MNI: EU To Ease Business Regulation In IRA Response-Officials

Thursday’s European Union summit is likely to see agreements to reduce the administrative burden on business and to provide an easier regulatory environment, with new legislative proposals facing “competitiveness checks”, but questions over how to finance a response to U.S. subsidies for industry will be the source of continuing differences, EU officials told MNI.

Leaders meeting in Brussels will call for an “integrated approach across all policy areas to increase productivity and growth throughout the whole economic base of our continent,” according to the latest version of the draft conclusions of the March 23-24 summit.

But, while Italian Prime Minister Giorgia Meloni looks set to repeat calls for new EU-level funding to boost competitiveness, opposition from Germany, the Netherlands and other so-called “frugal” countries means leaders are likely to stick to commitments to make state aid rules more flexible and to “ensure full mobilisation of available funding and existing financial instruments, so as to provide timely and targeted support in strategic sectors.” (See MNI: EU Green Deal Seen Tapping Existing Funds, Leveraged)

Officials said eastern European countries are so focused on support for Ukraine that they are unlikely to have the bandwidth to back the Italian calls.

LURE OF IRA

With big European companies like Volkswagen and BASF already boosting manufacturing capacity outside of the continent, the lure of the massive subsidies contained in the U.S. Inflation Reduction Act has spurred the EU to move to address complaints from business over the time and bureaucracy required to secure state aid. (See MNI INTERVIEW: Risk EU Data Understates Wage Rises, Lobby Says)

Officials are billing the summit as a more strategic response to the challenge from the IRA, following more short-term and tit-for-tat comments from leaders in February. One controversial proposal being considered is a so-called “matching clause”, which would grant equivalent funds to any company that gets U.S. funds under IRA, although this is expected to be resisted by those countries whose leaders worry about getting into a subsidies race with the US.

Other points of contention include France’s push to include nuclear power as a transitional energy source in the EU’s Net Zero Industry Act so as to qualify the sector for more relaxed state aid processing and Germany’s call for combustion engine vehicles to continue to be produced after 2035, so long as they run on carbon-neutral e-fuels.

Leaders will also brainstorm on how to launch an ambitious and strategic trade agenda at their Thursday night dinner. Securing access to raw materials, which are crucial to Europe’s green and digital transitions is a big dimension of that debate, which will have been made more urgent by signs that China and Russia are intensifying trade and investment cooperation. The EU has found it difficult to finalise several trade deals in recent years, a concern to many leaders who believe policy urgently needs a geopolitical dimension.

“We need to work out how to manage the tensions between the EU’s desire to secure for itself a bigger geopolitical role and the serious domestic political obstacles we see in some countries to ratifying trade agreements,” one official said.