March 4. 2024. 6:20

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The Green Brief: Wanted – German leadership for EU’s green industrial push

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As EU leaders meet in Brussels for a two-day summit this week, they will be confronted with a familiar dilemma – whether to endow the European Union with more financial firepower.

This time, it is not about the EU’s response to an immediate existential threat like the COVID-19 pandemic or the eurozone crisis more than a decade ago.

Rather, it is about the EU’s response to the greatest economic and social transformation since the industrial revolution: the green and digital transition.

In Brussels, the European Commission took on the challenge last week by presenting a “Green Deal Industrial Plan for the Net-zero Age” which seeks to position Europe as a leader in the global race to develop clean technologies.

“The next decades will see the greatest industrial transformation of our times,” said European Commission Ursula von der Leyen. “A clean-tech race is in full swing,” she warned, saying the US, India, China, and Japan have all started to invest massively in green innovation.

But the Commission plan, as visionary as it may sound, has an Achilles Heel: finance.

In the short term, it promises a temporary relaxation of EU state aid rules, which give Germany and France free reins to pour billions into their national clean tech champions.

For the less wealthy EU states, the Commission only offered crumbles: a repackaging of existing EU funds, and for the longer term, a debate over the creation of a new “European Sovereignty Fund” to finance strategic industrial projects, which has already met with opposition from a group of seven EU member states.

In Brussels this week, German Chancellor Olaf Scholz can expect a vigorous pushback against the Commission’s state aid plan, which critics said risks reviving old East-West and North-South divisions in Europe.

“It is no surprise that the European Commission’s recent proposal to loosen state aid rules further is in line with the interests of the EU’s two largest economies, Germany and France,” said Konrad Szymański, a former Polish minister for European affairs.

“Central European countries, like Poland, have long advocated for a level playing field within the EU, and this latest move by the Commission undermines that principle,” he wrote in a recent opinion piece for EURACTIV.

Simone Tagliapietra, a senior fellow at the Bruegel economic think-tank in Brussels, says the lack of proper EU funding “is not satisfactory”. According to him, “the EU needs a serious EU-level tool here, aimed at avoiding a dangerous subsidy race within the EU – which would only revive the classical North-South rift”.

Germany is the real culprit here. According to the European Commission’s calculations, Berlin already funnelled €356 billion in its economy since the Russian invasion of Ukraine, way more than France (€162 billion) and Italy (€51 billion), which came second and third, respectively, in the EU’s state aid ranking.

Unbalanced distribution of subsidies across Europe