Belgium, (Brussels Morning Newspaper) EU member states do not agree on how the bloc should respond to the US Inflation Reduction Act (IRA) adopted last year.
The European Commission has expressed concerns that IRA would put pressure on manufacturing and development of green technologies in the bloc, according to The Guardian reporting on Wednesday.
The IRA includes a subsidy package worth USD 370 billion for the green sector, with analysts pointing out that it will put additional pressure on EU industry already weakened by soaring energy prices and China’s aggressive economic policies.
EC President Ursula von der Leyen announced plans to temporarily relax the bloc’s state subsidy rules to protect EU’s green tech industry and set up a sovereignty fund to provide “fast and targeted support.”
Thierry Breton, European Commissioner for Internal Market, has proposed an EU clean tech act to channel more money to the green sector, stressing the importance of “fast, coordinated action” in response to the IRA.
Margrethe Vestager, European Commissioner for Competition, announced plans last week to review EU’s state aid rules, pointing out that the IRA could “lure some… EU businesses into moving investments to the US.”
However, there is little agreement among EU member states, with France and Germany as the largest economies calling for a relaxation of rules, while the remainder of the bloc is more skeptical.
Their skepticism is not unfounded as data shows that French and German companies accounted for approximately 77% of all state aid received in 2022, of which 53% went to German companies and 24% to their French counterparts even though the rest of the bloc generates more than 50% of EU’s GDP.
Critics of the EC’s proposed move warn that allowing large economies to provide more state aid to their companies would fatally distort the EU market.
Vestager acknowledged that relaxation of rules could have severe consequences for competition in the single market and observed that the diversity of capacities for providing state subsidies presents “a risk for the integrity” of the EU.
She proposed to accompany the relaxation of rules with the founding of a new EU fund, likely to be financed through joint borrowing, to compensate EU member states with lower capacity to subsidize their companies.
Christian Lindner, German Minister of Finance, warned that “a sovereignty fund must not be a new attempt at joint European borrowing… we see no reason for additional European debt.”