EU trade ministers try to avert the subsidy race –

EU trade ministers try to avert the subsidy race –

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Discussions with the US about their Inflation Reduction Act (IRA) loom large over tomorrow’s (25 November) meeting of EU trade ministers who hope to avert a subsidy race against the financial and industrial powerhouse on the other side of the Atlantic.

The IRA is a bill signed into law by the US Congress this summer which aims to cut costs for North Americans with a series of measures, among which are generous subsidies for electric vehicles, batteries, and renewable energy projects.

However, many of the subsidies will only be paid out for products made in the US – for example favouring US Teslas over an electric BMW or favouring US steel for wind farm projects.

At the end of October, the EU Commission launched a task force to urgently discuss the issue with the US government, and in early November, EU financial ministers voiced their concerns at their meeting in Brussels, arguing that the US measures threatened European industries.

“I have not been assured that the American side has completely grasped how great our concerns about the consequences are,” German finance minister Christian Lindner said back then.

Tomorrow, EU trade ministers will discuss the progress of the US-EU task force on the IRA which has already met three times since its inception a month ago.

According to the Commission’s Executive Vice-President Valdis Dombrovskis, the goal of the EU is to be treated similarly to Canada and Mexico which are exempt from the discriminating subsidy conditions.

However, EU diplomats are sceptical about whether this can be achieved since the legislation was passed by the US Congress. In October, US Treasury Secretary Janet Yellen lowered expectations, saying that the law had to be implemented the way it was written.

As a satisfactory settlement with the US seems unlikely, the question for trade ministers to discuss at their meeting in Brussels is how to react.

On Tuesday, the French and German economy ministers met, declaring that Europe had to “find a common response to the Inflation Reduction Act”, and that work on “a new European platform for transformative technologies” should be advanced, so that European companies could survive the competition.

Meanwhile, Commissioner Thierry Breton called for a “Made in Europe” industry, living up to his reputation as an advocate of a more protectionist EU industrial policy.

EU trade ministers are not expected to go as far as announcing their own subsidy festival for the European industry, however.

“Instinctively, we try to avoid any kind of massive subsidy scheme,” an EU diplomat told reporters ahead of tomorrow’s meeting, arguing that this could lead to an escalating subsidy race with the US and other countries.

Moreover, it is unclear how the EU would finance its own subsidy scheme that could rival the US model, considering that there is not much appetite for a large new pot of EU money and that leaving it up to member states might further strain the level playing field within the internal market.

One possibility would be to react via the EU’s new trade defence tools, for example, the new regulation on foreign subsidies distorting the internal market. The regulation is yet to be officially adopted by the EU Council, but could then soon be used.

However, the regulation would only serve to disadvantage US companies that benefit from market-distorting subsidies when they try to buy EU companies or in public procurement bids, thus limiting its effect.

Maybe the reality is that the subsidy race has already begun. And the EU is falling behind.

Aid packages worth billions of euros were launched by governments across the EU to fend off the energy crisis.

However, two-thirds of government measures aimed at helping households and businesses in the Eurozone did not target society’s most vulnerable, a report by the European Commission says.

The report, presented in Strasbourg on Tuesday (22 November) as part of the “European Semester”, a yearly assessment of member states’ budgets, calls on governments to limit their support to those who need it most, warning that fiscal expansion in times of high inflation could further increase prices. You can read our reporting here.

The graph below shows how much euro area governments spent this year on crisis support, according to the Commission, minus additional revenue they got through new taxes and levies such as a tax on windfall profits.

European Parliament gives final approval to gender quota on company boards. The European Parliament gave its final approval on Tuesday (22 November) to a law that will implement quotas to boost gender balance on corporate boards across the bloc. The Women on Boards Directive, first proposed by the European Commission ten years ago, implements quotas on the proportion of board seats filled by the “underrepresented sex” — 40% for only non-executive seats or 33%  for both non-executive and executive board positions. Read more.

MEPs approve new sources of revenue for the EU budget. On Wednesday (23 November), the EU Parliament voted in favour of an amendment to the “Own Resources Decision” law governing the EU’s revenue, introducing three new income sources for the EU budget: revenues from emissions trading (ETS), resources from the proposed EU carbon border adjustment mechanism (CBAM), and a share of profits of large multinational companies. The amendment will have to be adopted by the EU Council and ratified by the 27 member states. The Commission is expected to present a proposal for new own resources by the end of next year.

