SPECIAL REPORT / After a lost decade, Europe is trying to reverse a decline in manufacturing which has brought industrial output to a standstill. The issue will reach the EU's top decision-making body in March when European leaders meet for their quarterly summit in Brussels.

Over the past few years, the European Commission has been the most vocal EU institution campaigning for the continent's industrial revival, positioning itself as a driver of competitiveness and job creation.

Within the EU executive, the commissioner for enterprise, Antonio Tajani, has emerged as the winner of an internal debate opposing supporters of industry to environmentalists, whose policies were blamed for hampering the economy.

The financial and social crisis helped Tajani get his message across. As unemployment rates shot up to beyond the 10% ceiling across the continent, a growing number of EU citizens and leaders became convinced that Europe needed a serious industrial policy to stem the outflow of production towards Asia.

Since 2010, the Commission has produced strategies for the re-industrialisation of Europe every two years, picking technology winners, such as smart grids or 3D printers. The last such document, published in January, carries the resounding headline of an Industrial Renaissance for Europe, making no secret of its Italian inspiration.

The EU has set a target for industry to make up 20% of the continent's Gross Domestic Product (GDP) by 2020, though the goal is non-binding, unlike similar targets such as for carbon dioxide emissions reductions.

Industry represented almost 18% of EU GDP at the beginning of the century, but this figure has dropped to around 15%, while manufacturing output is now at the same level as a decade ago.

The increased weight of services in the EU economy partly explains the downward trend of manufacturing on the continent, which has been hit by the outsourcing and relocation spree fuelled by high taxes and high energy and labour costs. 

Service-based knowledge economy goes down the drain

The relocation wave now seems to be falling, or even reversing, as manufacturers realise the drawbacks of China's state-controlled economy and India's poor infrastructure base, while labour costs in emerging economies have begun to grow.

However, Europe urgently needs to adapt to the new needs of industry if it wants to re-attract the companies that left the continent in search of greener pastures.

EU leaders will address all these issues when they meet in Brussels on 20-21 March for their quarterly summit. An extraordinary European Council initially dedicated only to industry was cancelled in February, but the topic still remains on the table of the EU's top decision makers.

Pro-industry decisions are not going to be neutral for other sectors as it requires aligning the entire EU economy with industry needs. The Commission says it can mobilise regional development funds to help the transition. A bigger share of EU structural funds can now be used for innovation and industry rather than for the service-based knowledge economy dreamed of in Brussels ten years ago.

For those who are sceptical about such an U-turn, the EU executive provides a formula: "Each additional job in manufacturing creates 0.5-2 jobs in other sectors," reads the new Commission mantra repeated in statements and official documents.

For the strategy to work, it requires EU leaders to send a clear, unequivocal message of support. Even if this turns out to be the case, it would only be the beginning of the process, as the European elections in May and the new Commission taking office after the summer break may impose new priorities.

Whichever state receives the delicate portfolio of industry in the new EU executive may prove the best indicator of how the strategy will unfold in the coming years.

Industry supporters also hope that Italy, which is set to hold the rotating EU presidency in the second semester of 2014, will help drive the agenda at the time when EU institutions are renewed. The country is the second top manufacturing country in the EU after Germany and the fifth in the world.