ABSTRACT
We discuss whether the unique architecture of economic governance in the European Union – a quasi-federal system of division of powers and checks and balances between European and domestic institutions – can be conducive for innovation and transformative change, particularly for countries in the East and the South of Europe that are trying to catch up. We argue that this system has largely led to a “technocratic” style of innovation policy-making with a limited transformative impact. As an alternative approach, we argue that in order to unleash new waves of innovations and structural transformation, particularly in European countries and regions trying to catch up, European regulatory and institutional changes should: (1) target the financial structures of the respective economies and “direct” the financial sectors towards development, (2) facilitate innovations in regulations and public services, and (3) encourage long-term investments in future (green) technologies. In other words, Europe needs to develop its own specific type of entrepreneurial state.
