March 5. 2024. 1:39

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Not so much of an economic union after all

As the EU moves towards strategic economic policy and away from pure market liberalisation, severe differences between national economic traditions are becoming more apparent than ever, making an urgently-needed common approach hard to reach.

Today, the European Commission will present legislative proposals with the aim to increase the European production capacity of raw materials and green products such as solar panels and heat pumps.

Both proposals are part of the Green Deal Industrial Plan, the Commission’s new approach to the green transition.

Details of the proposals likely differ from drafts leaked to EURACTIV last week (Net Zero Industry Act, Critical Raw Materials Act) – indicated by the mere fact that the proposal of the laws was postponed by two days, compared to the initial timeline.

But one thing seems clear already: The Green Deal Industrial Plan marks a sizeable shift from the EU’s previous key economic policies, which concentrated on opening access to (global) markets and ensuring free competition.

For one, the revised state aid framework could open the floodgates for subsidies, which the EU so far had tried to restrict as much as possible

More generally, the Industrial Plan also “moves us towards a more strategic conversation over competitiveness”, which the EU rarely had in the past, the European Parliament’s centre-right EPP-group Vice President Esther de Lange told journalists on Wednesday (15 March).

By defining the key sectors needed for a climate-neutral economic future, the Commission is finally giving up its stance on “technology neutrality”, although they will possibly never be willing to admit to it (remember, they even tried to ban internal combustion engines and still called it “technology neutral” – something that now turns out to become quite a problem).

And by increasingly insisting on environmental and social protection standards in trade agreements that actually change something on the ground, rather than just being commitments on paper, the Commission implicitly admits that not all types of economic growth are worth it – it is not, for instance, when it’s happening due to increased deforestation.

But the shift towards more strategic, or “vertical”, economic and industrial policy could become a problem, too.

Because more than ever, it reveals that national traditions are irrefutably different from each other when it comes to economic policy.

This became visible when (normally liberal) French president Emmanuel Macron put the bar for the current re-negotiations of the EU-Mercosur Free Trade Agreement unreachably high by calling for so-called “mirror clauses”, while the economy ministry of export-oriented Germany, even when led by the formerly TTIP-hating Greens, was eager to spark optimism and positive vibes about the agreement.

The German car industry needs export markets, alright?

National differences even seem to overshadow ideological differences in the European Parliament, which, at least in theory, should normally define political discussions in the house.

For example, French politicians such as MEP Stéphanie Yon-Courtin (Renaissance/Renew Europe), very much in line with the position of the French government, call for blunt “Buy European” clauses for public procurement or tenders.

Meanwhile, the German head of the European Parliament’s trade committee, MEP Bernd Lange (SPD/S&D) – again, very much in line with his national government – describes the compatibility of the new laws with the rules of the undead World Trade Organisation (WTO) as a red line.

“We have a very diversified trade structure, with all kinds of countries,” with only 15% going to China and 15% to the US, and the rest being spread across the globe, Lange told EURACTIV.

“So we can’t say: You must always abide by the WTO rules, even sometimes under difficult conditions, and now starting to seal off our own market,” he added.

It is clear that member states – following their diverging economic traditions – will have their voice heard not only in the Council, but the Parliament.

So, whatever the Commission ends up proposing today, it seems set to face a double challenge.

One month ago, the European Commission posted the below chart on its Twitter account, to underline the necessity of the Green Deal Industrial Plan.

“EU leaders gave their green light to our Green Deal Industrial Plan,” the caption reads. “It will allow our clean tech industries to scale up quickly,” it continues.

Experts were right to quickly point at a flaw: While the graph shows global market shares of clean tech manufacturing, the Commission so far has argued that the Green Deal Industrial plan is about ensuring that European demand for such technologies can be secured, and thus should at least partly come from Europe.

While back then, I thought that maybe the graph could also show that the actual ambition of the Commission lies with global market shares, not only with the ones of clean tech being used in Europe, it now seems to settle that Europe “only” looks for its own demand — for now.

Let’s see whether, after today’s proposals, the Commission will publish a new graph.

