Daily Management Review

Germany Claims Taking In More Debt To Rival The United States Would Be A Threat" For Europe


Germany warned that borrowing more money to compete with US green subsidies would jeopardize Europe's competitiveness.
The EU has been vocal about its concerns about the United States' Inflation Reduction Act (IRA), claiming that its subsidies to North American automakers violate international trade rules and endanger European businesses. Ursula von der Leyen, President of the European Commission, stated on Sunday that "new and additional funding at the EU level" will be required to make European companies more competitive in the transition to a greener economy.
Her idea, however, was met with skepticism in Berlin.
“The Inflation Reduction Act of the U.S. is the opportunity, the invitation, to reconsider our competitiveness,” German Finance Minister Christian Lindner said.
“There are some parts of Ursula von der Leyen initiative which [need] to be further debated, especially her proposal of [a] European sovereignty fund. If that means kind of rebranding of existing tools, I’m open for discussion. If sovereignty funds mean new common European debt, then I think this would not be an improvement of our competitiveness or stability, it would be a threat for competitiveness and stability,” he said.
The ideas proposed by Europe's executive arm are still in the early stages, which means there are no formal proposals on the table. They do, however, indicate where the commission believes the bloc should go in order to compete with the United States.
The IRA, which was approved by US lawmakers in August, includes a record $369 billion in climate and energy policy spending. The historic package includes tax breaks for electric vehicles manufactured in North America as well as support for U.S. battery supply chains.
“We have all heard the stories of producers that are considering to relocate future investment from Europe to the U.S.,” von der Leyen said Sunday.
According to the Financial Times, Swedish battery maker Northvolt is considering expanding its production in the United States and taking advantage of some of the subsidies. Another report from last month indicated that the company may postpone a decision to build a new plant in Germany.
Dutch Finance Minister Sigrid Kaag also said she prefers “to take stock of what’s already out there [in terms of funding for greener initiatives] and either we repurpose or we refocus.”
“It goes without saying that it is a lose-lose, if we were all using the taxpayers money in different parts of the world to compete with each other,” said Likewise, Ireland’s Finance Minister Paschal Donohoe.
Officials in the US and EU have carried multiple meetings to discuss how to modify some of the IRA's rules to address some of Europe's concerns. On Monday, one of these meetings took place in Maryland.
“We also took stock of the work of the dedicated U.S.-EU Task Force on the Inflation Reduction Act and noted the preliminary progress made. We acknowledge the EU’s concerns and underline our commitment to address them constructively,” a joint statement said following the meeting.
Last week, US Vice President Joe Biden stated that changes could be made "to make it easier for European countries to participate" in the IRA's subsidies.