EU urged to boost spending to compete with US

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Leaders of the bloc will meet next month to discuss possible responses to what they see as unfair measures

Germany and France have urged the EU to step up its support for domestic industry and unleash massive investments to keep from falling behind American companies in light of the US Inflation Reduction Act (IRA), which they deem discriminatory.   

On Sunday, German Chancellor Olaf Scholz and French President Emmanuel Macron met in Paris to discuss how the EU should respond to the controversial American program.   

The IRA is a $430 billion package passed by Congress in August that aims to fight climate change, boost social spending, combat inflation and reduce energy prices. It offers generous tax breaks for US companies that invest in clean energy and significant subsidies for domestic electric vehicles, batteries, and renewable energy projects.  

The legislation has sparked fears in the EU that the “protectionist” measures may be “discriminatory” towards European companies. The bloc argues that the law doesn’t comply with international rules and would unfairly entice companies to shift investments to the US from Europe.   

“The first thing is to make sure we as the European Union are not treated worse than immediate neighbors such as Canada and Mexico, for example – that cannot be accepted,” Scholz told a joint news conference with Macron at the Élysée Palace. The French president, who earlier slammed the subsidies provision in the IRA as “super aggressive,” added that the EU has “a real convergence on the responses we’re bringing.”   

Leaders of the European bloc will meet next month to discuss their options. One of them is to file a complaint with the World Trade Organization (WTO). Also being considered is a support plan that would likely include more lucrative terms for member states to invest in domestic companies. EU funds may also be allocated to struggling enterprises, Bloomberg reported on Monday.   

European Council President Charles Michel has proposed a new bond program to help offset financial inequality among EU member states and would allow cash-strapped nations to invest more in green technology. 

Meanwhile, a number of EU states, including Denmark, Finland, Ireland, the Netherlands, Poland, and Sweden have warned that retaliatory subsidies could trigger a race among countries and cause a fragmentation in the internal market. More broadly, the measure could split the global economy and push consumer prices higher.

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