Silicon Valley Bank fallout reaches Europe. After a fall of market confidence in the scandal-ridden Swiss Bank Crédit Suisse, the Swiss National Bank saw itself forced to issue a public statement on Wednesday evening (15 March), saying that it would guarantee the bank’s liquidity if it was necessary. On Thursday (16 March), the bank said it would use this credit line to “pre-emptively strengthen liquidity.” Earlier on Wednesday, the EU Parliament had held a debate with financial services Commissioner Mairead McGuinness who said that the impact of the SVB collapse for EU banks was “limited.”

EU relaunches negotiations for free trade agreement with Thailand. On Wednesday (15 March), the EU Commission announced that it would relaunch negotiations for an “ambitious” free trade agreement with the South-East Asian country. The FTA would have “sustainability at its core,” according to the Commission. FTA negotiations had already started in 2013 once, only to be put on hold after the military putsch in 2014.

Finance ministers agree on fiscal rule principles, but Germany stands on brakes. On Tuesday (14 March), EU finance ministers agreed on common conclusions regarding the reform of fiscal rules, aligning themselves with the Commission’s suggestion of moving towards country-specific, multi-year fiscal paths. However, the liberal German finance minister Christian Lindner insisted on having further clarifications and deliberations before the Commission can come forward with its legislative proposal. This puts a further delay into the reform of the fiscal rules that most governments and the Commission want to see finalised by the end of the year.

EU MEPs call for wealth tax for the superrich. On Tuesday (14 March), a group of more than 130 members of the European Parliament called for an international wealth tax of 1.5% on wealth of €50 million or more to reduce inequalities. According to them, the money should be used for a green and social transition.

EU Commission opens the state aid floodgates. On Thursday (9 March), the EU Commission published the details of its “Temporary Crisis and Transition Framework” (TCTF), allowing for a lot of leeway for member states to subsidise green technology projects. The TCTF allows member states to dish out investment support of up to €150 million per supported company in rich regions and up to €350 million per company in economically less powerful regions of Europe. Member states can even surpass this if companies get higher tax incentives in third countries. Civil society organisations reacted with a mix of praise for the industrial policy and worry about divergence in the single market and among big and small companies.

Portugal hopes Spain will focus EU trade on ‘Atlantic side’. Spain taking over the EU Council presidency in July could create “new momentum” for EU trade policy, particularly with regard to the trade agreements with Mexico, Chile and Mercosur, Portuguese Prime Minister António Costa said on Wednesday. Read more.

Polish president signs wind turbine law in bid to unlock EU funds. President Andrzej Duda has signed an amended wind turbine law which could help Poland access currently frozen EU recovery funds despite the industry and environmental NGOs viewing it as insufficient. Read more.

CAP funding still vulnerable to conflicts of interest, say auditors. The EU’s Common Agricultural Policy (CAP) still remains vulnerable to conflicts of interest thanks to transparency loopholes and a lack of measures to detect situations at risk and protect whistleblowers, according to a new watchdog report. Read more.

Mercosur deal on the agenda as German ministers visit South America. German economy and agriculture ministers embarked on a six-day visit to South America this weekend to advance trade and climate action amid ongoing discussions about the planned EU-Mercosur trade agreement. Read more.

Spain, Commission agree to controversial pension reform. The government and the European Commission reached a last-minute agreement on a controversial pension system reform which paves the way for Madrid to receive the next tranches of the EU’s Next Generation funds. Read more. Meanwhile, the Spanish employers’ association CEOE rejected the agreement.

NextGenerationEU and the Future of the European Monetary Union: Shifting Interests and New Fractures in the German Power Bloc. In this paper in the Journal of Common Market Studies, Etienne Schneider looks at the Political Economy behind Germany’s eventual agreement to establish the “Next Generation EU” funds.

Why Sanctions Against Russia Work. While sanctions against Russia since 2014 have not prevented Putin from ordering an invasion of Ukraine in February 2022, in the overall picture, they have significantly weakened Russia’s ability to wage war, argue András Rácz, Ole Spillner and Guntram B. Wolff of the German Council on Foreign Relations (DGAP).

Misconceptions about the electricity market reform. While many see marginal pricing in electricity markets as something artificial & arbitrary that should or can be given up in the ongoing reform, Lion Hirth repeatedly argues on Twitter that this is a misconception.