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The European Union is confronting a convergence of intersecting crises. Amidst the climate emergency and an imperialist war at the EU’s direct borders, geopolitical tensions are intensifying with the day. US President Trump’s tariff walls presage a major global recession and the end of Atlanticism under NATO. Competitive pressures from emerging economies are increasing, notably as Chinese manufacturers have move ahead of global value chains in so-called game-changing industries, while EU economies have struggled to recover since the 2008 Great Recession and the Covid pandemic.
Angela Wigger is associate professor for International Relations at Radboud University in the Netherlands. She co-edits the book series Progress in Political Economy, the journal Capital&Class, and chairs the supervisory board of the Centre for Research of Multinational Corporations.
In an attempt to recalibrate the global position of the common market, the EU adopted an array of initiatives to bolster industries considered of key strategic importance, including defence, while simultaneously aligning EU economies with the 2050 net-zero emission goals. The greening of EU industrial policy may appear politically appealing, yet both its substantive orientation and underpinning financing architecture are replete with contradictions. Now, in view of the failure of ecological modernization in the West and geoeconomic uncertainties and trade wars, billions of euro shall be mobilized for armaments. Is this the end of the Green Deal?
The Geopolitics of Capitalist Competition and Shifting Power Balances
The EU’s industrial strategy needs to be situated within the reconfiguration of global capitalism that challenges the economic weight of the EU in the world. Emerging economies like China and India doubled their share of global GDP between 1990 and 2010, and adopted ambitious industrial programmes like Made in China 2025 or Make in India in the wake of the 2008 global economic crisis, targeting advanced technology and high value-added sectors. Alongside a vast reassertion of industrial policy around the world, the EU announced a “European Industrial Renaissance” in 2014, promising a 20-percent increase in the manufacturing share of the EU GDP by 2020. A plethora of industrial plans, acts, and deals, as well as concrete initiatives have been launched ever since.
When the European Green Deal was adopted in 2019 as the EU’s new economic growth strategy, these initiatives were subordinated to the digital and green twin transition, suggesting that the digitalization of industries and societies was a key enabler for greening capitalism. Even military-industrial initiatives were recontextualized in terms of advancing “energy resilience and the reduction of the defence environmental and carbon footprint”.
From the beginning, a weak spot of the Green Deal has been its financing.
At the same time, European Commission President von der Leyen also made it unequivocally clear that winning the race for leading green and clean technology value chains takes precedence over decarbonizing capitalism. The 2023 Green Deal Industrial Plan, which comes with the headline goal of “putting Europe’s net-zero industry in the lead”, and the 2025 Clean Industrial Deal, which gives primacy to global competitiveness and “securing the future of manufacturing in Europe” are testimony to this. Analogous to “Build and Buy American”, “Powering Up Britain”, and “Made in Canada”, EU industrial policy should moreover facilitate a backshoring or onshoring of manufacturing capacity in Europe, and reduce dependencies on global supply chains — a strategy that is also reflected in EU commitments to an “open strategic autonomy” and “technological sovereignty”, along with the implementation of flanking regulatory safeguards for outbound investment control, enhanced FDI screening protocols, and export control coordination.
The Clean Industrial Deal
After the “Green Deal” as overall growth strategy, the “Fit-for-55”-package codified ambitious climate goals. On 26 February 2025, the long-announced package of measures for a more climate-friendly industry, the Clean Industrial Deal (CID), followed. This was the first important programme after the European elections in which the majority shifted to the right. The climate targets remain unchanged (at least for the moment). However, the clean-tech sector and decarbonization in the traditional industries are to be given greater support. To this end, Brussels wants to reduce bureaucracy costs for companies via the so-called “omnibus package” — at the expense of human rights.
Important obligations of the EU Supply Chain Act, the EU Environmental Taxonomy, and EU Sustainability Reporting will be dismantled. They are to apply to significantly fewer companies — in the case of sustainability reporting, for example, only 20 percent of the companies that have been obliged to do so far — or they require less data with less depth and control. The entry into force of the Supply Chain Act will be postponed by one year to July 2028. Even worse, possible minimum penalties and liability risks in the event of violations will be defused.
