POLITICO – BECOMING BIG FOR THE EU INDUSTRY

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Charles Michel, President of the European Council.

The Russian war in Ukraine represents a new geopolitical reality for the European Union.

In the immediate aftermath of the Russian attack, the European Council met at Versailles, and took unprecedented measures to strengthen our strategic autonomy. Here, EU leaders laid out a plan to strengthen Europe’s defense capabilities, reduce its dependence on energy, and empower its economies through technological innovation — the three pillars of European sovereignty.

We also strengthen these pillars through our international participation, as the European Union and its member states are the primary sponsors of the multilateral system and the financing of peace, development and climate change. As one of the major business powers, we set global standards that reflect our values.

But now, as we work towards that vision, we need to pick up the pace.

The challenges we face today are very different from the challenges of the pandemic. COVID-19 was a shock that put our economies into a temporary coma, but the current energy crisis is creating a new situation. We will now face ever-rising energy costs, and on top of this, Europe’s social market economy means – with good reason – higher labor and environmental costs than anywhere else.

Taken together, this fundamentally changes our position in relation to our main competitors, in particular the United States, which remains the largest producer of oil and gas. And it forces us to rethink how we protect our competitiveness.

For decades, we have built a system based on free trade, while striving to ensure equal opportunities for all, which means imposing a strict framework of state aid rules. On the world stage, free-market countries have pressured China for years to restrict state aid to businesses and play by the rules of the free market. However, China continues to directly invest state funds in key industries of strategic importance.

With the Inflation Reduction Act, our American ally recently adopted a massive government aid policy to promote its green transformation. And the United States is preparing an approximately $370 billion package of subsidies and tax breaks to create an ecosystem of key technologies — the same technologies the European Union is investing in.

The European Union must act smart, fast and at scale to strengthen our economies, in particular by investing in clean and digital technologies. We must also enhance our manufacturing capabilities to maintain our prosperity, while ensuring our strategic independence.

As agreed in December, the European Council will address these challenges at our next meeting in February, and we should consider four parallel courses of action.

First, we must give member states more freedom to provide state aid for their businesses. As our major competitors increase their public support, we can’t be so naive. Strengthening support for strategic industrial companies and small and medium-sized enterprises means reforming, or at least making our state aid bases suitable for current economic and geopolitical realities.

European Council President Charles Michel visiting a biscuit factory in 2016, during his tenure as Belgian Prime Minister | Benoit Doppagne/AFP via Getty Images

However, in doing so, we must avoid the trap of creating rules tailored to each member state. This would be fatal to our single market and to the level playing field between companies and member states, which has been key to its success.

Secondly, we must make full use of the financing we have available and the financial instruments – both at the national level and at the EU level. This means ensuring more flexibility in the disbursement of the large financial resources of the EU budget and post-COVID-19 recovery fund, NextGenerationEU, as the vast majority of these funds remain untapped – not because they are not required but because the procedures are often too cumbersome.

Third, not all member states have the same financial means to tackle the current crisis. Solidarity is one of our greatest European assets – the protective shield. This is especially true during difficult times. As such, it makes sense to extend the SURE program, which was created during the pandemic to mitigate the risk of unemployment. This would give all member states access to affordable borrowing to support their businesses and workforce, while also preserving the integrity of the single market and level playing field.

Finally, we must also think in the long term. Besides supporting our business today, we need more private and public investment to support our industrial and technology base.

Therefore, I propose to build on the ideas expressed by Commission President Ursula von der Leyen and Commissioner Thierry Breton, and to consider the possibility of an EU Sovereignty Fund to invest in equity in new and strategically important projects in the field of green energy, digital technology and defence. The European Investment Bank has the authority to be the backbone of such a project.

The construction site of the nitrogen plant of the Dutch natural gas grid operator Gasunie in Zuidbroek | Remco de Waal/AFP via Getty Images

This fund will stimulate private investment. closing investment gaps that undermine long-term growth; It will also generate wealth. Over time, the value of its accumulated assets would dwarf the liabilities incurred to finance the initial investments. The fund’s assets could eventually be sold to private investors, so that the fund could reinvest in the next wave of technological innovation, or in other critical areas of strategic importance to European sovereignty.

Europe must remain a continent of production and innovation. Supporting our business and ensuring our global competitiveness – this will require new ways of thinking and a can-do attitude on all of us. Together, we are stronger, more powerful, and more sovereign.

Let’s do.

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