Investing in the Structural Transformation Edited by Floriana Cerniglia and Francesco Saraceno

PART I—STATE OF THE ART

1. Public Investment and Industrial 
Policy: A Case for More European Union 
Coordination
Andrea Brasili, Tuna Dökmeci, Atanas Kolev,
 Debora Revoltella, Jochen Schanz, Annamaria Tueske, and Wouter Van Der Wielen

Europe needs more investment. Speeding up the climate transition and 
relaunching EU innovation capabilities require special efforts. Coupled with 
strategic autonomy and the need to secure stable and clean energy sources, 
these issues highlight the increasing importance of European public goods 
(EPGs) and policies that extend beyond national boundaries, as they involve 
externalities and network effects. However, Europe’s current institutional 
structure and mechanisms may struggle to meet this challenge. This essay 
examines public investment trends in the EU, arguing that while public 
investments have increased, greater coordination and coherence are needed. 
Three critical axes are identified: the provision of EPGs, policy coordination at 
national levels, and sufficient funding. Improving the coordination of public 
investment, particularly in research and development (R&D) and the climate 
transition, is key to unlocking Europe’s full potential. This chapter emphasizes 
the importance of initiatives like Important Projects of Common European 
Interest (IPCEIs) in fostering collaboration across countries and sectors, but 
argues for expanded and more integrated efforts moving forward.

1.1 Introduction
Europe needs more investment. This simple truth has become something of an imperative 
or, to put it in Draghi’s words, an existential challenge. Two valuable reports on Europe 
were released between spring and late summer: Enrico Letta’s report on the single market 
(2024) and Mario Draghi’s report on European Union (EU) competitiveness (2024). Both 
highlight the need for a quantum leap in European integration. From a global perspective, 
recent years have highlighted the urgency of accelerating the climate transition, the 
need to be prepared for health emergencies, the quest for strategic autonomy, and the 
importance of securing a reliable and clean energy supply. In addition, Europe should 
strive to maintain or regain its ability to generate innovations and be at the forefront of 
technological progress. Draghi’s report suggests the need to mobilize public and private 
resources to generate the required additional investments (the EU investment share 
should increase from 22% of GDP to around 27%), given that the public sector cannot 
undertake the entire effort and the private sector does not have strong enough incentives. 
The message has been clearly perceived by the European Commission (EC), with Ursula 
Von der Leyen, in her presentation speech after the election for her second mandate 
(2024), saying : “Europe needs more investment from farming to industry, from digital to 
strategic technologies but also more investment in people and their skills. This mandate 
has to be the time of investment”. The recipe for generating this large public-private 
effort should be carefully designed. However it is worthwhile to remember that each of 
the five major topics mentioned by Von der Leyen above highlights the growing role of 
public goods and public policy as they all involve externalities and network effects (i.e., 
they share features like generating spillovers and economies of scale) (Buti, Coloccia, 
and Messori 2023). 
A few months prior to the outbreak of the COVID-19 pandemic, Jean Pisani-Ferry 
and Clemens Fuest argued for the growing need to centrally supply European public 
goods (EPGs) in a report for the German and French ministries of finance (2019).
This need has been clearly stated in Draghi’s report as well.
 However, there are risks 
regarding the current institutional setting’s ability to speed up the provision of EPGs 
and embedding them in a coherent strategy. As Draghi pointed out in a recent lecture 
(Draghi 2023): “… as it stands, Europe’s institutional construct is not well suited to 
carry out these transitions—as a comparison with the US reveals. Here, we are seeing 
a new focus on so-called ‘statecraft,’ where federal spending, regulatory changes, and 
tax incentives align to pursue US strategic goals”.

Investing in the Structural Transformation Edited by Floriana Cerniglia and Francesco Saraceno