EU looks to prop up industry to compete with United States

The European Union is exploring a collective tax breaks and incentives plan to prevent green tech industries being lured away to the United States by the subsidies offered by the Biden administration’s Inflation Reduction Act (IRA).

In a letter to member states, competition commissioner Margrethe Vestager has warned of “urgent” “challenges” to EU industry, warning that the IRA “risks luring some of our EU businesses into moving investments to the US”.

Any subsidy plan needs to be EU-wide, the letter lays out, because the greater capacity of richer member states to provide companies with subsidies risks creating unfair competition between large and small countries within the single market.

The perils have been illustrated in the uneven distribution of €672 billion in state aid that has been approved by the European Commission under a temporary easing of EU state aid rules in response to the invasion of Ukraine.

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Of this, Germany alone accounts for 53 per cent, while France represents 24 per cent and Italy 7 per cent, according to the letter.

The concentration of such subsidies in the largest member states has raised fears about uneven competition within the single market.

“It’s important that we respect the single markets in all aspects,” Minister for Finance Michael McGrath said when asked whether he was concerned about the subsidies on his way into a meeting of finance ministers in Brussels.

“The state aid rules, they’re there to ensure that there is a level playing field that there is capacity for fair competition in terms of winning investments and trade opportunities. And we expect that to be respected by all member states.”

Pressed on the issue on the sidelines of the Eurogroup meeting, French finance minister Bruno Le Maire said it was essential to launch an EU-wide initiative to support key industries.

“It’s not a policy that we want to put in place just for France and Germany ... This new industrial policy must be in the interest of all member states,” he said.

Mr Le Maire suggested that the policy should involve tax credits as well as subsidies.

Finnish finance minister Annika Saarikko said member states needed to discuss “how we can strengthen our own competitiveness and also how we can be more sure that our own companies are going to survive in this rapidly changing world”.

One idea being explored is a matching scheme, which would offer equal subsidies or tax breaks to companies that are considering relocating investment in the US, if they can show the benefits they are being offered.

How the policy would be funded is a major unanswered question. Some member states have pushed for a new joint borrowing scheme, though more fiscally conservative countries are reluctant and say that not all of the money raised through the groundbreaking jointly-borrowed Covid-19 stimulus fund has yet been spent.

The EU is keen not to fall behind in a race for a “green industrial revolution” tied to its commitment to cut greenhouse gas emissions by at least 55 per cent by 2030 to avoid catastrophic levels of climate change, something that will involve an overhaul of European industries.