HANNOVER, Germany — Europe’s industry is ready to take on state-subsidized Chinese and American rivals in the global green tech race — but Brussels must create the right conditions for it to do so.

Failure to act will condemn Europe to deindustrialization: That’s the key message from bosses to politicians ahead of June’s election for the European Parliament and a host of key national elections.

Faced with cost pressures and dislocation caused by Russia’s war in Ukraine and tensions in the Middle East, businesses across the bloc — from German automotive suppliers Bosch and Continental to Swedish telecoms equipment maker Ericsson — have been forced to lay off workers or freeze hiring.

What’s more, companies argue neither the EU nor national capitals are taking the steps needed for Europe’s economy to gear up in a turbulent geopolitical context. Across the Atlantic, meanwhile, rivals are reaping the benefits of President Joe Biden’s bonanza of green subsidies, while China keeps pouring money into industries of the future.

“Europe’s industrial competitiveness is under massive pressure,” Siegfried Russwurm, president of the Federation of German Industries (BDI), said on Sunday ahead of the opening of the Hannover Messe, the world’s largest industrial trade fair.

“In almost all key technologies, Europe is far behind the U.S. and China — at least in terms of global market success,” he warned. 

Policymakers are acutely aware of the need to assuage industry concerns — including Ursula von der Leyen, who is bidding for another five-year term at the helm of the EU executive. 

“Europe simply has to become easier, faster and cheaper in order to survive in the face of tough international competition,” the president of the European Commission said, addressing the fair’s opening ceremony for the first time.

The fair — which runs through Friday — was launched in 1947 by the British military government to boost Germany’s post-war economy. At the time, it was colloquially known as Fischbrötchen Messe — or fish sandwich fair — as food rationing was lifted for the event. The fair, and a currency reform a year later, helped lay the foundation for the economic miracle of the following decades.

This year, the event comes as the bloc’s largest economy has, for the second time in a generation, been labeled the “sick man of Europe.”

The International Monetary Fund last week lowered its forecast for the German economy, predicting it will grow by just 0.2 percent this year — meaning Europe’s industrial powerhouse is  now expected to fare worse than the other big industrialized nations in the G7.

Gearing up to compete

As industry bosses turn sour, promises to reverse those trends and bring the bloc back up to speed in a dog-eat-dog global market undergoing profound transformation have become a key part of electoral campaigning.

The Hannover fair comes the week after EU leaders called for a new “deal” to keep Europe economically relevant, build clean energy and digital industries to rival those of China, the U.S. and India — and fight climate change in the process.

“In light of geopolitical tensions and more assertive policy measures taken by international partners and competitors, notably on subsidies, as well as long-term productivity and technological and demographic trends, Europe needs a policy shift, building on its competitive strengths,” they argued. Competitiveness will top the EU’s agenda until the end of the decade, according to a leaked priority list.

Countering China’s tech dominance, including on clean energy technologies such as solar power and electric cars, has been a key part of the EU’s recent efforts to stay relevant as a warming planet forces the world to shift toward new industries.

The European Commission has launched a series of trade and competition investigations, including into unfair subsidies in the wind and electric vehicle sectors. 

As part of their Janus-faced strategy — which prioritizes economic security over a potentially cheaper and faster, albeit politically more risky, transition toward green energy — policymakers argue it’s precisely green tech manufacturing that will help avert European deindustrialization.

“We want to offer companies in Europe cheap, clean energy from domestic sources as quickly as possible. That’s not just energy security, it’s also energy independence. And that’s not just good for our economy, it’s also good for our climate,” von der Leyen said.

During his opening speech, German Chancellor Olaf Scholz took a more confrontational line, rebutting BDI chief Russwurm’s criticism of his economic policies and asserting that Germany isn’t doing as badly as bosses say. “Let’s strengthen Germany as a business location instead of talking it down,” Scholz said.

Made in Europe 

But that’s a tough sell to an industry which says that turning “Made in Europe” green tech into a reality won’t be possible without cutting red tape, creating more predictability — including on energy prices — and splashing more cash that no one really has. 

“China is very strong when it comes to scaling up certain products and forcing its way onto the global market ... But German industry is well positioned and is happy to compete if the framework conditions are fair,” Wolfgang Weber, head of Germany’s electrical and electronic manufacturers’ association ZVEI, told reporters. 

Karl Haeusgen, president of German mechanical engineering association VDMA, warned the EU against entering a subsidy race as it tries to “position itself in competition with North America and Asia.” The next Commission should strengthen EU industry by cutting red tape, deepening the single market, and sealing new trade deals. 

At the Hannover fair, whose slogan this year is “Energizing a Sustainable Industry,” electrification and optimizing energy use are key themes alongside digitalization and AI. Exhibits include an automated system to speed up battery recycling, software that helps SMEs and hotels optimize their energy use, and a fully automated electric tractor. 

In its strive to stay economically relevant, Europe will also need to pick its battles. 

“The answer isn’t trying to compete with China in areas where they’ve already got mass production,” said Ben McWilliams, an affiliate fellow at Bruegel, a Brussels-based think tank. He singled out the EU’s solar sector, which is nearing collapse, having been outcompeted by Chinese competitors that produce panels far more efficiently and cheaply.

Europe should look at “complementary industries outside this where there will still be a space and kind of a competition in the next few years,” he added. In the solar sector, EU countries could focus on creating jobs around the installation and maintenance of panels, for example.

Other races are yet to be decided — five of the top 10 wind turbine manufacturers are based in the EU, for example. And, while China is leading the race to produce cheap EVs, Europe’s history as a world leader in combustion engine cars gives it some competitive advantages. The bloc also has significant hydrogen manufacturing capacity — Scholz made a point of stopping at an exhibit of a highly efficient hydrogen pump on his tour of the fair on Monday.