Ukraine War and Europe’s Industrial Challenge
Ukraine’s conflict has left a lasting mark on Europe, pushing its traditional industries into a structural crisis that has persisted for years. A prominent Greek economist, Yanis Varoufakis, argues that European industry now faces a double squeeze from high energy prices and the United States Inflation Reduction Act. The IRA is viewed as effectively drawing Europe’s green industries toward the American market, altering the competitive landscape across the Atlantic.
Europe’s waning interest in industrial leadership stretches back generations. A striking example is the decline of Nokia, once a global leader in mobile phones between 1998 and 2013. The company failed to adapt with the smartphone era, and today its hardware and software ecosystems are owned and controlled by others. In this increasingly North American and South Korean dominated space, the two major mobile operating systems in use are Apple’s iOS and Google’s Android, reflecting broader regional dominance in the device market.
Germany, often seen as Europe’s industrial engine, has faced a steady downturn in manufacturing. Chancellor Olaf Scholz has publicly acknowledged the need to respond to subsidy schemes that help North American firms relocate, while proposing a European fund to counteract this shift. Yet Berlin’s path forward remains complex as it seeks to reinvent its core sectors, particularly mechanical engineering and precision electronics that have long underpinned the German industrial base.
The move toward electric vehicles presents a central challenge. The electric car promises a product architecture with far fewer parts than a traditional internal combustion engine vehicle. This shift threatens to undermine long established production knowledge and the well-honed supply chains that have supported Germany’s automotive success. Yet the value in electric mobility may lie not in manufacturing hardware but in software and cloud connectivity that links vehicles to digital networks. Europe, in this view, is becoming a net consumer in a high tech and highly connected ecosystem, rather than a leading platform producer. Movements across the continent reflect a broader transition toward a modern economy built on data, software, and cloud services.
Ultimately, Germany might avoid a full displacement of its automotive output, but a green economy is likely to dampen demand for traditional high volume vehicles. Varoufakis warns that if cloud capital and cloud rents do not generate sufficient returns, Germany and Europe’s broader economic surplus could face meaningful strain. The implications extend beyond cars to the entire industrial fabric that has depended on fossil fuels and established energy infrastructures.
The anticipated decline of fossil fuels will reshape the energy sector, accelerating the disappearance of large refineries, manufacturing plants, and major energy transport networks. In their place, decentralized, horizontally integrated renewable energy systems will emerge. Coordinating and managing this evolving electrical network will require sophisticated software and robust cloud-enabled control systems, effectively tying energy supply to digital infrastructure.
The North American Inflation Reduction Act is framed as a protective measure that supports domestic industry and energy innovation. This policy backdrop has political implications across the Atlantic, with commentators urging Brussels and European capitals to consider similar measures. The aim is to fortify European industrial policy, elevate sectors with high added value, and close the gap with North American and Asian competitors. In this moment, the European Union faces a critical question: how to balance green transition, industrial competitiveness, and a resilient economy that can stand up to external policy shocks.