Is the EU Joining the Subsidy War... Discussion at the Summit Meeting

There are prospects that the European Union (EU) will also jump into attracting advanced industries from various countries using subsidies.

According to Bloomberg and other sources on the 15th (local time), former Italian Prime Minister Enrico Letta plans to propose in a report to be announced at the EU special summit on the 17th-18th (local time) that a new subsidy mechanism executed at the pan-EU level is necessary for the green economy transition. This follows an official request from Belgium, the EU presidency in the first half of the year, made last January to prepare a report containing solutions to strengthen the competitiveness of the European single market against the US, China, and others.

In the draft, former Prime Minister Letta argued, "Bold and innovative solutions are needed that can quickly mobilize public support for the industry while preventing fragmentation of the single market." In particular, he said, "We could consider a 'national subsidy contribution mechanism' that requires contributions from each member state to finance pan-European plans and investments."

This is interpreted as a plan to create an EU fund and inject public money into attracting industries. The US Inflation Reduction Act (IRA) also focuses on public investment, including new spending and tax breaks amounting to $500 billion to stimulate the economy. Former Prime Minister Letta also claimed that if the pan-EU fund materializes, it could partially offset the negative impact of the US IRA on Europe.

Until now, the EU, which had been stingy with subsidies under the pretext of fair competition, has been seeking ways to respond belatedly, such as partially relaxing subsidy payment regulations amid complaints that European companies are falling behind in competition due to the US IRA and China's aggressive subsidy policies.

However, since subsidies are executed at the individual country level, complaints have arisen within the EU that new investments are concentrated in wealthy countries like Germany, exacerbating imbalances among member states. Some member states are demanding the establishment of subsidy funding at the EU level. Although various industrial promotion laws such as the Net Zero Industry Act (NZIA) have been hastily prepared, there have been consistent criticisms that the effect of attracting companies is still insignificant compared to the IRA.

If former Prime Minister Letta's report is officially announced at this week's summit, discussions on specific methodologies are expected to intensify.