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Europe's push for industrial champions seen continuing despite divisive Parliament poll

FILE PHOTO: European Union flags fly outside the European Commission headquarters in Brussels

By Foo Yun Chee

BRUSSELS (Reuters) - Europe's push for industrial champions is expected to continue after European Parliament elections this weekend that will likely see the major political parties lose seats to nationalist and populist parties, analysts said.

Polls indicate that pro-European parties on the centre-right and centre-left, liberals and Greens will have a smaller majority than in the outgoing Parliament that will shift the assembly to the right.

That will in turn affect the composition of the next slate of commissioners at the European Commission when they take up their posts in December after the current group ends its term in November.

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The EU executive has in recent years championed pan-European giants to take on Chinese and U.S. rivals and allowed EU governments to hand out millions of euros in subsidies to key technologies and strategic players.

These included billion-euro jointly funded projects in hydrogen, microelectronics, batteries and cloud infrastructure that have benefited companies such as Airbus, BMW, Michelin, BASF, Enel, Deutsche Telekom, Orange and Telefonica.

That drive is unlikely to stop, said Jeromin Zettelmeyer, a director at think tank Bruegel.

"One mitigant is that on the right, they are divided on these issues. Support for industrial champions is coming from the centre. I don't think the election results will result in big changes," he said.

"The policy debate that will happen, defenders of the market and tough competition laws, will be on the defensive regardless of the election results, because of trends and the U.S. and China using nationalistic sentiments," Zettelmeyer said.

The United States last year kicked off its $430 billion U.S. Inflation Reduction Act (IRA), which includes major provisions to cut carbon emission, boost domestic production and manufacturing, while China in turn is also investing billions to achieve technological self-sufficiency.

The success of the European Union's ambitious digital and green goals adopted last year could hinge on creating industrial champions, said Andrea Renda, a director at the Centre for European Policy Studies.

"The EU now sees market forces alone can't achieve what they want such as specialisation in key technologies, creation of good jobs, decarbonisation, economic security and other objective," he said.

"This requires strong industrial policy. We will see a continuation of this, even if this means being lenient towards the creation of European champions."

Advocates of weakening the bloc's tough competition rules to allow for European giants will likely continue to see resistance, said Bruegel's Zettelmeyer.

"We have a substantial community in Europe who wants strong competition," he said.

(Reporting by Foo Yun Chee; Editing by Kirsten Donovan)