Local engines, global impact: European cities fostering an economic transformation

Economic development is no longer solely the domain of national governments. Today, it is increasingly being shaped from the ground up in cities, where local innovation is redefining growth and resilience.

Across Europe, cities are testing, scaling, and delivering innovative economic practices that blend competitiveness with climate action, industrial renewal and social inclusion.

This isn’t only about having a smart strategy, but about responding to what’s urgent. Europe is experiencing major transformation in areas like industry, the environment and digital technology, while also facing rising inequality, ageing populations and the growing impact of climate change. These are global challenges, but the path to solutions often begins in cities.

Urban centres are the economic powerhouses of Europe. They are where ideas are born, businesses thrive and people come together. However, they are also where the cracks of inequality and environmental strain appear first. This dual role makes them uniquely positioned to lead Europe’s economic transformation.

For example, in Toulouse, the construction sector is becoming a testing ground for circular innovation. Through the LIFE Waste2Build project, the city is rethinking how materials are sourced, reused and recycled in public works.

From dismantling buildings to recover usable components, to supporting local reuse networks, Toulouse is lowering the environmental footprint of construction while boosting local jobs and skills. The work isn’t without its challenges (legal, logistical and technical) but the city is showing that circular construction can be a practical path toward greener urban development.

In San Sebastian, innovation is deeply connected to social and economic development. The city’s 2025 Innovation Plan focuses on emerging sectors like biosciences and artificial intelligence, while also strengthening entrepreneurship through EKINN, a dedicated hub for start-ups and talent development.

What sets the plan apart is its attention to social impact, supporting young people, promoting women-led projects, and linking science with the everyday needs of the community. With strong public-private cooperation and a clear commitment to local talent, San Sebastian is shaping an innovation model rooted in inclusion.

Jumping to Brussels, the city is setting new standards in sustainable IT through the work of Paradigm, its regional digital agency. By reshaping procurement practices, the capital of Belgium is reducing emissions across the lifecycle of its equipment, from favouring energy-efficient, repairable devices to piloting low-carbon delivery methods like maritime transport and cargo bikes. A shift in tender criteria now gives more weight to environmental performance, encouraging suppliers to align with the city’s climate goals.

These examples show how cities are already testing new ways to green their economies from the ground up. But scaling these efforts requires more than local ambition. It takes structured support, shared knowledge, and the right financial tools. That’s exactly what the Prospect+ project set out to provide.

Prospect+, which ran from 2021 to 2025, offered cities and regions across Europe a unique opportunity to build their capacity to finance sustainable energy projects. It worked with hundreds of public authorities in a peer-to-peer learning journey that helped local leaders navigate the complexity of energy transition financing.

Through hands-on mentoring, exchange visits and targeted guidance, Prospect+ supported city officials in identifying practical, cost-effective financing models, from energy performance contracts to revolving funds and soft loans. More than a technical exercise, the programme created a community of practice where public officers could share what worked, what didn’t, and how to adapt solutions to their own local context.

In a landscape where funding is available but often hard to access, Prospect+ helped bridge the gap between ambition and implementation. It demonstrated that, with the right tools and support, local governments can not only plan for energy efficiency — they can deliver it. And though the project has come to a close, the knowledge it generated continues to circulate across Europe’s cities.

Often underestimated, public procurement is one of the most powerful tools cities have to shape markets. Every euro spent by a local authority has the potential to boost innovation, reduce emissions and support social inclusion.

The Big Buyers Working Together (BBWT) project shows what is possible when cities join forces. By pooling expertise and aligning needs, cities involved in BBWT are shaping demand in key sectors like zero-emission construction, circular materials and heavy-duty electric vehicles. These aren’t just pilot projects: they are templates for market-wide transformation.

What makes BBWT stand out is not only its technical focus, but its collaborative spirit. By learning from each other and working together, cities are sending a powerful signal to industry: the public sector is ready to lead the green transition, and innovation starts with demand.

Economic transformation is not just about infrastructure or investment. At its heart, it is about people, and the ecosystems they live and work in.

Thriving urban economies need more than jobs. They need quality employment, pathways for lifelong learning, and environments where new ideas can flourish. Cities are building this future through start-up incubators, skills programmes, and support for Small and Medium Sized Enterprises (SMEs). And they are doing so in close partnership with local actors: universities, research centres, businesses and civil society.

These partnerships are what make local innovation stick. In many cities, public-private collaborations are helping to shape innovation hubs, connect underrepresented groups to employment, and develop new governance models that are more inclusive and agile.

But for these models to scale, cities need support. The new leadership of European Commission must take this seriously. The policies of tomorrow will only succeed if they empower cities today.

The Green Deal Industrial Plan sets a bold direction for the EU, aiming to decarbonise industry and support clean-tech development. However, its success depends on how well it connects to what is already happening locally. Cities are not just implementers of industrial policy, but also laboratories of economic innovation.

To match local ambition with European strategy, city governments are calling for a framework that is flexible, inclusive and resourceful. One that sees cities not as beneficiaries, but as co-creators of Europe’s economic future.

That means investing in urban capacity. It means supporting experimentation. It means embedding sustainability and social equity into every layer of economic policymaking, from procurement to funding, from innovation to inclusion.

As climate challenges intensify and global dynamics become more unpredictable, Europe must reflect on how to build an economic model that is both resilient and locally grounded. Cities are well placed to contribute to this vision, with their close connection to people’s needs and their capacity to adapt quickly to change.

In this evolving context, local economic development is becoming less of a policy add-on and more of a long-term necessity. Europe’s strength has always been its diversity, and it is in cities where that diversity is most alive and where it can be turned into practical solutions.

By continuing to invest in local leadership, fostering innovation, and ensuring that the green transition remains fair and inclusive, Europe can shape an economy that is not only competitive, but also relevant and sustainable.
In a time marked by growing uncertainty, shifting paradigms and social insecurity, European cities play a vital role in creating stability, trust and direction for their communities.

One thing remains clear: when we act collectively and decisively, the impact of our choices can be not only effective, but profoundly positive.