Economic globalization has intensified since the 1980s and created faster channels of international interdependence and an accelerating technology race. In this new asymmetric world economy the EU is facing a dynamic and flexible US system which takes advantage of the global quest for foreign direct investment. Innovation policies in the EU - in particular in Germany - are found to be rather inadequate. There are also new theoretical challenges where a \"structural macro model\" and a Schumpetrian model of innovation and full employment are presented as new approaches. Besides theoretical challenges the increasing global dynamics raise new problems of international policy coordination which could lead to unsustainable economic globalization. TOC:Introduction.- Economic Globalization.- Unemployment and Innovation in Europe.- Labor Costs, Unemployment and Innovation.- Issues of Innovation Policy.