The current transformations of European economies – accelerated by the crisis started in 2008 and by the austerity policies imposed by EU institutions – are leading European countries towards a serious divergence in terms of economic activities, investment, productivity, employment and incomes. The divergence in manufacturing production and in the dynamics of private services is at the core of such a process. The group of economies that are closely integrated with the German production system have experienced limited losses of industrial production and are returning to growth. Southern European countries (France included) have suffered major losses in production capacity and risk new imbalances in current accounts alongside those in public budgets. Central-Eastern European economies have a differentiated pattern, with few cases of rapid but fragile growth, integrated in the ‘German production core’ (e.g. Poland) and others suffering the economic and social effects of the protracted recession. A clear risk of fragmentation of the EU exists and must be countered not just with macroeconomic policy changes – moving beyond austerity – but also with a reconstruction of production capacity in the weaker areas of Europe. Chapter 1 of the report documents the extent of these problems. Chapter 2 outlines the proposal for a progressive European industrial policy considering a ‘decalogue’ of principles, discussing its rationale, economic activities that could be targeted and the tools for implementation. Chapter 3 assesses the policy space that is offered by current EU policies and rules. Chapter 4 introduces a proposal for a European industrial policy that goes well beyond traditional approaches.