How the EU is answering Biden’s subsidy package – Economy

Now it’s being subsidized back: If countries outside Europe, for example the USA, support the establishment of factories for green technologies such as batteries with subsidies, EU governments should in future be allowed to lure them with their own subsidies. This is to prevent these important works from migrating. The EU Commission wants to add a corresponding exception to its strict state aid rules. This was announced by Commission Vice President Margrethe Vestager, responsible for competition, in a letter to the 27 finance ministers. The Dane asks there for assessments of the proposals. the Süddeutsche Zeitung the five-page letter dated Friday is available.

In addition, the rules are to be simplified in general and the approval of subsidies by the Commission accelerated. Because governments have to have aid approved by the Brussels authorities. The Commission is examining whether the programs distort competition in the EU. However, Vestager has already relaxed the regulations because of the Covid crisis and the Ukraine war. The recent move is a reaction to the US government’s controversial subsidy package.

Vestager sees the risk of EU companies moving away

This so-called Inflation Reduction Act (IRA) is massively promoting the green transformation of the economy. But the State Aid Act disadvantages European corporations that want to export environmentally friendly products to the United States. After all, President Joe Biden primarily wants to support US factories with the program. Vestager writes in her letter that there is a risk that “some of our EU companies” will shift investments and plants to the United States. At the same time, the liberal politician warns of side effects if EU governments are allowed to strongly promote the establishment of factories for green technologies in the future. This could lead to “subsidy races with third countries and within the EU”.

How the EU should respond to Biden’s initiative was also one of the topics discussed by Vestager’s boss, Commission President Ursula von der Leyen, with Sweden’s Prime Minister Ulf Kristersson. The German and her commissioners visited Kiruna in northern Sweden on Thursday and Friday and exchanged views with the government there. Sweden took over the rotating EU Council Presidency at the turn of the year, meaning that it will conduct business in the Council of Ministers, the legislative chamber of the member states, until the end of June. Von der Leyen said after the interviewthe easing of the state aid rules should be “targeted and temporary”.

Von der Leyen complains about “unfair competition from China”

The President also pointed out in Kiruna that it was not just about the IRA program. Even more threatening is the “unfair competition from China” in clean technologies: “Think of China’s massive and hidden subsidies, for example in the manufacture of wind turbines or solar panels.”

However, the softening of the subsidy rules leads to a problem: In financially strong and large member states like Germany, governments can use the new freedom much better to promote their companies. Clammy governments like Italy won’t be able to keep up. German companies could therefore enjoy unfair advantages, the common EU internal market would be distorted. A statistic from Vestager’s letter shows how great this risk is. The compares the national subsidies against high energy prices and other consequences of the Ukraine war. Accordingly, 53 percent of the aid approved by the Commission goes to Germany and 24 percent to France. Italy only comes to a good seven percent.

Von der Leyen therefore said in Kiruna that after the regulations were relaxed, the EU’s “credible and ambitious financing instruments” would have to be “the other side of the coin” – in other words: more funding from Brussels is needed, especially for poorer countries. At the beginning of December, Deutsche called for a European Sovereignty Fund to be set up, a new EU pot that supports important industrial projects. She leaves it open where the money will come from, but Internal Market Commissioner Thierry Breton suggeststhat the Commission should take on new debts for which the Member States are responsible. However, the Federal Minister of Finance Christian Lindner (FDP), for example, strictly rejects this. The authority will probably only present a concrete concept for the fund in the summer.

The EU lags behind Asia and the US

After all, von der Leyen said the commission was already “working on a needs analysis to determine the facts and figures.” The authority is expected to present this study on the level of subsidies needed in time for the next EU summit in early February.

Sweden’s government belongs to the camp of those market liberals who are always critical of loose state aid rules or new EU debt. prime minister Kristersson said at the press conference with von der Leyen that a short-term reaction to the IRA package was necessary, but at the same time it was important to strengthen the EU’s competitiveness in the long term. Here, Europe has been lagging behind the USA and Asian countries for “quite a long time”. The Christian Democrat demanded that hurdles in the internal market should therefore be torn down and more trade agreements concluded: “We need to start a real debate about how we can increase competitiveness and attract more companies – with the help of our skills and not with the help of long-term subsidies.”

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