EU seeks to close production gap with China and US

BRUSSELS

European Union leaders have debated a new “European Competitiveness Deal” aimed at helping the 27-nation bloc close the economic production gap with Chinese and American rivals amid fears the region's industries will otherwise be left behind for good.

In a volatile geopolitical landscape redefined by the ongoing war between Russia and Ukraine and increasing tensions in the Middle East that create new economic challenges, EU leaders believe there is an urgent need for action.

China, the U.S. and the European Union are the three largest economies in the world, but the EU's share has diminished over the past 30 years. Europe is now feeling pressure amid U.S. and Chinese efforts to support investment in domestic production through subsidies and tax breaks, particularly in renewable energy and green technology.

Leaders heard a proposal for an EU-wide effort to subsidize industrial companies in response to the Biden administration’s support for investment in environmentally friendly technology through the Inflation Reduction Act, and to China’s subsidies for electric cars and solar panels.

The proposals, contained in a report from former Italian Prime Minister Enrico Letta, are in response to widespread concern that U.S. subsidies, which favor domestic production in the U.S., are drawing investment from Europe and threatening the loss of industrial jobs on the continent.

“We’re in danger of falling out of touch. There is no time to waste. The gap between the European Union and the U.S. in terms of economic performances is becoming bigger and bigger,” said Letta.

According to his report, gross domestic product per capita in the U.S. increased by almost 60 percent from 1993 to 2022, while in Europe the increase was less than 30 percent.

EU rules restrict member governments’ aid to companies to avoid distorting business competition across the 27-member union’s free trade zone.

One solution, Letta proposed, is to require countries to use a chunk of such aid for EU-wide projects instead of purely national ones.

The report also calls for better integrating the bloc’s financial markets so companies can raise money for new renewable energy projects from stock, bond and venture capital investors instead of relying mostly on bank lending.

That is a longstanding idea that has progressed slowly. Letta’s ideas would be taken up only after this year’s EU parliament 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. "What is fundamental is to act in order to put in place the capital markets union. And also to increase the capacities of the European Investment Bank to invest in strategic sectors.”