The state of shock lasted half a year, and now the EU has to decide how to react to the US Inflation Reduction Act (IRA) passed in August. It is undoubtedly a balancing act that could hardly be more difficult. If the EU is too timid, it loses its competitiveness in green technology – the area that should make the EU an industrial champion again.
If she gets to work too briskly, she risks cohesion within Europe and a trade conflict with the USA. Right now, when Europe is confronted with a war in the east of the continent, no one can want one. In terms of security policy, Europe is more dependent on the United States than it has been for decades.
There are many ideas for a response to the IRA. EU Commission President Ursula von der Leyen presented her ideas for the first steps this Wednesday. But there is a danger that the EU countries will not even get involved. Instead of coming up with a bold strategy, they talk the approaches that are supposed to strengthen Europe to pieces.
Supposedly there is enough money in the existing pots to counter the IRA. In fact, a good 200 billion euros from the Corona reconstruction fund have not yet been invested. The EU Commission now wants to make this money available more quickly by allowing it to be used for tax rebates.
The big question is whether the sum is enough to achieve competitive equality with the USA again. One thing is certain: many European companies are currently looking for new locations in the USA. A reliable commitment from Europeans that they will go beyond this is needed as soon as possible.
Not with the same means as the USA
The US has started a subsidy race and the EU has no choice but to run with it. It does not have to fight with the same unfair means as the USA, for example by openly discriminating against foreign companies like the USA. In doing so, the EU would jeopardize the few rules of globalization that still apply.
>> Read here: Brussels proposes tax rebates for industry. Financially weak EU countries fear being left behind
And it doesn’t have to invest the same amount as the US. The main reason for this is that the EU has already invested significantly more public money in the sector in recent years. But it is undisputed that the USA is currently faster than the EU in the race for green technology leadership. However, Europe is still ahead in some areas.
So far, the wind power industry and the hydrogen industry have found it easiest in the EU to find the partners they need to implement their projects. This is a location advantage that buys some time. In battery production, on the other hand, Europe has some catching up to do. The EU must not prevent its member states from supporting these sectors.
However, national aid for the economy is feared in many European countries. Because the state-supported settlement of companies in Germany or France could also be at the expense of EU countries, not only at the expense of China or the USA. The federal government must ensure that they work with their money for the benefit of the EU partners, not to their detriment.
National aid is dangerous
The energy crisis has shown how this can go wrong. With its 200 billion euro package, the federal government has made itself extremely unpopular in the other capitals and has lost influence in Brussels. European-coordinated expenditures are even better. It is not yet clear how much money will be needed. If it’s more than can be scraped together from other pots, new debt should not be taboo.
Critics of a resolute investment policy point to the great potential that lies in the training of specialists, in the deepening of the European internal market, in the creation of a capital market union and in faster acceleration processes. That’s correct, but not very helpful. Hardly any strategy paper that is written in Brussels’ European quarter can do without these references. And who knows: maybe the special situation will make unexpected progress in one of these areas possible.
But waiting for it and therefore putting off work on joint investments is a greater risk than acting – and doing it now.
More: The economists Lars Feld and Jens Südekum argue about climate protection, the answer to the “Inflation Reduction Act” and EU debt