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EU plans subsidy war fund for industry amid ‘existential’ US threat

  • By Al Mayadeen English
  • Source: POLITICO
  • 23 Nov 2022 12:47
  • 1 Shares
4 Min Read

High gas prices and new lavish subsidies for American competitors have put Europe in a state of emergency.

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  • EU plans subsidy war chest as industry faces ‘existential’ US threat. Source:EU
    EU is in a state of emergency. 

Two senior EU officials told POLITICO that the EU is in emergency mode and preparing a significant subsidy push to protect European industry from being wiped out by US rivals.

Europe is facing a double hammer blow from the US. If it weren't enough that the war in Ukraine could keep energy prices permanently far higher than those in the 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 are concerned that businesses will face almost irresistible pressure to relocate new investments to the United States rather than Europe. Thierry Breton, EU Industry Commissioner, has warned that Biden's new subsidy package poses an "existential challenge" to Europe's economy.

The European Commission and countries such as France and Germany have realized that they must act quickly to prevent the continent from becoming an industrial wasteland. According to the two senior officials, the EU is currently developing an emergency plan to channel funds into key high-tech industries.

Read next: EU to backtrack to de-industrialization due to energy crisis

According to the two senior officials, the tentative solution now being considered in Brussels is to counter US subsidies with an EU fund of its own. This would be a "European Sovereignty Fund," as mentioned in Commission President Ursula von der Leyen's State of the Union address in September, to assist businesses in investing in Europe while meeting ambitious green standards.

Senior officials stated that the EU needed to act quickly because companies are already deciding where to build future factories for everything from batteries and electric cars to wind turbines and microchips.

Another reason for Brussels to act quickly is to avoid individual EU countries spending emergency funds on their own, officials warned. The chaotic response to the gas price crisis, in which EU countries responded with a slew of national support measures that threatened to undermine the single market, remains a sore point in Brussels.

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EU Commissioner Breton, in particular, has led the charge in sounding the alarm. According to those present, Breton issued his warning about the Inflation Reduction Act's "existential challenge" to Europe during a meeting with EU industry leaders on Monday.

Read next: EU inflation hits new record high, economic growth falls back

Breton said it was now a matter of utmost urgency to "revert the deindustrialization process taking place." It was echoing warnings from business leaders across Europe that a perfect storm was brewing for manufacturers. "It's a bit like drowning. It's happening quietly,” BusinessEurope President Fredrik Persson said.

The Inflation Reduction Act is especially vexing for EU carmakers like France and Germany because it encourages consumers to "Buy American" when it comes to electric vehicles. Brussels and other EU capitals see this as undermining global free trade, and Brussels wants to strike a deal in which its companies can benefit from the same American advantages.

With a diplomatic solution appearing unlikely and Brussels wishing to avoid a full-fledged trade war, a subsidy race appears to be a contentious Plan B. To do so, Germany and the more economically liberal commissioners, such as trade chief Valdis Dombrovskis and competition chief Margrethe Vestager, will be critical.

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

Read next: WSJ: Future EU winters could face energy crisis despite 95% storage

Yesterday, the United States and its Group of Seven allies were set to agree to cap the price of Russian oil at $60-70 per barrel today, The Wall Street Journal reported yesterday, citing sources familiar with the matter. It is worth noting that the price of a barrel of Brent Crude was $89.43 at the time of writing.

Later on in the day, the ambassadors of the 27 European Union member states met to try and reach a decision regarding the issue at hand, noting that the decision can only be taken if the EU unanimously votes in favor, and the G7 will be voting in parallel to the 27-nation bloc.

The price cap will be implemented on December 5 if the countries agree on its terms.

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  • Europe
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