Ireland leads rebellion against EU ‘industrial subsidies race’ with US

Ireland instigated a rebellion of 11 countries against what they regard as a headlong rush by larger European Union member states to start an industrial subsidies race with the United States that will devour public funds and disadvantage smaller member states.

Irish diplomats co-ordinated the 11 like-minded countries to act in concert at this week’s European Council to ensure their concerns were heard, after the departure of Britain from the EU was seen to take the brake off French dirigiste industrial ambitions.

The Irish Government joined Finland, Denmark, Belgium, Luxembourg, Estonia, Latvia, Lithuania, Portugal*, Slovenia, and Czechia to lodge joint written concerns about the direction of industrial policy in the EU.

They fear that demands for a response to the goodies offered to the green industries sector by Washington’s Inflation Reduction Act would kick off a transatlantic subsidy race, in which smaller countries could not compete.

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Taoiseach Leo Varadkar said he had expressed Ireland’s position “very strongly” as national leaders discussed the issue on Thursday night.

“If you go too far on subsidies and state aid, you end up using loads of taxpayers’ money to give it to companies, and countries just end up cancelling each other out at the expense of taxpayers,” Varadkar told reporters.

“That can be particularly difficult for smaller countries because we just wouldn’t have the financial firepower that big ones do, and that would leave our companies at a disadvantage.”

Countries like Ireland also lack the large industrial base of states like Germany, meaning it would be ill-placed to benefit from large subsidy policies by attracting inward investment. The smaller countries warned that this would make for unfair competition within the EU, unbalancing the Single Market.

Paris has an alternative point of view. Speaking after the summit, French president Emmanuel Macron said that developing key strategic industries was essential for the “preservation of our sovereignty” and to confront geopolitical risks, a reference to concerns about relying on overseas suppliers such as China.

“I must say that we have very different views,” Estonian prime minister Kaja Kallas told reporters after the leaders discussed the issue.

The group of 11 succeeded in removing a sentence that said governments should act to “incentivise the de-risking of innovation” that had appeared in draft versions of the joint conclusions, and which was understood to sanction state aid and subsidies.

As an alternative response, the group called for progress on stalled reforms that would allow banks to operate across the EU and create a pan-European capital market, and the removal of regulatory barriers to services industries to allow businesses to operate easily across borders.

Irish officials expressed frustration that significant barriers to cross-border operations remain in place 30 years after reforms were proposed, citing obstacles such as the requirement for companies to hold a national headquarters to tender for contracts.

“I started attending these meetings six years ago and haven’t seen a huge amount of progress on banking union and capital markets union quite frankly,” Varadkar said.

A plan put forward by Paschal Donohoe as president of the Eurogroup to create a common EU insurance scheme to guarantee deposits in case banks fail was nixed by Germany in 2022, in a move attracting fresh scrutiny as turmoil in the sector spreads following the collapse of banks in the US.

Creation of a banking and capital markets union is “necessary for the European economy to function properly, so that companies can invest and raise capital”, Kallas told reporters.

In their joint conclusions, the leaders backed improving the competitiveness of the EU by “strengthening its resilience and productivity” and completing the Single Market by removing administrative burdens and barriers to cross-border trade, standardising regulations, and finalising legislation on the Capital Markets Union.

*This article was amended on March 26th, 2023