France and Germany split over protectionist tilt in EU industrial act

The European Union's most ambitious attempt yet to rewrite its industrial rulebook is heading into autumn negotiations with its two largest members openly at odds. The Industrial Accelerator Act, the centrepiece of Ursula von der Leyen's second Commission term, is supposed to drag the bloc's manufacturing base out of a long decline while cutting emissions. Instead, it has exposed a fracture that runs straight through the Franco-German engine.

France wants the legislation to embed strong "Made in Europe" requirements across strategic sectors, arguing that European producers cannot compete with heavily subsidised Chinese output and American subsidy packages unless public procurement is explicitly reserved for them. Germany, whose economic model depends on selling high-value goods into global markets, sees those same provisions as an invitation for trading partners to retaliate. Three EU diplomats confirmed the deadlock to POLITICO, describing the Council as "deeply divided" over the overall text.

What the Act actually proposes

Unveiled in March and now under simultaneous review by the European Parliament and the Council of the EU, the Industrial Accelerator Act (IAA) draws directly from Mario Draghi's 2024 competitiveness report. That report warned the EU risked falling permanently behind the United States and China unless it accepted a more interventionist role for the state. The Commission's response is a sprawling text that accelerates permitting for industrial projects, cuts administrative burdens, and, most controversially, creates low-carbon public procurement quotas tied to European origin.

Under the original proposal, certain public works would have to source at least 5% of their cement and 25% of their aluminum from low-carbon producers located inside the Union. Steel, however, received a different treatment: a 25% low-carbon quota but no requirement that the metal be melted and poured in Europe. The omission was deliberate. According to officials familiar with the Commission's thinking, the carve-out was designed to avoid a confrontation with the incoming Trump administration, which has historically fixated on steel tariffs, and with India, a significant exporter to the EU market.

The steel loophole and industry pushback

That calculation has not survived contact with the European steel lobby. Eurofer welcomed the principle of a lead market for green steel but argued the proposal "falls short in its ambition creating demand signals for low-carbon steel made in the EU." In a statement, the group warned that without robust Union-origin requirements linked to steel "originally melted and poured within the EU," public procurement risked being met by imports, "undermining decarbonization investments in Europe." The intervention appears to be gaining traction. A draft compromise circulated by the Council under the Irish presidency proposes amending the text to require that "at least 25 percent of the total volume of steel used shall be low-carbon and of Union origin."

The steel amendment is only the most visible symptom of a wider argument. The Irish presidency's draft also suggests replacing the broad "Made in Europe" concept with a legally precise system based on existing trade agreements and product-specific market access. Crucially, it would give the Commission discretionary power to relax or abandon low-carbon quotas if they push up material costs, threaten competitiveness, face limited supply, or damage security of supply. That escape clause reveals how nervous member states are about the economic consequences of their own legislation.

France sees strategic autonomy; Germany sees export risk

The divide maps neatly onto national economic models. France, home to Commissioner Séjourné, views the IAA as a vehicle for strategic autonomy. Paris has long argued that the EU's open-market reflexes have left its industrial base exposed to competitors who do not play by the same rules. The French government sees public procurement, roughly 14% of EU GDP, as a lever it can finally pull to shape domestic capacity in clean tech, defence and critical materials.

Germany's reservations are no less rational. Its manufacturing sector, still the largest in Europe, earns roughly half its revenue abroad. German diplomats have warned privately that broad origin requirements would hand the United States and China a pretext for mirror measures, hitting German carmakers, machine-tool builders and chemical exporters hardest. One parliamentary insider described the mood in foreign capitals: "Prime ministers from all over the world are calling: 'Hey, I thought you wanted to be friends,' or 'I thought you were having a hard time with the U.S. and China.'"

Parliament's three-way committee split

The European Parliament will not simplify matters. Three committees share competence: Industry, Research and Energy (ITRE); Internal Market and Consumer Protection (IMCO); and International Trade (INTA). Each brings a different institutional bias. ITRE tends to favour industrial support measures; IMCO worries about single-market fragmentation; INTA is tasked with ensuring the text survives World Trade Organization scrutiny. A cross-party coalition is already forming among the centre-right European People's Party, the centrist Renew Europe group, and the centre-left Socialists & Democrats. Together they argue Europe needs an assertive strategy to match the US Inflation Reduction Act and China's state-led industrial planning.

The Greens, by contrast, fear the IAA dilutes the EU's climate architecture. They note that von der Leyen dropped the word "decarbonisation" from the proposal's original title, a symbolic shift that signals competitiveness now ranks above emissions reduction in the Commission's hierarchy. For the Greens, the risk is that low-carbon quotas become a fig leaf for protectionism while actual emissions targets slip.

The numbers behind the ambition

The legislation's headline target is to raise manufacturing from roughly 14% of EU GDP today to 20% by 2035. That figure, drawn from Eurostat's structural business statistics, has barely moved in a decade. Reversing the trend would require annual industrial investment on a scale the bloc has not seen since the post-war reconstruction era. The IAA does not itself provide new EU funding; it relies on redirecting existing cohesion funds, state-aid flexibility, and the demand pull from public procurement. Whether that is sufficient remains an open question.

A test of European credibility

For all the technical detail, the IAA is ultimately a political signal. The EU is telling the world it intends to play the same industrial game as Washington and Beijing, subsidies, local-content rules, strategic stockpiling, while insisting it remains the champion of rules-based trade. That contradiction is not lost on trading partners. The parliamentary insider's anecdote about prime ministers calling Brussels captures the diplomatic cost: credibility, once spent, is hard to rebuild. The autumn negotiations will reveal whether the EU's two largest economies can agree on a version of industrial policy that survives contact with reality, or whether the Act becomes another monument to European ambition unmatched by execution.