France and Germany agree on anti-Biden subsidies?
The European Union has understood the industrial risks of American subsidies and would like to respond with its own aid plan. However, there are differences in the Commission and among the member countries, even if France and Germany seem to have found an agreement
Two high-level European officials told POLITICO that the European Union is in the process of approving a major aid plan for companies to keep them competitive against US rivals, which can count on subsidies from the Inflation Reduction Act, the law for the contrast of inflation and the incentive for American manufacturing signed by President Joe Biden last August.
THE DOUBLE COMPETITIVE ADVANTAGE OF THE USA
The competitive advantage of American industries compared to European ones is double: not only are the prices of energy (which fuels production processes) decidedly lower in the United States than in the European Union, but the White House has also developed a scheme of subsidies to the most strategic supply chains of the ecological transition for 369 billion dollars.
WHAT EUROPE FEARS
The fear of Brussels is that, given the situation, European companies may decide to invest in America rather than in the Old Continent. According to Internal Market Commissioner Thierry Breton, the Biden administration's subsidy plan represents an "existential challenge" for Europe's economy, which risks deindustrialization.
THE EUROPEAN SOVEREIGNTY FUND
According to POLITICO sources, the European Commission and the two most important countries of the Union, France and Germany, have realized the risks and the need to act quickly: Brussels is working on an emergency scheme to provide money to key industries dealing with advanced technologies.
Basically, the European Union intends to respond to the Inflation Reduction Act with its own subsidy plan, the European Sovereignty Fund (the president of the Commission, Ursula von der Leyen, had mentioned it during her last speech on the of the Union), to help companies invest in Europe and comply with emissions requirements.
MAKE IT HURRY
The EU authorities will have to hurry very quickly, however, because companies are already making decisions on where to build their future factories of batteries, electric vehicles, wind turbines or microchips: all strategic products or components because they are essential for success of the ecological and digital transitions.
Brussels will also have to avoid being overtaken by individual member states, which could introduce individual measures to support national companies or to attract investments, going to undermine the single market.
The most alarmed seems to be Internal Market Commissioner Thierry Breton, who on Monday met with European industrial representatives and spoke of the need to intervene immediately to "reverse the ongoing deindustrialization process".
WHAT'S IN THE INFLATION REDUCTION ACT
The Inflation Reduction Act provides tax credits of up to $7,500 for electric vehicles assembled in North America and containing batteries manufactured in the region; all the others – for example those manufactured in Europe or South Korea – will not be able to access the bonuses, losing them in price competitiveness. The measure is of particular concern to the two main European car-producing nations, namely France and Germany.
A diplomatic solution with Washington appears unlikely – the Inflation Reduction Act has a strategic function for Biden: to counter Chinese manufacturing -, and Brussels would not even want to start a trade war with an ally. Perhaps the most viable alternative is a race for subsidies between Europe and America, but the Union will have to get the support of Germany and more liberal commissioners such as Valdis Dombrovskis (Trade) and Margrethe Vestager (Competition).
COLLABORATION BETWEEN FRANCE AND GERMANY?
If Germany is cautious about EU subsidies, but is showing signs of rethinking, France is pushing insistently for a European program of state aid to companies. On Tuesday, the ministers of the economy of Paris and Berlin, Bruno Le Maire and Robert Habeck, issued a joint statement calling for "an industrial policy of the European Union that allows our companies to thrive in global competition, above all thanks to technological leadership" .
“We want to closely coordinate a European approach to challenges like the US Inflation Reduction Act,” it reads.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/mondo/sussidi-unione-europea-inflation-reduction-act/ on Wed, 23 Nov 2022 14:10:09 +0000.