Trade tensions between the EU and the US are dominating the talk in Davos.
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DAVOS, Switzerland – It’s the talk of the town. Transatlantic trade tensions are dominating conversations at World Economic Forum this week.
On the one hand, European officials say they will give more financial support to European companies.
On the other hand, the business community is very excited about green subsidies in the states and thinks that the EU needs to be in line with what the US administration is doing.
Finally, pressure is mounting on European institutions – but the question is how far are they willing to go?
How did we get here
Ilham Kadri, CEO of Solvay, a chemicals company based in Belgium, said: “It was a big elephant in the room… it rocked the European Union, the discussion between politicians, civil society and even industry”. in Davos on Tuesday night.
“The reality is that the Biden administration promotes, as Europe regulates – black for white,” she added.
For example, the EU has lobbied heavily to ensure that European companies will be able to benefit from some tax incentives without having to relocate.
We should avoid a trade war.
Paolo Gentiloni
EU Commissioner for Economic Affairs
The US Treasury Department issued guidance at the end of December allowing EU companies to benefit from certain lines of credit without having to change their business model.
However, other guidance on how the law should be enforced remains unresolved, so conversations continue between European and American officials.
“We should definitely avoid a trade war or a subsidy war. At the same time, we must support our competitiveness,” the European Economic Commissioner, Paolo Gentiloni, told CNBC in Davos.
Pressure is on
Biden’s IRA has sparked an internal debate in Europe, where there is only one real consensus: the EU needs to come up with its own plan to support the region’s competitiveness.
Spanish Prime Minister Pedro Sanchez told CNBC earlier this week that the EU needs to learn from the IRA and reform its industrial policies. “We need to bring this industrial mindset,” said Aditya Mittal, CEO of ArcelorMittal, a steel company, at an event Tuesday in Davos.
“IRA matching is almost non-negotiable. If we don’t match IRAs in Europe, it will be very difficult for industrialists, entrepreneurs, investors to continue to build public infrastructure.” karma… is a reaction,” Mittal also said.
As a result, the president of the European Commission, Ursula von der Leyen, announced the Green Deal Industry Plan. Speaking on the main stage of the World Economic Forum on Tuesday, von der Leyen said the plan was to “make Europe the home of clean technology and industrial innovation on the way to zero.” “.
One of the biggest uncertainties, however, is where the funding will come from to get this project off the ground.
One idea is to relax state aid rules so that governments can spend more on revitalizing their industries. The longstanding problem here is that Germany and France, Europe’s two largest economies, have the financial capacity to do so, but the rest of the EU does not.
This could therefore bring fragmentation to the EU’s single market – the common area where there is free movement of goods and people.
Speaking to CNBC on Wednesday, Gentiloni said he supports use state aid, but only “if this is very targeted and limited assistance” while it cannot break the European model.
“We need a common response,” he said.
Without state aid, which is a national response, the EU as a whole needs to decide whether it will realign existing European funds to support European industry – or together. tap the public market and borrow new money to do so.
Germany seems to be vehemently opposed to the idea.
Christian Lindner, Germany’s finance minister, told CNBC in Davos: “We don’t need more money from the public sector. “We’ve got a lot of public sector money that hasn’t been used,” he added.
However, not everyone agrees with him. Speaking to CNBC on Wednesday, Belgian Prime Minister Alexander de Croo said raising money from the mass markets “could be a good idea.”
“The grants need to be something centralized and really, tapping back into the capital markets could be a good idea and we could give the role to, for example, the Bank,” he said. European Investment Bank in the management of such funds”.
European heads of state will gather in Brussels in early February to discuss how to support their industries.
De Croo suggested that he could convince the Germans and other peers to see fundraising as a solution.
“I’ve heard a lot of rejections about joint funding in the past and we finally did, so very often it’s not possible until the moment we do it. Let’s see how we got there. can create something balanced.”
The EU has decided to tap the market together in the wake of the coronavirus pandemic in a historic moment for the bloc due to longstanding opposition to doing so from more financially conservative member states.
