Capital on the wrong track? Europe's billion-dollar programs – and why industry is still stumbling

Special funds, transformation funds, recovery plans. Never before in the history of the European Union have such large public funds been mobilised in such a short time. And yet the number of insolvencies is increasing – especially in the automotive SME sector. How does that fit together?

The provocative thesis: Europe has historically invested a lot – but often in the wrong places, at the wrong speed and without sufficient industrial leverage.

Europe's New Funding Architecture: Volume, Goals, Narratives

Since 2020, several large-scale programmes have been launched, some at EU level, some at national level. The main instruments:

• NextGenerationEU (NGEU) – €750 billion, of which €723.8 billion in the Recovery and Resilience Facility (RRF) core instrument

• REPowerEU – Energy Independence and Infrastructure

• National Transformation and Climate Funds (e.g. Germany, France, Italy)

• IPCEI initiatives (batteries, hydrogen, semiconductors)

• Industrial Policy Countermeasures to the US Inflation Reduction Act

According to data from S&P Global (October 2025), expansionary German fiscal policy alone is likely to generate positive spillover effects in Central and Eastern Europe – especially in countries with a high share of exports to Germany. At the same time, the analysis shows that the fiscal stimulus varies greatly between the member states.

Overview: Central funding programmes 2020–2026

(Sources: European Commission, national budget laws, RRF Reports 2023–2025)

Where is the money? Three uncomfortable realities

A significant proportion flows along global supply chains

Industrial promotion is not a closed national cycle.

• Battery projects in Germany source intermediate products from Poland, Hungary or Asia.

• Semiconductor programs secure plants in Europe, but equipment comes partly from Japan, the USA or South Korea.

• E-mobility promotion increases import volumes for cell chemistry and raw materials from China.

This means that although subsidies have a local investment effect, they generate considerable leakage effects along international value chains.

This is particularly evident in the automotive sector: OEM investments stimulate suppliers in Central Eastern Europe (Slovakia, the Czech Republic, Hungary), while critical intermediate products partly come from Asia.

Capital-intensive large-scale projects dominate

A large part of the funds goes to:

• Battery Gigafactories

• Semiconductor fabs

• Hydrogen infrastructure

• Energy Networks

These projects make strategic sense – but are extremely capital-intensive, long-term and low-employment during the construction phase.

Traditional SMEs – such as specialized automotive suppliers – often benefit only indirectly or with a time lag.

Insolvencies rise despite record production

Data from national statistical offices show a significant increase in corporate insolvencies in Germany, France and Italy since 2022 – especially in the manufacturing and automotive sectors.

Drivers:

• Energy prices 2022/23

• Weak demand in China

• Electromobility transformation

• Overcapacities in the supplier sector

• Financing conditions due to interest rate turnaround

In short, subsidy programs do not automatically compensate for structural disruption.

Spillover to Eastern Europe: Winner of German expansion?

The data analyzed by S&P Global (NYB 2026 in Frankfurt) shows that countries with a high share of exports to Germany – especially the Czech Republic, Slovakia and Hungary – benefit disproportionately from German fiscal expansion.

Mechanism:

1. German infrastructure or industrial project

2. OEM Investment

3. Supplier call-off from Eastern Europe

4. Value creation impulse in the CEEC region

These effects are real, measurable and economically plausible.

However, the benefits are asymmetrical. Western peripheral countries benefit less than core industrial suppliers.

Case Studies

Case 1: Battery production

Several IPCEI battery projects in Germany and France have been approved. The goal: European cell production.

However, a significant proportion of the intermediate products (cathode materials, lithium chemistry) are still imported.

Conclusion: Europe subsidizes the last stage of the value chain, while upstream dependencies remain.

Case 2: Semiconductor offensive

France and Germany are investing massively in chip production.

Production itself remains capital-intensive, highly automated and globally intertwined.

The economic multiplier is there – but less than politically suggested.

Europe promotes supply – not competitiveness

The funding logic is strongly supply-oriented:

• Infrastructure

• Production Capacity

• Climate-neutral technologies

What is often missing:

• Market Demand Stimulation

• Scaling programs for medium-sized companies

• Venture financing in industrial depth

• Reducing bureaucracy

Subsidies do not replace a business model.

Those who are not structurally competitive are only temporarily stabilized by subsidies.

Where does the money really go?

Viewed in aggregate:

• Part of it will remain in the investment location

• A significant share goes to suppliers in Central and Eastern Europe

• Critical intermediate products and technologies flow in from Asia and the USA

The reality is a networked, cross-border circulation of capital – not national isolation.

Strategic implications for the mobility industry

For OEM executives, engineers and technology decision-makers, there are clear fields of action:

1. Rethinking supply chain risk analysis

2. Strategic use of funding in R&D depth

3. Integrating SMEs into transformation chains

4. Regionalisation without the illusion of self-sufficiency

Industrial policy can provide impetus – but competitiveness comes from technology, speed and scale.

Conclusion: Capital is there – effect is selective

Europe is mobilizing historically high sums.

But capital alone does not create an industrial renaissance.

The decisive question is not:

How much money is available?

Rather:

Where does it generate real, sustainable value creation – and where does it fizzle out along global supply chains?

It is no coincidence that insolvencies in the automotive sector are rising despite billion-dollar programs. It is an indication of structural shifts that funding policy alone cannot compensate for.

Is Europe's industrial policy strategically clever – or are we losing time and capital in global competition?