European Union leaders debated on Thursday a new “European Competition Agreement” designed to help the 27-nation bloc narrow the gap with its Chinese and American rivals amid fears that the region’s industries otherwise you will definitely fall behind.
In a volatile geopolitical landscape redefined by the ongoing war between Russia and Ukraine and rising tensions in the Middle East that pose new economic challenges, EU leaders believe there is an urgent need for action consists.
China, the United States and the European Union are the world’s three largest economies, but the EU’s share has declined over the past 30 years. Europe is now under pressure amid efforts by the US and China to support investment in domestic production through subsidies and tax breaks, particularly in renewable energy and green technologies.
Ahead of the summit in Brussels, former European Central Bank President Mario Draghi said the EU was not paying enough attention to “external competitiveness as a serious policy issue” and stressed that Europe’s biggest economic rivals “are no longer playing by the rules.” .”
“Faced with a new geopolitical reality and increasingly complex challenges, the European Union is committed to strengthening its strategic sovereignty and acting decisively to ensure its long-term competitiveness, prosperity and leadership on the global stage,” said leaders agreed at their summit in Brussels, according to a draft conclusions obtained by The Associated Press.
Leaders will hear a proposal for an EU-wide effort to subsidize industrial companies in response to the Biden administration’s support for investments in green technology through the Inflation Reduction Act and China’s subsidies for electric cars and solar panels.
The proposals, contained in a report by former Italian Prime Minister Enrico Letta, are a response to widespread concern that U.S. subsidies that favor domestic manufacturing in the U.S. are attracting investment from Europe and causing loss of industrial jobs in the United States threaten the continent.
“Competitiveness means prosperity for our citizens,” said Letta. “We run the risk of losing contact. There is no time to lose. The gap between the European Union and the USA in terms of economic performance is widening.”
According to his report, GDP per capita in the US increased by almost 60% from 1993 to 2022, while in Europe the increase was less than 30%.
Draghi said the EU lacked a clear strategy to respond to challenges posed by Chinese and American rivals in key industries.
“Today we invest less in digital and advanced technologies than the US and China, including in defense, and we have only four global European technology companies in the top 50 worldwide,” he said. “We lack a strategy for protecting our traditional industries from unlevel global playing fields caused by asymmetries in regulations, subsidies and trade policies.”
EU regulations limit aid from member governments to companies to avoid distortions of competition in the free trade zone of the 27 member unions. One solution, Letta suggested, is to require countries to use some of this aid for EU-wide projects rather than purely national ones.
The report also calls for better integration of the bloc’s financial markets so companies can raise money for new renewable energy projects from stock, bond and venture capital investors, rather than relying primarily on bank loans. This is a long-standing idea that has seen slow progress. Letta’s ideas would only be taken up after this year’s EU parliamentary elections and the appointment of a new executive commission.
“There is a need for more investment,” said European Council President Charles Michel, who chairs EU summits. “It is crucial that we act to make the Capital Markets Union a reality. And also to increase the capacity of the European Investment Bank to invest in strategic sectors.”
The creation of broader financial markets would use the “billions of euros” in savings of European citizens as a tool to invest in strategic sectors within the Union.
“Today there is a paradox,” he said. “A significant part of these savings leaves the European Union and is not mobilized to support the economic base, to support innovation or to support the technological base.”