European Union (EU) politicians are attempting to subsidize their own industries as a response to the Inflation Reduction Act’s effects on the European economy.
Key Details
- The European energy crisis continues to stifle the economies of each member state and the former member state of the U.K.
- Low profitability is threatening thousands of businesses while manufacturing and productivity have decreased due to high costs.
- In a bid to protect European industry, the EU is preparing subsidies to protect its businesses from American subsidies and investments, Politico reports.
- Politicians in Brussels are rushing a “European Sovereignty Fund” to subsidize green investments on the continent, retaining investors, and protecting sensitive industries from rival markets—similar to the Inflation Reduction Act.
Why it’s Important
The European economy is facing threats from both Russia and the United States. Russia’s war against Ukraine continues into its tenth month, which has complicated Europe’s supply of oil and natural gas supplies for the immediate future—skyrocketing inflation and causing governments to implement energy rationing. The U.S. government is rolling out billions of dollars in clean-energy subsidies and tax credits, drawing investors away from the continent.
The EU is preparing subsidies for vital industries, particularly those that will help bolster Europe’s commitments to clean energy and fighting climate change.
“EU officials fear that businesses will now face almost irresistible pressure to shift new investments to the U.S. rather than Europe. E.U. industry chief Thierry Breton is warning that Biden’s new subsidy package poses an ‘existential challenge’ to Europe’s economy,” says Politico.
“Senior officials said the EU had to act extremely quickly as companies are already making decisions on where to build their future factories for everything from batteries and electric cars to wind turbines and microchips.”
The Problem
The U.S.’s green policies are decidedly focused on domestic job production and spending, partially as a reaction to overreliance on Chinese manufacturing prior to the COVID pandemic, in addition to President Joe Biden pushing for more domestic jobs. The effect though has been negative for major markets such as electric vehicle production in Germany and France, Politico reports.
As we previously reported, the EU and U.S. both fear the possibility of a trade war caused by rivaling protectionist policies implemented to build up domestic production. A trade war or tariff war would undermine both economies and set back green energy goals.
