Developmental industrial policy for convergence within the European Monetary Union

The authors analyze the role and potential of industrial policy in the euro area. In their view, the euro area faces two great challenges: a structural core- periphery divide, which resulted in the deepest economic crisis since the end of World War II, and several big societal challenges. In order to restore sustainable growth, EU policies must address both: tackle the fragility of the periphery’s industrial base, reducing the gap in industrial capabilities, and create a new agenda for innovation and growth. The paper argues that this requires a policy combining support for domestic demand with industrial policies targeted at the developmental needs of economies at different levels of evolution. Multi-level governance is needed, coordinating action at the European, national and regional levels. The authors call for a developmental conception of industrial policy in peripheral member states, integration of sector-specific policies with regional and innovation policies, geared to establishing productive regional networks with backward and forward linkages along the value chain. They outline their idea against the backdrop of Italy’s unabated North- South divide and the erosion of an erstwhile well-developed indus‐ trial network in the Italian region of Emilia Romagna