(CN) — Move over European Green Deal. It’s time for the European Industrial Deal to get behind the wheel in Brussels.
At a two-day summit that ended Thursday, the European Union rolled out ideas to tackle what’s quickly become the bloc’s top priority: Energizing its sluggish, debt-dampened economies and staying competitive with the United States, China and Russia in a new era of Cold War-like global rivalry, economic protectionism and catastrophic armed conflict.
“We understand, all of us, we are facing huge and very difficult challenges,” said Charles Michel, the head of the European Council, at a news conference to unveil a report on how to make the EU more competitive.
“The numbers are the numbers,” Michel said. “We know that there is a growing gap in terms of innovation, in terms of investment, if we compare with our partners and with our competitors across the world.”
The report, led by former Italian Prime Minister Enrico Letta, suggested deepening the bloc’s economic integration to allow the EU to finance a “re-industrialization” that ensures its businesses — and not American and Chinese ones — are making the weapons, green technologies, electric vehicles and high-tech tools of the future.
In the wake of Moscow’s invasion of Ukraine and the economic shocks from the loss of cheap Russian energy, a key buzzword in Brussels has become “competitiveness” with EU leaders and businesses calling for a European Industrial Deal.
The ideas in Letta’s 147-page blueprint included consolidating the EU’s national energy, telecommunications and financial sectors to boost innovation; rounding up huge sums of money through EU-wide borrowing; and establishing new EU capital markets, including a European tech stock market, that can compete with Wall Street.
In a big way, the report is a response to U.S. President Joe Biden’s Inflation Reduction Act, a landmark bill to boost U.S.-made clean energy and the electric vehicles. But Europeans see the act as unfairly subsidizing U.S. manufacturers and luring away European companies to America.
“It’s not just the U.S. that can put in place an IRA,” Letta said at the news conference. “We can do it too.”
Besides the U.S., Europeans say they must fight back against heavily subsidized Chinese companies that are outpacing European competitors in solar panels, electric vehicles, artificial intelligence and tech innovations.
With its calls for joint borrowing and deeper economic integration, Letta’s report sparked disagreement and debate among EU leaders and policymakers, who are developing a new five-year strategic agenda for the EU. The EU is expected to focus on building up its industrial base and defense sector in the coming years. But richer EU nations in Northern Europe are wary of proposals to tether the entire bloc to common debt, fearing they will be saddled with the heavy debt of EU states like Italy, Greece and France.
Meanwhile, environmentalists warn this new pro-business push is leading to a rollback of the EU’s flagship Green Deal, a set of laws to force the EU to drastically reduce carbon emissions in line with the 2015 Paris Agreement to tackle climate change.
“Governments and the EU draw a new competitiveness plan out of a hat every seven years or so,” said Jorgo Riss, the European director of Greenpeace, in a statement. “It usually means powerful business interests are pulling the strings. The reality is that competitiveness is not about people — it’s about big business profit margins and trashing nature and living standards.”
Since the war in Ukraine broke out, parts of the Green Deal have been scaled back and rejected. Recent farmer protests across Europe led to the EU backtracking on efforts to force farmers to use fewer pesticides, cut down on carbon emissions and set aside land for nature restoration.
As a whole, the economies of the EU’s 27 member states, which are integrated into a single market, are valued at $19.3 trillion, making the EU zone the second-biggest economy in the world after the U.S. in terms of gross domestic product. When based on purchasing power, China surpasses both the U.S. and the EU.
But the EU is struggling to keep pace with the U.S. and China, in part because its economies are constrained by rules limiting public debt and borrowing, it imposes restrictions on subsidizing national industries and its private capital markets are less appealing to investors than American ones.
Besides Letta, the EU has appointed former European Central Bank head Mario Draghi to draw up plans to boost Europe’s industries and competitiveness. He is expected to issue recommendations in June.
“Others are no longer playing by the rules, and are actively pursuing policies to enhance their competitive positions,” Draghi said at a conference on Tuesday.
“Our response has been constrained because our organization, decision-making, and financing are designed for the world of yesterday,” Draghi said, as reported by Euractiv, a European news outlet. “We need a European Union that is fit for today’s and tomorrow’s world. What I’m proposing … is radical change.”
Draghi accused China of undercutting Europe’s industrial base by capturing “all parts of the supply chain in green and advanced technologies” and producing “significant overcapacity in multiple sectors.”
In February, Draghi told EU leaders the bloc will need to spend an additional 500 billion euros ($532 billion) each year to close the “investment gap” to meet its goals to transform the bloc into a high-tech and net-zero green continent. Two-thirds of that money, he said, will need to come from the private sector.
There are plenty of skeptics about how much the EU, with its aging population and stagnant economies, can really do to stay competitive.
“We want to help Ukraine fight the Russians; become less dependent on China; re-industrialize; invest in climate policy; and cope with the demographic shock,” said Wolfgang Munchau, a political analyst and founder of Eurointelligence, in a recent analysis. “We have not done the maths.”
He argued the EU will not find the money it’s craving easily and that a new round of belt-tightening, or austerity, is coming as EU governments prioritize defense spending and ensure they don’t blow holes in their budgets. Austerity likely would mean cutting back on social services and infrastructure investments.
“Austerity now beckons everywhere,” he said. “Because central banks are finding it harder to gobble up government debt without creating inflation, it will be up to governments to set spending priorities.”
He said the U.S. act was “probably the single most successful example of an industrial policy in history” but that it “came at Europe’s expense.”
At the same time, he added: “China is also flooding the world markets with subsidized exports. The result is de-industrialization in Europe.”
“On top of this comes another shock: the retirement of the baby boomers, and the rising costs to subsidize pensions and to pay for old-age care,” he said. “In Germany, we can already see where this is going. The German government is starting to roll back on climate spending and public sector investments.”
Courthouse News reporter Cain Burdeau is based in the European Union.