EU no closer to reaching its ‘Made in Europe’ deal as US subsidy plan looms

European Union leaders gathered in Brussels on Thursday to discuss a “Made in Europe” plan to counter the hundreds of billions of dollars Washington will spend to boost its green manufacturing capacity. 

Leaders of the 27 EU countries are scheduled to hold a discussion on transatlantic relations to discuss how to boost cooperation but also how to react, as a bloc, to a new US subsidy scheme.

Even though the US Inflation Reduction Act (IRA) was signed into law in August and will come into force early next year, leaders are still not expected to agree on a path forward yet.

“It’s not decision time for the European Council. It’s orientation time,” an EU official said this week.

US act risks ‘discriminating against European companies’

In a letter to leaders ahead of the Council summit, Commission President Ursula von der Leyen warned that elements of the US inflation act “risk un-levelling the playing field and discriminating against European companies”.

Washington’s anti-inflation bill includes $367 billion in state aid to boost US manufacturing and incentives for consumers to buy American products including cars, batteries and renewable energies.

A high-level task force to resolve the issue has been set up and has met several times since late October with the EU keen for its manufacturers to get the same access to the American market as those from Canada and Mexico, with which the US has trade deals.

US President Joe Biden meanwhile said “tweaks” were possible during a state visit by French President Emmanuel Macron earlier this month.

One of the main fears is that European companies, struggling with much higher energy prices than their US counterparts, could lose competitiveness, choose to freeze investments or relocate stateside to benefit from local state aid and lower energy costs.

‘Simpler, faster state aid’

Von der Leyen proposed in her letter on Wednesday to adjust state aid rules for the coming years “to ensure a simpler, faster and even more predictable state aid framework”, and to boost public investment to accelerate the energy transition through national but also European financing so countries with less fiscal space can also boost state aid.

In the short term, she said, this could be done by boosting REPowerEU, the Commission’s €225 billion plan to diversify away from Russian fossil fuels and accelerate the energy transition.

But she also argued that the EU needs “a structural solution to boost clean-tech industry in Europe” over the mid-term based on common European funding. 

“This is why I introduced the idea of establishing a European Sovereignty Fund and why we will come forward with concrete proposals in the summer,” she wrote.

But so-called “Frugal” countries — Austria, Denmark, Netherlands, Sweden — are not keen on plans to create a new pot of money, such as a sovereignty fund, that would be financed by issuing joint debt.

Instead, they favour expanding the remit of existing instruments or “flexibilise the use of the money”, as one EU official.

One fund to rule them all?

The bloc started issuing common debt on a large scale to ensure all 27 European economies could weather the economic storm from the COVID-19 pandemic. It will now also turn to the markets to fund an €18 billion assistance package for Ukraine.

Fiscally responsible countries are opposed to more common debt as they have more room for manoeuvre to support their businesses and economies.

Whether EU countries spread the burden-sharing is also likely to fuel debate over state aid rules, which were already loosened during the pandemic to enable governments to throw a lifeline at hard-hit companies.

State aid is strictly monitored by the EU Commission to maintain the sacrosanct level playing field within the bloc.

Germany’s €200 billion plan to help vulnerable businesses and citizens shoulder the cost of high energy prices until 2024 drew swift condemnation from other countries with some decrying it as distorting competition.

Smaller economies now worry that a further loosening of such rules, if the money is to be disbursed at the national level and not also at the European level, will favour stronger countries which will have more cash to throw at their companies.

‘Let’s not start giving out heavy medicines’

An EU diplomatic source told Euronews that the debate over a new fund is moot because no one yet agrees on what the problem is, including which sectors and companies could be impacted by the act.

“Let’s get a clear view of that first, so we can determine what the problem really is. Let’s not start giving out heavy medicines when we don’t know whether we’re treating a cold or Covid,” the source said, adding that there were instruments countries could already use before creating a new fund.

Paris also has no wish for discussions to focus on a single fund “because we can see the counter-productive effects that this could have with some of our partners,” a source at the Elysée said. 

Leaders are therefore expected to task the Commission to come up with proposals.

“The Commission must come back in the first few weeks of 2023 with a European strategy that can be called “made in Europe”, for example, which addresses all these issues,” it added.