Industrial policy has returned to the centre of economic policymaking across the world’s major economies. The United States, China and the European Union (EU) increasingly rely on industrial policy instruments to promote technological innovation, strengthen domestic production capabilities, support the green and digital transitions, and enhance economic competitiveness. While the objectives and instruments of industrial policy vary across jurisdictions, they all share a common requirement: the mobilisation of substantial financial resources. Industrial transformation requires long-term investment in infrastructure, research and development, innovative firms, strategic technologies and industrial capacity. The success of industrial policy, therefore, partly depends on the availability of financing. In the EU, the financing question has become increasingly pressing. Recent reports by Enrico Letta and Mario Draghi have highlighted the scale of the investment challenge facing Europe. The investments required to support decarbonisation, digitalisation, technological innovation and competitiveness amount to several hundred billion euros annually (Draghi, 2024; Letta, 2024). Mobilising resources on this scale is difficult in a context characterised by constrained public finances, divergent economic conditions across member states and a fragmented financial system.

Against this backdrop, Capital Markets Union (CMU) — recently rebranded as Savings and Investments Union (SIU) — has acquired renewed political significance. SIU aims to deepen financial integration, expand non-bank sources of funding for European firms and facilitate cross-border investment across the EU. The underlying rationale is that better-integrated capital markets will improve the mobilisation and allocation of private capital, thereby supporting investment, innovation and growth. SIU can improve the capacity of the European financial system to channel savings towards productive investment. However, structural weaknesses in European finance and persistent political obstacles continue to limit progress towards deeper financial integration. Moreover, financial integration alone is unlikely to provide sufficient resources to support the scale of industrial transformation currently envisaged by European policymakers. While SIU may be a necessary component of an effective financing strategy, it is unlikely to be sufficient in the absence of a stronger public investment capacity at both national and European levels. At the same time, many European policymakers are reluctant to rely excessively on public funds to support industrial policy.