With the Commission’s action plan for the automotive industry, adopted on 5 March 2025, the first interventions counteracting the climate protection regulation of Fit-for-55 is taking place. In the action plan announces that it will amend the annual targets for CO2 car regulation in a company-friendly way, which are actually subject to severe fines to Brussels. Manufacturers could comply with the emission limits for a three-year period and not have to follow the requirements for a single year, as was the case previously. The action plan itself does not shake the decision to phase out the combustion engine for new cars from 2035, although a review is going to take place this year and not in 2026 as originally planned — and in a technology-neutral way, as Commission President von der Leyen puts it.
From the beginning, a weak spot of the Green Deal has been its financing. The Commission is using a dubious lever for this. In what follows, the strategic orientation and complex blend of public-private funding modalities of the EU industrial policy will be critically discussed. By focusing on who is accumulating the profits, who is controlling the innovation process and for what purpose, it will be argued that the EU industrial policy merely offers a techno-solutionist fix to industrial competitiveness, while disproportionately empowering financial capital at the expense of democratic oversight and control. Beyond the distributional consequences, the EU is outsourcing the responsibility and the pace of decarbonizing capitalism to investors willing to invest.
The EU’s Financial Innovation: Constraints and Contradictions
The European Commission estimated that for scaling up manufacturing capacities for net-zero technologies, and maintaining competitiveness more generally, current investment levels would need to increase by at least 25 percent, reaching 5 trillion euro every year until 2030. However, with an annual budget comparable to that of Denmark, and deficit spending and debt financing being constitutionally ruled out, the EU lacks the fiscal firepower of its major trading partners. The EU also has no meaningful taxing powers to increase the EU revenue base, or offering tax concessions to targeted industries. Moreover, with the post-Covid reinstatement of the excessive deficit procedure within the revised Stability and Growth Pact, Eurozone member states also face constraints for large-scale industrial investments.
Despite the EU’s limited fiscal capacity, the European Commission has been frantically piecing together a patchwork of public-private financing strategies. Alongside the redirection of structural funds for industrial policy purposes, the European Commission generously started to permit national-level state aid. This includes leveraging treaty provisions for Important Projects of Common European Interest, which, unlike traditional state aid, allow unlimited grant financing, leading to various projects in strategic sectors, such as batteries, microelectronics, hydrogen, cloud and edge computing, and health industries. Moreover, as outlined below, the EU also increasingly serves as a guarantor for private investors, while also making use of the EU-27 collective triple-A creditworthiness to retrieve funding on capital markets.
InvestEU: Crowding in Financial Capital
InvestEU, adopted for the 2021–2027 budgeting period, is a risk-bearing capacity scheme that offers an EU-level budgetary guarantee of 26.2 billion euro that absorbs a part of the investment risks, often up to 80 percent, of financial intermediaries that provide industries with credit, equity, or what has been termed quasi-equity, a type of financing that ranks between equity and debt. Backing up investor liabilities should minimize public sector budgetary outlays, while at the same time mobilize at least 372 billion euro of additional investment. In contrast to non-repayable grants, which can only be spent once, the EU budget should function as a revolving guarantee fund that can be reused multiple times to absorb the risks of many more future private investors, and thus unlock private sector funding at a scale far beyond what direct public investment could achieve.
While 75 percent of the InvestEU budgetary guarantees are being channelled through the European Investment Bank Group, the European Commission can contract all sorts of financial intermediaries for the remaining 25 percent at its discretion, including regional or national development banks, promotional institutions, sovereign wealth funds, or commercial banks, private equity and venture capital, as well as angel investors.
Although EU-level green transition initiatives have gained prominence, the pursuit of global technological supremacy supersedes the goal of decarbonizing capitalism.
InvestEU is promoted as having a green mandate. However, only 30 percent of the programmes need to target green transition investments. Moreover, it is detached from concrete EU industrial policies, meaning that budget guarantees can be offered to all sorts of financing “aimed at supporting activities of strategic importance to the Union”.
With InvestEU, similar to other EU risk capacity mechanisms, the EU effectively outsources the pace and the direction of the green transition to the willingness of investors to invest, including investors whose primary goal is short-term profit maximization. Within set parameters, financial intermediaries act as gatekeepers with regard to who receives financing and under what terms. It should not surprise that the design and implementation has been heavily influenced by organized fractions of financial capital. In fact, the European Commission established “a structured dialogue with the finance industry’ beginning in 2013, with the aim of making ‘private investments more attractive”.
