Green and digital transition is at the top of EU priorities

As the competitiveness gap between the two sides of the Atlantic widens, the European Union (EU) is seeking a response to the mega-subsidy programs and tax advantages of its competitors, especially the US and China, for their respective industries.

That’s the case with Joe Biden’s Inflation Relief Act (IRA) of 2022, which provides approximately $390 billion in support and tax breaks for “made in America” ​​green industries. It has raised concerns in Europe because of its competitive advantages and the risk of companies moving to the United States.

“This concern has certainly been exaggerated,” says Niklas Poitiers, a researcher at the Bruegel think tank in Brussels. The researcher admits that IRAs certainly have “some effect,” but there are other variables that affect investments. If Europe wants to improve its business environment, it is more important for it to address energy prices and the availability of capital for investment, rather than focusing on the race for subsidies, he emphasizes.

In its assessment in October, the European Commission considered that “it is difficult at this stage to fully assess the impact of the IRA on the EU economy and the long-term development of the clean technology industrial base.” Another study by French and German experts last year emphasized that the IRA would have minimal global macroeconomic impact on the US and EU.

EU response

To counter the competitive advantage of rivals, the Commission introduced the Ecological Compact Industrial Plan in 2023, which aims to stimulate clean technology and energy. Most recently, in April, European leaders defended a new Competitiveness Pact and a fully integrated single market.

The reflections were based on a report by Enrico Letta. The former Italian prime minister wants to complete the internal market by expanding the perimeter of integration in three areas: energy (implementing interconnections that are crucial for Portugal), telecommunications (there are more than 100 operators in the EU) and a capital markets union, which he called the Union of Savings and Investments , which will mobilize finance for the economy and the transition to a green and digital economy. Enrico Letta recalled that there are currently about 33 billion euros of private savings in the EU.

“I believe Capital Markets Union is the best IRA we can build. There are billions of euros that we can mobilize to stimulate, support innovation,” said European Council President Charles Michel in a presentation of the Report.

So far, 27 countries have pledged to promote capital market integration through more harmonized rules (for example on corporate insolvency), greater convergence of corporate regimes and stronger supervision across the EU.

“Jewel in the Crown”

European officials believe that green and digital transformation will give new impetus to the single market, the crown jewel of the European project, with 23 million companies and a GDP of €14,522 billion (2021). But the obstacles and difficulties of financing in the single market become clear when the EU is compared with its competitors. Charles Michel recalled, for example, that European startups receive less than half the funding than North American ones.

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