Europe's flagship reform agenda will not be implemented as designed, as the required fiscal and governance transformation is politically blocked and likely to stay that way.

What Europe will deliver instead is narrower: sector-specific legislation, funding instruments and regulatory streamlining concentrated in defense, energy, clean tech and capital markets.

The Industrial Accelerator Act (IAA), currently being negotiated, is the clearest example.

For U.S. executives with European operations or ambitions, the practical guidance is straightforward. Engage now with the specific sector rules that affect your business, while the texts are still being written, instead of waiting for a single EU-wide competitiveness push.

Treat 2026-2028 as a window for scaling proven capability into Europe versus betting on Europe as a place to originate frontier innovation.

U.S. companies operating in Europe, or considering it, now have a concrete piece of legislation to react to. On March 4, 2026, the European Commission proposed the Industrial Accelerator Act (IAA), binding legislation targeting automotive, energy-intensive industries and net-zero technologies.

The goal is to lift manufacturing to 20% of European Union GDP by 2035, up from 14.3% in 2024. Co-legislators have been asked to adopt it by year-end. Its contents, and how industry is already pushing back, indicate what US executives should expect from Brussels over the next two years: real, binding, sector-specific rules, negotiated and contested in the open, rather than a sweeping single transformation.

That legislation grew out of a broader diagnosis. Nearly two years ago, Mario Draghi, former head of the European Central Bank and Prime Minister of Italy, delivered a report commissioned by European Commission President Ursula von der Leyen. In it, Draghi argued that Europe's productivity and technology gap with the US and China was large, structural and urgent.

The report  proposed 383 measures backed by roughly 800 billion euros in annual investment, equivalent to 4-5% of EU GDP, which won near-universal political endorsement across EU member states and the European Parliament.

However, while that endorsement made the underlying diagnosis a rare point of consensus in European politics, it did not make the agenda achievable.

The Execution Gap

Why not? The structural weaknesses that predate Draghi are still there: fragmented national markets and languages, layered rules, consensus-bound decision-making and thin venture-capital markets. On that last point, the numbers are especially stark. European pension funds allocate roughly 0.02% of assets to venture capital, versus roughly 2% for U.S. pension funds. Similarly, U.S. startups raised roughly $175 billion in venture capital in 2025, whereas European startups raised only about $48 billion, despite comparable population size.

Execution of the Draghi agenda itself is also lagging. Draghi's own one-year assessment put implementation at roughly 10%. The independent Draghi Tracker, launched at Davos in January, puts it at 14% fifteen months out; a separate index, the Draghi Observatory, estimated implementation as high as 39% using a looser definition that counts partial progress. Either way, the hardest items—common EU debt, treaty-level governance reform, and ending unanimity voting—remain politically blocked, and the Commission has pushed its single-market completion target to 2028.

Brussels' own response to this gap is worth watching closely. Rather than forcing full 27-member consensus, von der Leyen has floated letting a coalition of willing member states move forward without the rest. The European Parliament's July 2026 plenary showed the same pattern in practice: urgent automotive support, a narrower tax-harmonization measure and a digital-assets resolution all advanced as separate, sector-specific tracks instead of as a single unified package.

Three Predictions

First, the full agenda will not happen. Politically, there are too many decision-makers (and losers) for the deference to supranational authority the plan requires. Fiscally, the common borrowing it depends on remains blocked, while the war in Ukraine is already claiming limited resources.

Second, even full implementation would not close the gap with the U.S. America and China's lead in frontier AI may be insurmountable as it is rooted in capital structures instead of talent alone. Shallow late-stage venture markets leave Europe unable to make the investments frontier AI labs require. National and language fragmentation also cap the economies of scale that speed up technology deployment. And EU industrial policy, however stable, will struggle to match China's coherence. Even Taiwan's semiconductor strategy was successful by concentrating support behind a single national champion, a degree of concentration EU consensus rules out by design.

Third, the IAA shows what real reform will actually look like. The IAA’s main instruments include "Made in EU" preferences in public procurement, conditions on foreign direct investment in sectors where a single non-EU country controls over 40% of global manufacturing capacity (aimed at Chinese battery, EV and solar capacity) and streamlined permitting through designated industrial acceleration zones. The legislation is genuinely binding and already contested. European automakers want the content rules loosened. The think tank Bruegel has flagged internal contradictions. China has called it discriminatory. That contestation is a good sign; contested-at-the-margins is a fundamentally different condition than politically blocked. It also means U.S. companies have real leverage to shape the outcome while the IAA’s text is still being negotiated.

Direct Implications

The IAA's procurement preferences and foreign-direct-investment conditions are framed around China, but they will not apply only to Chinese investors. The shift toward strategic use of EU public demand to support EU production has direct consequences for U.S. firms selling into, or investing in, the covered sectors. U.S. executives should assess exposure from both angles: as bidders facing "Made in EU" preferences, and as investors potentially subject to economic-value conditions tied to jobs and industrial development inside the EU.

Action Items for U.S. Companies

Treat 2026-2028 as a window for implementation instead of origination. Bring proven technology and AI capability into Europe and scale it into defense, energy, clean tech and capital-markets-linked opportunities. The capital markets needed to fund origination at scale simply aren't there yet.

Engage now on the IAA while the text is live. Content rules, geographic scope and FDI thresholds are all still open, and industry pushback is already shaping the final language. This applies to U.S. firms as much as it does to European incumbents.

Monitor at the file and coalition level. Track specific legislative files, the IAA's actual passage and final content for automotive, and which member states are moving together on financing and permitting. Don't wait for a single EU-wide milestone from Brussels that may not arrive on the original timeline, or at all.

Assign low probability to the big-bang scenario. Common debt issuance, treaty reform and qualified majority voting are all low-probability outcomes on a multi-year horizon. Don't build strategy around any of them materializing by 2028.

There is a real upside case: Defense rearmament is a genuine demand shock benefiting European industrial capacity, and coalition-of-the-willing tracks could move faster than EU-wide consensus ever has. Neither changes the core calculus, however. Develop core strategy with the parts of Europe's agenda that are actually moving and contingency plans around the parts that aren't.

A version of this article originally appeared in the C-Suite newsletter. It is used with permission.