Luis Garicano is a former Member of the European Parliament and has spent his academic years as Visiting Professor of Economics and Strategy at Columbia Business School and Booth School of Business at the University of Chicago. He is also a part-time Fellow of Bruegel. Guy Verhofstadt is a Member of the European Parliament and former Prime Minister of Belgium.
US President Joe Biden’s Inflation Reduction Act (IRA) is challenging Europe.
The $370 billion policy is meant to keep the energy transition firmly in the hands of US-based companies, and the European Union must respond. But the bloc’s first response, proposed by European Commission President Ursula von der Leyen and Commissioner Thierry Breton, risks making things worse.
Relaxing state aid rules will only favor a few EU countries such as France, Germany and the Netherlands, which already have the budget and technical means to respond on their own. And new sectors in our single market will further undermine the prospects of the already uncompetitive EU high-tech industry.
Instead, what the EU needs is a truly European solution.
First, we must finally complete the single market. As it stands, the digital, telecom and capital markets remain fragmented and the rules will not be harmonized if the current multitude of regulators remains intact. Instead, what we need is an EU-wide regulator for the digital and telecom market, modeled after the US Federal Communications Commission, that positions the EU as a leader in setting global standards.
Similarly, harmonized corporate governance and disclosure rules are needed to support the capital markets coalition, and barriers to cross-border professional services should be removed. The pan-European energy market also requires investment in new transmission lines to increase the security and resilience of the block’s energy supply.
Second, rather than loosening national aid rules, we need to change competition rules, taking into account global rivalries. As we have seen in the case of Alstom-Siemens, it has become easier for a Chinese company to acquire a European competitor than to merge his two European companies. With more realistic rules, we could create a European company that could compete with the US and Chinese giants.
Third, rather than subsidizing national governments, the NextGenerationEU Fund will enable Europe to invest in EU-wide projects that facilitate the green transition and help shape sustainable energy and digital innovation. should be converted into a permanent financial instrument. Funding should come from the EU’s new and unique resources, notably the Carbon Boundary Adjustment Mechanism and the 15% global minimum tax on multinationals.
This alone makes it possible for the EU to match Biden’s IRA tax credit.
Finally, while subsidizing companies in the chip and green sectors may bring short-term gains, such an approach ultimately undermines the need for sustained basic research to drive innovation. can’t deal with
Since Britain’s exit from the EU, the EU has become a research petty official. Consider the ranking list of the top 25 globally competitive universities released last year by The Times Higher Education Supplement. The list includes only one EU university, a direct reflection of the limited EU investment in R&D and the lagging governance structures of many EU member states’ universities. However, the UK leads with 4, the US with 16, and China leads China. Contains 2 bottles. Shanghai’s rankings tell a similar story.
The block once set up the European Institute of Technology (EIT) in 2008 to build a top European technical university, but struggled to decide on a location. The EIT culminates in the familiar European compromise of breaking it apart and spreading it across multiple his EU cities, resulting in a struggle to attract talent and funding, and a growing interest in Europe’s tech landscape. The impact was limited.
Overall, European governments should avoid looking for national solutions to the energy crisis and digitalisation. Instead, we need to perfect the single market for capital, digital and financial services, provide common EU funding for EU companies, make them more competitive and invest in a thriving university system.
We cannot remain divided financially, economically, technologically, and ultimately politically.
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