The EU's 'Made in Europe' Law: A Strategic Bet on Industrial Revival

The European Union is facing a deepening industrial slowdown that threatens its economic sovereignty. In August 2025, despite a year-over-year gain, industrial production decreased by 1.2% in the euro area and by 1.0% in the EU compared with July. This monthly contraction, driven by declines across capital and durable goods, is a stark warning. It follows a period of elevated energy costs, a complex regulatory environment, and intense competition from China and the United States. Analysts have begun to speak of early signs of deindustrialisation, where the structural shift away from manufacturing could erode the bloc's productivity, innovation base, and strategic autonomy.

This is not a passive trend. The EU leadership sees a clear choice: implement an ambitious industrial policy or accept a gradual erosion of its industrial base. The formal policy response is crystallizing around the Joint Declaration on EU legislative priorities for 2026, signed by the Commission, Parliament, and Council. This declaration explicitly prioritizes boosting competitiveness and resilience, framing it as essential for sustainable prosperity. The upcoming Industrial Accelerator Act is the flagship instrument, aiming to decarbonize energy-intensive sectors while keeping European production competitive.

The thesis here is clear. This is a high-stakes, multi-pronged strategy to reverse structural decline, directly confronting the headwinds of energy prices and global competition. Yet its success hinges on flawless execution and navigating a turbulent global trade landscape. The coming year will test whether political unity can translate into industrial revival.

The Policy Engine: Key Components of the Industrial Accelerator Act

The draft Industrial Accelerator Act is a comprehensive legislative package designed to directly confront Europe's industrial vulnerabilities. Its core strategy is to reshape the investment and production landscape through a mix of targeted incentives and new restrictions. The most controversial element targets foreign investment. The proposal would subject any investment over €100 million to strict conditions, mandating local partnerships, technology sharing, and hiring of European workers. This represents a fundamental shift from the bloc's traditional free-trade philosophy, explicitly aiming to prioritize local companies in key sectors.

Complementing this protectionist lever is a suite of pro-growth measures. The Act seeks to fast-track permitting for decarbonisation projects, a critical bottleneck for modernizing energy-intensive industries like steel and cement. This is paired with the establishment of a low-carbon product label for these sectors, intended to help companies achieve a "green premium" by providing consumers with clear information on carbon intensity. The label is a direct tool to stimulate demand for EU-made clean products and bolster their competitiveness.

Another pillar is supply chain resilience. The draft includes provisions for the creation of "stockpiling centres" for imported critical raw materials. This aims to insulate the bloc from future supply shocks, a vulnerability highlighted by recent geopolitical and logistical disruptions. The plan also extends its reach to public procurement, allowing member states to factor in European-origin content when making purchases, further supporting domestic industry.

The internal trade-offs are stark. While the goal is to rebuild industrial capacity and secure economic sovereignty, the conditions on foreign investment risk provoking trade tensions and may be seen as excessive protectionism by some EU officials and partner nations. The push for local partnerships and technology sharing could deter some foreign capital, even as the EU seeks to attract investment for its decarbonisation drive. The success of the Act will depend on navigating this tension, ensuring that the new rules strengthen the single market's resilience without fracturing it.

Financial and Competitive Implications for European Industry

The proposed Industrial Accelerator Act represents a fundamental shift in the EU's economic calculus, moving decisively away from pure free-trade principles. This policy recalibration will directly impact the financial and operational landscape for industry. For multinational firms, the new rules introduce a layer of complexity and potential cost. The draft legislation would subject any investment over €100 million to conditions mandating local partnerships, technology sharing, and hiring of European workers. This is a direct departure from decades of policy, designed to prioritize local companies but likely to increase transaction costs and operational friction for foreign investors.

Yet the Act also contains powerful countervailing forces aimed at lowering the cost of capital for the right kind of investment. By fast-tracking permitting for modernisation and decarbonisation efforts, the legislation seeks to remove a critical bottleneck that has made large-scale clean transition projects prohibitively slow and expensive. This streamlined process could significantly improve the financial viability of capital-intensive upgrades in sectors like steel and cement. The creation of a low-carbon product label further aims to stimulate demand, providing a mechanism for companies to achieve a "green premium" and recoup the costs of decarbonisation through market differentiation.

The bottom line is a bifurcated impact. The policy will likely increase costs and complexity for firms navigating the new investment rules, particularly those reliant on global supply chains. At the same time, it offers a targeted reduction in the cost of capital for firms willing to commit to local decarbonisation and production. This duality underscores the high-stakes nature of the strategy. The success of the Act is not guaranteed; it hinges on whether the benefits of faster permitting and new market access can outweigh the deterrents of new conditions on foreign investment.

This tension is critical for the broader industrial recovery. The BDI, representing German industry, forecasts a modest rebound, expecting industrial production to rise by one percent in the current year. This positive outlook is fragile. The proposed policy is the central instrument for sustaining that recovery and translating it into a durable revival. If the Act succeeds in lowering the effective cost of clean investment and securing supply chains, it could provide the necessary boost to competitiveness. If it fails to navigate the risks of protectionism and excessive friction, it may merely add to the costs of doing business in Europe, undermining the very industrial capacity it seeks to protect. The financial implications are clear: the policy is a strategic bet on a better future, but its execution will determine whether the bet pays off.

Catalysts, Scenarios, and Key Risks

The strategy now faces a series of forward-looking tests. The immediate catalyst is the formal presentation and legislative passage of the Industrial Accelerator Act later this year. The European Commission is already seeking industry buy-in, asking business leaders to "support and sign" a French-led initiative to increase the share of European industrial production. This push for a "Made in Europe" component is the first concrete step. The success of the Act will hinge on navigating fierce internal debate, as seen in the warning from nine countries about its impact on competition and prices, and the call for an impact assessment from Poland and the Netherlands. The final shape of the law-particularly the target percentage for domestic production-remains fluid, with figures from 60% to 80% under discussion.

The primary risk to this high-stakes strategy is political uncertainty. The year 2027 is a "super-election year" for the EU, with national elections and the European Parliament vote. As Linda Kalcher of Strategic Perspectives notes, political zigzags and uncertainty due to the "super-election year" 2027 could deter investors. This creates a critical window of opportunity for the current leadership to lock in policy and signal long-term commitment. Any perceived policy reversal or inconsistency in the coming year would directly undermine the Act's goal of providing the stable, predictable conditions needed for massive industrial investment.

The ultimate test, however, is whether these measures can close the competitiveness gap with China and the US. Former ECB President Mario Draghi has warned of a "slow agony" for European industry, a trend the Act aims to reverse. The policy is designed to do this by bringing electricity prices down, prioritising 'made in Europe', and supporting strategic industries. Yet the path is fraught. The new rules risk undermining competitiveness within the EU's single market, while the very environmental standards that position Europe as a leader also result in higher production prices. The strategy is a direct bet on the EU's ability to use its regulatory power and market size to offset its cost disadvantages. If it fails, the bloc risks not just stagnation but a deeper structural decline. The coming year will show if the political will and policy design are sufficient to turn the tide.