United in diversity? EU core-periphery divides at the time of the green transition

The European Union (EU) is at a crossroads, faced with the pressing need to accelerate the green transition in response to climate change and energy security concerns. Historically, the EU has been plagued by a core-periphery divide, with each economic crisis deepening the gap between the resilient German-centred core and the more vulnerable southern periphery (SP). The core economies have traditionally outperformed the peripheral ones, benefiting from stronger technological capabilities, higher productivity and faster recovery from downturns. The green transition offers an opportunity for innovation and growth, but it also presents complexities that could disrupt this dynamic. Indeed, while core countries are better equipped with resources to manage the transition, their sectoral specialisation and reliance on energy imports could lead to significant restructuring costs. This raises critical questions: will the green transition lead to further divergence within the EU, with the core pulling ahead, or, alternatively, could the core face challenges that will result in downward convergence? And, finally, which policies can reduce the gap by promoting upward convergence? This chapter addresses these questions through a comprehensive mapping of EU economies, highlighting disparities in industrial structure, energy dependency, green technological capabilities and policy space. Germany, traditionally regarded as Europe’s economic powerhouse, lags behind in renewable energy adoption and green capabilities, raising the risk of downward convergence. Additionally, new divides within the ‘old’ core may become more pronounced as Scandinavian countries push forward. These new asymmetries coexist with the old ones. Core countries still possess greater fiscal capacities, enabling higher investments in green technologies and placing them in a stronger position to support structural upgrading and the green transition. This investment gap between these countries and the SP remains significant, reinforcing existing divides and putting the EU’s collective climate goals at risk. Against this background, we evaluate existing EU policy initiatives aimed at supporting the green transition. The current policy framework, while ambitious, risks falling short in addressing the structural imbalances between Member States. To mitigate these risks, the chapter proposes some targeted interventions, including large-scale EU-funded investment plans focused on key sectors such as public transport, especially in lagging regions. Additionally, the chapter calls for industrial alliances, coordinated by the European Commission, to maximise economies of scale and ensure fair distribution of resources. Furthermore, ‘place-based’ conditionalities are recommended to direct investments towards vulnerable regions, reducing structural inequalities and preventing further economic divergence. By aligning environmental, economic and social goals, the EU can foster a just and sustainable transition with a coordinated green industrial policy.