Facing threat from Washington's massive green tech investment plan, European leaders paved the ground Friday for an easing of their own state assistance regulations.

The 27 leaders who recently met in Brussels agreed that a reaction was required to offset growing energy costs and the possibility of unfair American competition.

However, member countries were divided on how far they might go without creating a subsidy race with Washington or jeopardizing the equal playing field within their own single market.

Any changes to state subsidy laws should be "limited, temporary, and proportionate," as per the language approved by the leaders in their summit declaration.

But they said state aid "procedures need to be made simpler, faster and more predictable and allow for targeted, temporary and proportionate support to be deployed speedily."

Tax credits, for example, would be aimed at assisting Europe's previously planned green transition to low- or zero-carbon technologies while also preserving competitiveness.

At the end of March, European Commission President Ursula von der Leyen will have to offer a reform plan on which member states may agree.

"We want to be pragmatic, it means that we are using the means that are available," said European Council president Charles Michel, who represents the leaders in Brussels, as quoted by AFP.

"It means that we need to adapt the state aid regime but in a way that makes sure that we defend the integrity of the single market ... and take into account global competitiveness," he further added.

The Commission will have to execute this balancing act, as it seeks to ease the shackles of anti-subsidy regulations in order to allow states to support EU-based enterprises.

This, like the feared US Inflation Reduction Act (IRA), would focus on green technology like as solar and wind power, as well as initiatives to reduce emissions and increase efficiency in the industry.

Europe fears that the IRA, which will pour billions of dollars into climate-friendly technologies, will distort transatlantic trade to give American companies an unfair advantage. 

The Old Continent is currently trying to obtain exemptions to the IRA to minimize the harm to its industries. 

Another divide in Europe

The summit statement highlights that, while competing with foreign rivals is important, "The integrity of and the level playing field in the Single Market must be maintained."

Premier Mark Rutte of the Netherlands is among those who are skeptical of going too far.

"We were worried that on state aid, you would open up too much," Rutte said. 

"And that would mean that you would basically threaten to undercut one of the things which is really working in the EU, which is the internal markets," he added. 

"But I think it is now temporarily targeted, very much focused on the on innovation, clean technology, the clean economy, precisely the issues where we have to compete with the US because of the inflation Reduction Act in Washington," he concluded.

European capitals are concerned that US clean-tech subsidies would entice investment across the Atlantic, undermining the bloc's recovery efforts.

Subsidy controls were already relaxed in reaction to the Covid epidemic, and nations such as Italy, Austria, Denmark, and Finland are opposed to making them useless.

"On this topic, there'll always be two for and 25 against," one European diplomat joked -- referring to Germany and France's ability to back their own firms.

However, France and Germany are at odds with new cooperative finance programs.

Von der Leyen has vowed to draw up a blueprint within the next five months for a so-called "Sovereignty Fund" to fund joint investment in strategic businesses.

However, Germany and other net donors to EU funding, such as Sweden and Austria, are opposed to joint borrowing or additional EU membership contributions to support it.

The members agreed to "take notice" of the concept in a statement issued during a summit that lasted late into the night and into the early hours of Friday.

And even France's President Emmanuel Macron, the Sovereignty Fund's great champion, confessed that Europe could find enough funding to respond to the US plan within the existing pool.