European Parliament approves 2023 EU budget. On Wednesday (23 November), EU lawmakers adopted the EU budget for 2023, amounting to €186.6 billion in commitments and €168.7 billion in payments. The budget had already received the go-ahead from the Council on Tuesday (22 November).

Commission registers European Citizens’ Initiative to mark the ‘European Day of Whatever it Takes”. On Tuesday (22 November), the European Commission registered a new European Citizens’ Initiative (ECI) to establish the ‘European Day of “Whatever it Takes”’, in reference to the famous statement by the former president of the European Central Bank Mario Draghi on 26 July 2012. According to the organisers, the day would celebrate the EU’s institutional resilience and it would represent a ‘symbolic act of pan-Europeanism’. The organisers of the initiative will have six months to collect signatures. If they manage to reach one million supporters from at least seven EU countries within one year, the Commission will have to take the initiative into consideration.

Spanish government, banks to ease mortgage conditions for vulnerable citizens. An agreement to help one million vulnerable citizens mitigate the negative impact of inflation on their monthly mortgages was announced by the government and representatives of the banking sector on Tuesday. Read more.

Brussels concerned over Portugal’s ‘overvalued’ house prices. Concerns over Portugal’s rising house prices, which showed signs of overvaluation were raised by the European Commission on Tuesday. Read more.

Hungarian central bank, economy minister clash on interest rates. While the Hungarian central bank pledged to maintain tight monetary conditions and high-interest rates, the economic development ministry capped interest rates for larger institutional investors, with some experts worrying the move may impede the efficiency of monetary transmission and hamper efforts to shore up Central Europe’s worst-performing currency. Read more.

Bulgaria accepts Russian Lukoil’s tax cash for EU exports offer. Bulgaria’s caretaker government and Lukoil Neftochim Bulgaria have agreed that it can continue operating and exporting oil products to the EU until the end of 2024, as long as it pays its taxes in full, despite European Commission warnings this would breach the bloc’s sanctions regime. Read more.

French unions fume over unemployment insurance duration cuts. People temporarily out of work face having the length during which unemployment insurance compensation applies slashed by 25% from February next year, Labour Minister Olivier Dussopt said on Monday, angering French unions and the political left. Read more.

Family doctors and paediatricians strike in Madrid region. Thousands of family doctors and paediatricians staged an indefinite strike in Madrid’s 430 health centres on Monday, protesting working conditions. Read more.

Commission slams Slovakia for not including spending limits in budget. The Commission confirmed that not including spending limits in the new Slovak budget would reverse the already completed first milestone of the national recovery plan and would have reputational and financial consequences. Read more.

Romanian government announces pension increases. Pensions in Romania will rise by 12.5% as of 1 January 2023, and pensioners with low incomes will receive additional financial support next year, Prime Minister Nicolae Ciuca said Monday. Read more.

Macedonians face cold winter over pellet prices. Over 45,000 families in North Macedonia are at risk of being left without heating after the government decided to cap pellet prices at €6.50, a price which wholesalers have refused to sell at. Read more.

Sunak government rejects reports of Swiss-style EU relationship. Rishi Sunak’s government has been forced to deny reports that it is planning to overhaul UK-EU relations by agreeing to a trade partnership based on Switzerland’s agreement with the bloc.  Read more.

Finland should continue structural reforms, says IMF. The International Monetary Fund on Thursday recommended that Finland continue structural reforms to boost long-term growth in its concluding statement on the country’s economic outlook. Read more.

CER Podcast: Will the Commission’s fiscal rules plan work? In this 20-minute podcast, Sander Tordoir of the Centre for European Reform gives a very good explanation of the Commission’s recently announced plan on how it wants to reform the EU’s infamous fiscal rules.

War, conflict, and forced migration: This column by Anina Harter and Cevat Giray Aksoy provides a snapshot of forced migration across the globe with a special focus on the situation of Ukrainian refugees in Europe.

Ownership Diversification and Product Market Pricing Incentives: In this paper, Albert Banal-Estanol, Jo Seldeslachts, and Xavier Vives show that the more a publicly listed company is owned by passive investors (e.g. BlackRock or Vanguard), the more likely it is to increase its markups.

Silvia Ellena and Jonathan Packroff contributed to the reporting.

[Edited by Nathalie Weatherald]

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