EU plans to subsidize war chest as industry faces ‘existential’ US threat – POLITICO

Press play to listen to this article

Voiced by artificial intelligence.

The EU is in emergency mode and preparing a big subsidy push to prevent US rivals from killing off European industry, two senior EU officials told POLITICO.

Europe faces a double whammy from the US If it wasn’t enough that energy prices look set to remain permanently well above those of the US thanks to Russia’s war in Ukraine, the president of US industrial subsidy scheme to support green industries under the Inflation Reduction Law.

EU officials fear that companies now face almost irresistible pressure to shift new investment to the US instead of Europe. EU industry chief Thierry Breton warns that Biden’s new subsidy package poses an “existential challenge” for Europe’s economy.

The European Commission and countries like France and Germany have realized that they must act quickly if they want to prevent the continent from turning into an industrial wasteland. According to the two senior officials, the EU is now working on an emergency scheme to funnel money into key high-tech industries.

The tentative solution now being prepared in Brussels is to counter the US subsidies with an own fund from the EU, the two senior officials said. This would be a “European Sovereignty Fund”, already mentioned in Commission President Ursula von der Leyen’s State of the Union address in September, to help companies invest in Europe and comply with ambitious ecological standards.

Senior officials said the EU had to act extremely quickly as companies are already making decisions about where to build their future factories for everything from batteries and electric cars to wind turbines and microchips.

Another reason for Brussels to respond quickly is to prevent individual EU countries from Going solo by splurging emergency money, officials warned. The chaotic response to the gas price crisis, in which EU countries reacted with all kinds of national support measures that threatened to undermine the single market, remains a sore point in Brussels.

European Commissioner Breton, in particular, has led the pack in sounding the alarm. in a meeting with EU industry leaders on Monday, Breton issued his warning about the “existential challenge” to Europe from the Inflation Reduction Act, according to people in the room. Breton said that it is now a matter of the utmost urgency “to reverse the de-industrialization process that is taking place.”

Breton echoed calls from business leaders across Europe warning of a perfect storm ahead for manufacturers. “It’s a bit like drowning. It’s happening in silence,” said BusinessEurope president Fredrik Persson.

The Cut Inflation Act is a particular nightmare for EU auto-making nations like France and Germany, as it encourages consumers to “buy American” when it comes to electric vehicles. Brussels and EU capitals see this as undermining global free trade, and Brussels wants to strike a deal where its companies can enjoy the same US benefits.

With a diplomatic solution looking unlikely and Brussels wanting to avoid an all-out trade war, a race over subsidies now looks increasingly likely as a contentious Plan B.

To do that, it will be vital to secure the support of Germany and more economically liberal commissioners such as trade chief Valdis Dombrovskis and competition chief Margrethe Vestager.

in a EU trade ministers meeting on Friday, Brussels hopes to get more clarity from Berlin on whether they are willing to break the taboo on subsidies.

France has long called for a counterattack against Washington by funneling state funds into European industry to help industrial champions on the continent. That idea is now also gaining ground in Berlin, which has traditionally been more economically liberal.

On Tuesday, German Finance Minister Robert Habeck and his French counterpart Bruno Le Maire issued a joint statement statement to call for an “EU industrial policy that allows our companies to thrive in global competition, especially through technological leadership”, adding that “we want to closely coordinate a European approach to challenges such as the Law to Reduce Inflation of USA”.

Aside from Friday’s trade ministers’ meeting, the idea will also be discussed informally between competition ministers next week. An official said European leaders will also discuss it on the sidelines of the Western Balkans Summit on December 6 and on the european council half of december.

Hans von der Burchard, Giorgio Leali, and Paola Tamma contributed to this reporting.

Leave a Reply

Your email address will not be published.