The Sound of Economics
Inflation, Iran and the Industrial Accelerator Act
The Sound of Economics
•March 11, 2026•53 min
0
The Sound of Economics•Mar 11, 2026
Why It Matters
Understanding the interplay between geopolitical shocks, inflation dynamics, and industrial policy is crucial for policymakers, investors, and businesses navigating Europe’s uncertain economic environment. The episode’s analysis of the Industrial Accelerator Act offers timely insight into how Europe may reshape its manufacturing base and trade relationships in response to global competition and energy security concerns.
Key Takeaways
- •European economy shows resilience despite rising energy‑price shock
- •ECB monitors inflation expectations for potential second‑round wage effects
- •Industrial Accelerator Act aims to boost EU manufacturing via procurement
- •Overcapacity in China challenges EU competitiveness beyond protectionism
- •Dutch economy strong cyclically but faces structural productivity hurdles
Pulse Analysis
The latest Bruegel podcast highlights that the euro‑area economy remains surprisingly resilient even as the Israel‑Iran conflict threatens a negative supply shock. Domestic demand and export performance have held up, while unemployment stays low. Inflation is currently near target, but a surge in gas prices could reignite price pressures and trigger second‑round wage effects. Klaas Knopp stresses that the European Central Bank must watch inflation‑expectations gauges closely, because early wage negotiations could translate the energy shock into lasting cost‑push inflation. The episode underscores the delicate balance between short‑term resilience and longer‑term price stability.
The discussion then turns to Europe’s industrial policy response. The newly proposed Industrial Accelerator Act seeks to revive manufacturing by linking public procurement and EU‑content rules to domestic producers. While the measure could redirect demand toward European firms, critics warn it may lean too heavily on protecting existing industries rather than fostering new, green technologies. Overcapacity in China compounds the problem, as cheap imports depress prices and erode market share across sectors. Policymakers therefore need a dual strategy: safeguard strategic sectors while investing in innovation hubs, such as the Eindhoven‑area model that produced champions like ASML.
Finally, the podcast examines the Dutch economy as a microcosm of broader EU dynamics. The Netherlands enjoys a tight labour market, sub‑4 % unemployment and strong cyclical performance, yet structural issues—low productivity growth, demographic pressures and limited fiscal space—remain. Similar challenges echo across Germany, France and Italy, where growth potential is constrained by fragmented internal markets and high energy costs. The hosts argue that coordinated industrial policy, coupled with reforms that boost competition and address skill gaps, is essential for Europe to maintain its global standing. The episode concludes that resilience must be paired with structural change to weather geopolitical turbulence.
Episode Description
In this episode of The Sound of Economics, host Rebecca Christie speaks with Klaas Knot, former governor of the Dutch central bank, and Bruegel Director Jeromin Zettelmeyer about the big issues facing the European Union economy. Will euro-area inflation rise in response to energy price shocks from the US and Israeli attacks on Iran? How quickly can monetary policy respond when trouble emerges? How is the Dutch economy doing compared to the rest of Europe? Meanwhile, the European Commission has proposed an Industrial Accelerator Act to protect EU manufacturing from the onslaught of Chinese exports – how does it stack up against the status quo? This episode features insights from two of Europe’s top economists on the major challenges of 2026 and the role of the European Central Bank in keeping the euro-area economy together.
Relavant research:
Mathieu Segers Lecture 2026 with Klaas Knot (in Dutch)
García Bercero , I, B. McWilliams, N. Poitiers and S. Tagliapietra (2026) '‘Made with Europe’ not ‘Made in Europe’ should guide EU industrial policy' First Glance, Bruegel, 10 February.
McWilliams, B., S. Tagliapietra and J. Zettelmeyer (2025) ‘Reconciling the European Union’s clean industrialisation goals with those of the Global South’, Policy Brief 18/2025, Bruegel
Steinbach, A, G Wolff and J Zettelmeyer (2025), ‘Rethinking the governance and funding of European rearmament‘, in Gensler, G, S Johnson, U Panizza and B Weder di Mauro (eds), The Economic Consequences of The Second Trump Administration: A Preliminary Assessment, CEPR Press, Paris & London.
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