Europe is finally ready for an industrial policy


againstMail, which has long been considered a dirty word, is dropped. The European Union has finally come to adopt an industrial policy. Again, progress did not happen by itself. Without the American sting Inflation Reduction Act (IRA)which is a huge subsidy scheme related to the energy transition, the twenty-seven are still discussing the benefits of free and undistorted competition, which has been one of the pillars of European construction since its inception.

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The Greenhouse Gas Industry Zero Emissions Bill, introduced by the European Commission on Thursday 16 March, marks a real break with this intangible belief in market rules. In order to improve competitiveness on the old continent and not leave the United States and China behind in the race for subsidies, the EU agrees to equip itself with an arsenal to attract and retain investments.

Even if Europe denies that it builds planning on Xi Jinping’s “Made in China 2025” model, the 27 are ready to set targets that are supposed to spur projects. This includes the ability to manufacture 40% of our green technology needs, with the goal of achieving carbon neutrality by 2050.

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The idea is to create an enabling environment for investments in eight specific areas, from solar panels to heat pumps and batteries. To keep pace with this movement, the plan provides for a section on reducing European dependence on foreign countries for the supply of important raw materials.

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The need for renewal

The European Union could not stand idly by in the face of China and the United States. The onslaught of these two countries threatens to turn Europe into a giant consumption region doomed to obtain supplies from abroad in order to succeed in the energy transition. While this awakening is useful, and comparable to societal initiatives taken during the Covid crisis, since the beginning of the war in Ukraine, and more recently, in the semiconductor industry, the success of the initiative has not been so evident.

The relaxation of the rules for state aid and the simplification of administrative procedures undoubtedly make it possible to restore the attractiveness of the European region. But the investment decision also depends on other criteria, such as the price of energy, which is three to five times higher in Europe than in the United States.

Then, if the twenty-seven have no reason to be ashamed of what the Biden plan proposes, in terms of public money on the table, the vision offered by the American system of subsidies to the industrialist cannot be compared.

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Without a common tax and budget policy, Europeans will always find it difficult to compete. Even if targets are set at the community level, public support will be at the national level, with the risk that most aid will be dispersed and captured by the wealthiest countries. The committee has already considered measures to correct the side effects through mechanisms so as not to leave the poorest areas by the wayside. But this risks obscuring the readability of industrial policy and relativizing the simplification movement it advocates.

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On the verge of losing the ideological battle in favor of pluralism and competition, Europe has no choice but to reinvent itself. But can she do that without changing her DNA?

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