Europe’s future depends on dismantling the EU — part three

Third part of my comprehensive critique of the EU’s supranational model of integration, analysing its structural, economic and geopolitical shortcomings

This is part three (part one and two) of a study I’ve been working on for a while. It provides a comprehensive critique of the EU’s supranational model of integration, analysing its structural, economic and geopolitical shortcomings. It highlights the way in which EU and the single currency, far from making Europe stronger, more competitive and more resilient, have paved the way for economic crisis and stagnation, worsened economic disparities, and contributed to loss of competitiveness, geopolitical marginalisation and democratic decay.

Crucially, the study argues that failure of the EU project isn’t rooted in a lack of integration — and definitely cannot be solved by resorting to “more Europe” — but rather lies in supranational integration itself. It concludes that the EU’s structural deficiencies are irreparable within the confines of its existing model and questions the viability of supranationalism as a viable governance approach in a multipolar and state-driven global order.

In part one I analysed the empirical data on the EU’s economic integration, which shows a stagnation or decline in economic performance post-integration compared to the pre-integration trend. It highlighted how the Single Market failed to boost intra-EU trade or GDP growth; how the eurozone underperformed relative to non-euro EU members and other advanced economies; and how divergence in economic outcomes among member states intensified, contradicting promises of convergence.

In part two I offered a thorough critique of the single currency’s failure, detailing how it strips member states of monetary sovereignty without adequate compensatory mechanisms. I highlighted structural issues, such as the inability to manage economic shocks and sovereign debt crises, as well as the euro’s political implications, where the European Central Bank exerts disproportionate power over national governments.

In this part, I explains how the EU’s restrictive fiscal and state-aid rules inhibit industrial policy. I contrast this with the success of state-led industrial strategies in other economies like the US and China, emphasising how the EU’s anti-interventionist stance hampers competitiveness and innovation.

The next parts will be published in the following days. These will be available only to paid subscribers.

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3. The EU’s bias against industrial policy

On the macroeconomic side of things, the EU has also traditionally suffered from a strong bias against industrial policy. Industrial policies — “government policies that explicitly target the transformation of the structure of economic activity in pursuit of some public goal”, through measures such as subsidies, large-scale public R&D and strategic control of key sectors — have historically been one of the key tools used by states to stimulate innovation, productivity and economic growth.

For instance, the East Asian miracle, widely regarded as one of the most significant episodes of modern economic development, is largely attributed to the implementation of industrial policies. Similarly, China’s remarkable economic ascent, particularly its recent dominance in industries such as clean technology and electric vehicles (EVs), can also be credited to strategic industrial policies. In other words, to the extent that former developing nations have attained developed status in recent decades, this success is not primarily the result of globalisation, free trade or low labour costs. Instead, it stems from meticulously designed state-led strategies. These include measures such as government ownership of banks and key industries, the use of capital controls, tariff protections, subsidies and other forms of direct government intervention and support.

Similarly, the postwar development of the US and other core capitalist countries, particularly in Europe, was also based on extensive industrial policy. During that period, the state heavily supported private firms through financial and investment aid, R&D funds, public procurement, market protection, consortiums, public education strategies, telecommunications, transport and energy networks, etc. National policy tools also included the creation or expansion of a vast array of state-owned firms in strategic industries, key infrastructures and natural monopolies.

From both a historical and theoretical point of view, the economic case for undertaking an industrial policy is solid. However, during the neoliberal era, industrial policy fell out of favour in Western countries, as governments shifted away from state-led industrial policies and adopted market-oriented approaches, including widespread privatisation, deregulation (and re-regulation) and liberalisation. This reflected the belief that reducing state intervention would lead to greater economic efficiency, productivity and growth.

This shift was particularly marked in Europe, where the Maastricht Treaty embedded neoliberalism into the very fabric of the European Union. The latter effectively outlawed the “Keynesian” polices that had been commonplace in the previous decades: not just currency devaluation and direct central bank purchases of government debt (for those countries that adopted the euro) but also demand-management policies, strategic use of public procurement, generous welfare provisions and the creation of employment via public spending.

As far as industrial policy is concerned, the EU has stringent rules regarding state aid, laid out in Articles 107 and 108 of the Treaty on the Functioning of the European Union (TFEU). These articles broadly prohibit any aid granted by member states that could “distort competition” by favouring certain companies or industries, unless explicitly allowed under specific exceptions. The idea is that allowing member states to support their domestic industries could lead to an uneven playing field, creating conditions where companies with state backing have an advantage over others. This approach reflects a foundational commitment to anti-interventionism, rooted in liberal economic thinking that sees competition as essential for economic efficiency and innovation.

In this context, the European Commission is responsible for ensuring that state aid does not distort competition, granting it the power to investigate and, if necessary, block state aid initiatives proposed by member states. This centralised oversight mechanism underscores the EU’s commitment to limiting government intervention in the market. The rationale for the current set up was summarised by two authors as follows: “For decades, the EU has pursued an approach to industrial policy that focused on limiting Member States’ industrial policies. The idea was that a strong and well-functioning market would create the right framework for robust EU industries”.

It is essential to emphasise that the European Union is not inherently opposed to interventionism; rather, its resistance lies in the use of state power for national-democratic purposes. In this context, “anti-interventionism” shouldn’t be understood as meaning that the EU as such doesn’t intervene in the economic affairs of members. As is well known, the EU does, in fact, intervene very extensively in member states’ economies, as has already been noted in the previous articles. Indeed, over the years, the EU’s supranational institutions, particularly the Commission, have been systematically expanding their competences, often surreptitiously — a process often described as “competence creep”.