February 07
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The EU is in emergency mode and preparing subsidies to prevent European industry from being destroyed by U.S. competitors, POLITICO reports, citing two senior EU officials.

Europe is facing a double blow from the U.S. Not only do energy prices look set to remain permanently much higher than in the U.S., , U.S. President Joe Biden is also currently allocating $369 billion in industrial subsidies to support green industry under the Inflation Reduction Act.

EU officials fear that businesses will now face almost insurmountable pressure to move new investment to the U.S. rather than Europe. EU industry chief Thierry Breton warns that the new U.S. subsidy package poses an existential challenge to the European economy.

The European Commission and countries, including France and Germany, have realized that they need to act quickly if they want to prevent the continent from becoming an industrial wasteland. According to two senior officials, the EU is now working on an emergency scheme to channel money into key high-tech industries.

According to the two senior officials, a preliminary solution currently being prepared in Brussels is to counter U.S. subsidies with the EU's own fund. 

High-ranking officials said the EU must act very quickly as companies are already making decisions about where to build their future plants.

Officials warned that another reason Brussels must react quickly is to avoid individual EU countries squandering emergency cash alone. The chaotic response to the gas price crisis is still a sore point in Brussels.

Breton sounded the alarm. At a meeting with EU industry leaders on Monday, Breton warned of an existential challenge for Europe from the Inflation Reduction Act, according to people in attendance. Breton said it was now imperative to reverse the process of deindustrialization.

He echoed the calls of business leaders across Europe, warning that a perfect storm is brewing for manufacturers.

As a diplomatic solution seems unlikely, and Brussels wants to avoid a full-scale trade war, a subsidy race now looks increasingly likely as a controversial Plan B.

To do so, it will be vital to gain the support of Germany and the commission's more economically liberal members, such as Valdis Dombrovskis, head of trade, and Margrethe Vestager, head of competition.

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 taboo on subsidies.

France has long called for a retaliatory strike against Washington, directing public funds to European industry to help the continent's industrial leaders. That idea is now gaining momentum in Berlin, which has traditionally been more economically liberal.

On Tuesday, German Economy Minister Robert Habeck and his French counterpart Bruno Le Maire issued a joint statement calling for an EU industrial policy that allows our companies to thrive in global competition, especially through technological leadership.

In addition to a meeting of trade ministers on Friday, the idea will also be discussed informally by competition ministers next week. One official said European leaders will also discuss the issue on the margins of the Western Balkans summit Dec. 6 and at the European Council in mid-December.

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