalry among major global powers, and the fragmentation of global supply chains have exposed weaknesses in highly specialized production systems optimized for cost efficiency. The disruptions caused by the pandemic further demonstrated how concentrated supply chains could quickly become sources of vulnerability when international trade flows were interrupted.

The study shows that these developments have triggered a major reconsideration of the relationship between the market and the state within the EU. Economic security has emerged as a new organizing principle of policy, redefining competitiveness not only in terms of efficiency but also in terms of resilience, stability, and technological capability.

Under this new paradigm, governments and EU institutions are no longer focused solely on reducing barriers to trade or enforcing competition rules. Instead, they are actively shaping the structure of economic activity through coordinated investment, industrial alliances, and policies designed to strengthen domestic production ecosystems.

This shift is particularly visible in strategic sectors where disruptions could have cascading effects across the entire economy. Advanced technologies, energy infrastructure, and critical raw materials have become focal points for EU policy initiatives aimed at reducing external dependencies and safeguarding long-term competitiveness.

The authors argue that economic security policies represent a fundamental change in economic thinking. Instead of optimizing purely for short-term efficiency through global specialization, policymakers are now willing to accept certain additional costs in order to reduce systemic risks and improve the resilience of economic systems. In this sense, economic security functions as a form of insurance against geopolitical shocks and supply chain disruptions.

Industrial policy returns to the center of EU strategy

One of the most visible consequences of the economic security agenda is the revival of industrial policy in Europe. The study highlights a growing range of EU initiatives designed to support domestic production capacity and encourage coordinated investment in technologically advanced sectors.

These initiatives include large-scale projects involving batteries, hydrogen technologies, advanced materials, and semiconductor manufacturing. Such projects often require simultaneous investment from multiple private and public actors, making government coordination essential to overcome financing and technological barriers.

The research suggests that industrial policy instruments are increasingly being used to address coordination failures that markets alone cannot solve. In industries that require massive capital investments and long development timelines, private firms may be reluctant to invest unless they are confident that complementary infrastructure and supply chains will also emerge. Public policy intervention can therefore play a crucial role in facilitating collective investment and accelerating technological development.

Another key benefit of these coordinated investments lies in the creation of industrial ecosystems. When research institutions, manufacturers, suppliers, and technology developers cluster within the same economic networks, knowledge transfer and innovation tend to accelerate. These spillover effects can increase productivity and support the development of high-value industries capable of competing globally.

By encouraging the development of such ecosystems, EU industrial policy aims not only to protect existing industries but also to drive structural transformation toward sectors with greater technological sophistication and higher economic value.

The EU is simultaneously attempting to balance this interventionist approach with its commitment to open markets. Rather than pursuing full economic self-sufficiency, policymakers are focusing on reducing excessive concentration of critical supply chains and ensuring that Europe retains a minimum level of domestic production capacity in strategically important sectors.

Technology, energy, and supply chains in a new economic era

Technological capability has become one of the key pillars of the EU's economic security strategy. The study highlights the semiconductor sector as a prime example of the vulnerabilities associated with globalized production systems. Europe currently produces only a small share of the world's semiconductor output while relying heavily on Asian manufacturers for advanced chip fabrication.

Because semiconductors are essential components for industries ranging from automotive manufacturing to artificial intelligence and defense systems, supply disruptions in this sector could have widespread economic consequences. Strengthening domestic semiconductor production is therefore viewed as both a technological and strategic priority.

The authors note that technological sovereignty should not be interpreted as a rejection of globalization. Instead, the goal is to reduce the risk of bottlenecks that could undermine innovation across multiple industries. By developing domestic production capabilities and expanding research investment, the EU hopes to improve its capacity to absorb and diffuse new technologies.

Energy security represents another critical dimension of economic resilience. Europe has historically relied heavily on imported energy resources, leaving many member states exposed to external supply shocks and price volatility. The energy crisis triggered by geopolitical conflict in recent years revealed the economic risks associated with concentrated energy supply networks.

In response, the EU has accelerated efforts to diversify energy sources and expand renewable energy production. These policies are designed not only to address climate goals but also to stabilize industrial production costs and reduce vulnerability to geopolitical disruptions.

Raw material supply chains present similar challenges. Many of the critical minerals required for clean energy technologies, advanced manufacturing, and digital infrastructure are heavily concentrated in a small number of supplier countries. Ensuring access to these materials has therefore become a key element of European industrial strategy.

Policies aimed at diversifying sources of supply and strengthening domestic processing capacity are intended to reduce the risk of sudden production disruptions in strategic industries such as battery manufacturing, renewable energy systems, and advanced electronics.

The study also examines the role of trade and investment protection mechanisms within the economic security framework. Instruments such as foreign investment screening are increasingly being used to prevent the transfer of sensitive technologies or strategic assets that could weaken Europe's long-term innovation capacity.

The EU is adopting what the authors describe as a model of selective protection. This approach allows the bloc to maintain the benefits of international trade while reducing exposure to strategic vulnerabilities that could undermine economic stability.

Balancing efficiency, resilience, and competitiveness

While the economic security agenda promises greater resilience, it also introduces significant policy trade-offs. Building redundant supply chains, supporting domestic production, and diversifying sources of raw materials can increase costs compared with highly optimized global production networks.

These higher costs could potentially affect short-term competitiveness or place additional pressure on public finances, particularly if governments provide subsidies or state support to strategic industries.

Another challenge concerns the integrity of the EU's Single Market. Differences in fiscal capacity among member states could lead to uneven levels of industrial support, potentially distorting competition within the bloc. Without strong coordination at the EU level, national subsidies could create imbalances that undermine the level playing field that has historically defined European economic integration.

The authors also warn that expanded industrial policy could increase the risk of policy capture by powerful corporate interests. If subsidy programs and industrial alliances become dominated by established firms, there is a danger that public resources could be directed toward projects with limited long-term economic value.