STUDY ECONOMY AND FINANCE THE SECOND TRANSITION Why Central Eastern Europe Needs Proactive Industrial and Innovation Policy Now Ernst Hillebrand August 2022 The countries in Central Eastern Europe(CEE) have strongly indus­trialised economies and attained income levels comparable to Southern and Southwestern Eu­rope. However, the gap in per capita income with respect to the technological leaders in Northern and Western Europe persists. A “second transition”, focusing on industrial and innovation policy, is necessary to reduce this gap. Upcoming technological innova­tions and EU climate action plans will have a strong impact on CEE countries. They must use these changes to attract and foster high­er value-added elements of the production process and strength­en domestic technological compe­tencies within their countries. Fostering these competencies will require active industry and inno­vation strategies that overcome the specific weaknesses of the current“dependent” growth model and bring productivity closer to the levels seen in Scandinavia or Germany.