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January 28
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With the threat of a new U.S. subsidy package that could hit EU industry, Germany is abandoning its longstanding objections to schemes such as France's "Buy European" law, Politico reported.

Berlin's growing sympathy for the French approach is a clear sign that Germany fears the traditional trade order is disintegrating as Washington follows China's lead with massive government support for industry. As one of the EU's most commercially liberal countries, Germany has generally opposed French proposals for an interventionist industrial strategy, believing that such measures would violate the taboo of free trade.

But now the calculations are changing ahead of a meeting of EU trade ministers in Brussels on Friday and a meeting between German Chancellor Olaf Scholz and French Prime Minister Elisabeth Born in Berlin.

Top of the agenda for both meetings will be the American Inflation Reduction Act, which provides $369 billion in subsidies and tax breaks to green businesses in the United States. EU countries fear that the U.S. law will suck investment out of Europe and resent discriminatory provisions that encourage consumers to "buy American" when it comes to buying an electric car.

With time running out for negotiations with the U.S. and little hope for an agreement, German officials are now openly talking about not only directing billions in government subsidies to key green technologies such as batteries, wind power or hydrogen, but also creating requirements that would at least to some extent favor European production.

German Economy Minister Robert Habeck said the EU needs a decisive response to the U.S. law, telling the German daily Handelsblatt that it would require faster approval of state aid decisions by the European Commission, more subsidies, and buying local products.

This last point is crucial because it borders on the "Buy European" law called for by French President Emmanuel Macron, which would favor the use of European components in critical industries. However, this is likely to displease other trading partners, as they would be at a disadvantage.

Although such provisions could help the EU avoid an exodus from key industries and ensure that the bloc remains in the race to produce next-generation clean technologies, including electric cars, they are seen as sacrilege in the international trading system.

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