EU plans subsidy war chest as industry faces ‘existential’ threat from US – POLITICO | Popgen Tech

The EU is in emergency mode and is preparing a major subsidy push to prevent European industry from being wiped out by American competitors, two senior EU officials told POLITICO.

Europe faces a double whammy from the US. If it wasn’t enough that energy prices seem to be permanently much higher than those in the US thanks to Russia’s war in Ukraine, US President Joe Biden is also currently rolling out a $369 billion. industrial subsidy scheme to support green industries under the Inflation Reduction Act.

EU officials fear that businesses will now face almost irresistible pressure to shift new investment to the US rather than Europe. Thierry Breton, chief operating officer of the EU, warns that Biden’s new subsidy package poses an “existential challenge” to Europe’s economy.

The European Commission and countries including France and Germany have realized 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 provisional solution now being prepared in Brussels is to counter the US subsidies with an EU fund of its own, the two senior officials said. It would be a “European Sovereignty Fund”, already mentioned in the State of the Union address of Commission President Ursula von der Leyen in September, to help businesses invest in Europe and meet ambitious green standards.

Senior officials said the EU must 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 react quickly is to prevent individual EU countries from going it alone to splash out emergency cash, the officials warned. The chaotic response to the gas price crisis, where EU countries reacted with all kinds of national support measures that threatened to undermine the single market, is still a sore point in Brussels.

European Commissioner Breton in particular led the group by sounding alarm bells. At a meeting with the 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 chamber. Breton said it is now a matter of extreme urgency to “reverse the deindustrialization process that is taking place.”

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

The Inflation Reduction Act is a particular problem for EU carmakers – such as 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 in which its companies can enjoy the same US benefits.

With a diplomatic solution looking unlikely and Brussels keen to avoid an all-out trade war, a subsidy race now looks increasingly likely as a controversial Plan B.

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

At a meeting of EU trade ministers on Friday, Brussels hopes to get more clarity from Berlin on whether they are willing to break their subsidy taboo.

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 traction in Berlin, which has traditionally been economically more liberal.

German Economy Minister Robert Habeck and his French counterpart Bruno Le Maire issued a joint statement on Tuesday calling for an “EU industrial policy that enables our companies to thrive in global competition, especially by technological leadership,” adding that “we want to coordinate a European approach to challenges such as the United States’ Inflation Reduction Act.”

Apart from the meeting of trade ministers on Friday, the idea will also be discussed informally among competition ministers next week. One official said European leaders would also discuss it on the sidelines of the Western Balkans summit on December 6 and at the European Council in mid-December.

Hans von der Burchard, Giorgio Leali and Paola Tamma reported.