Off-Budget Financing
Although the EU cannot finance its budgetary actions through debt, the EU Treaties do not prohibit the issuance of EU-27 backed securities or bonds for off-budget operations, as long as they are approved by the Council. This “loophole” has been extensively utilized for the financing of NextGenerationEU (NGEU), RePowerEU, and the Support to Mitigate Unemployment Risks in an Emergency. NGEU, the largest collective borrowing operation in EU history, has received 90 percent of its funding through the temporary Recovery and Resilience Fund (RRF), for which the European Commission borrowed 807 billion euro by issuing green bonds. The repayment will start in 2028 and end in 2058, burdening future generations with a 30-billion-euro annual debt service obligation. Moreover, as unused funding can be used for topping off national InvestEU compartments, currently 40 percent of InvestEU guarantees are debt-based, meaning that public debt is being used to de-risk private debt provision.
The usage of risk capacity schemes like InvestEU, in combination with off-budget debt financing are meant to be temporary strategies only. With the completion of the Capital Markets Union, recently rebranded as the Savings and Investments Union, the European Commission believes that the pool of private savings by EU citizens, corporations, pension funds, and insurance companies will be redirected to industrial production eventually. In the meantime, however, the view is that the EU must “stimulate greater appetite for risk-taking by private investors, using public money as an anchor”.
Crowding in Financial Capital, Crowding out Democratic Oversight
A report commissioned by the European Parliament in 2017 concluded that the complex and opaque “galaxy of funds and instruments revolving around the EU budget” is making it extremely difficult to hold the European Commission accountable. Rumour has it that even the European Commission has lost oversight, requiring external experts to regain control over the intricate hybridization of public and private capital allocation. While the European Parliament co-decides with the Council on the EU’s annual budget, it can only approve or reject the budget, without the right to amend annual commitments and payments of EU programs or funds. Risk-mitigating instruments backed by the EU budget are typically adopted by Council regulations, without involving or even consulting the European Parliament in the legislative process.
Furthermore, the European Parliament’s budgetary powers are limited to the EU budget only, with no formal say and intervention possibilities for instruments deployed off-budget. Similarly, the European Court of Auditors has no mandate for auditing instruments deployed outside the EU budget, or those operated by the EIB Group.
At the current crisis conjuncture, the already compromised green transition risks being overshadowed by a defence imperative.
InvestEU operates on the premise that guaranteed investments will not result in actual liabilities, so that the EU budget can be repeatedly leveraged. While there is a Common Provisioning Fund operating as a safety buffer for contingent liabilities outside the EU budget, the Fund only covers 40 percent of the InvestEU guarantees. It remains unclear whether and how the European Parliament would be involved in case future losses and defaults would exhaust the Fund, and affect the EU budget.
The Green Deal’s Uncertain Future
Although EU-level green transition initiatives have gained prominence, the pursuit of global technological supremacy supersedes the goal of decarbonizing capitalism. What is merely a technological fix, without inducing systemic change, only supplements rather supplants carbon-intensive capitalist production, deferring the displacement of fossil-fuel industries to some indeterminate future. Zooming into the labyrinth of the underpinning public-private financing reveals moreover that the EU is handing the reins of the green transition to the willingness of financial capital to invest, rather than democratically accountable institutions. Moreover, EU-level guarantees and off-budget financing mechanisms predominantly revolve around debt provision, which reinforces the imperative for economic growth through achieving a global competitive advantage rather than a sustainable transformation. The approach constitutes an act of procrastination on multiple fronts, effectively mortgaging on the livelihoods of future generations. With the coming billion for armaments, the formally applicable climate targets are waste paper anyway.
At the current crisis conjuncture, the already compromised green transition risks being overshadowed by a defence imperative. EU investment priorities, including the mobilization of financial capital, are being redirected towards bolstering military capabilities at astounding speed. This highlights that a radical Left that champions a post-capitalist and democratic alternatives for a green transition is needed more than ever.
This article first appeared in LuXemburg.
