U.S. Subsidies May Push Europe to Dramatically Revise State Aid Framework

Since the U.S. introduced changes to the Inflation Reduction Act, its subsidies for businesses have repeatedly sparked discontent in European countries. For this reason, the EU has recently started to review its state aid rules, hoping to strengthen support for key sectors to compete with the United States.

EU Competition Commissioner Vestager said in a recent letter to member state ministers that Europe’s competitiveness is currently facing multiple challenges, and the U.S. Inflation Reduction Act may induce a large number of EU companies to shift their investments to the United States. To counteract this, EU officials have proposed changes to the current “rulebook” on state aid. She said the new changes in the pipeline are designed to help member states and their businesses accelerate the green transition “without damaging the level playing field.

In addition, the Financial Times also cited another document that France has recently issued a call to countries to introduce a “Made in Europe” strategy, which includes a “radical modernization and simplification” of the state aid framework.

Specific requests include raising the threshold for notification of subsidy programs to the relevant authorities, thus giving countries more freedom to grant subsidies on their own; including batteries, photovoltaics, hydrogen and key sectors in the EU’s “key strategic projects”; experimenting with a “targeted fast-track mechanism “and a one-stop shop to provide subsidies and tax credits to a limited number of industries; simplifying the approval of projects of “European common interest”, thus allowing member states to subsidize cross-border investments in green technologies; and finally, France wants to create an emergency “sovereign fund “that would allocate existing EU funds to strategic industrial projects in the short term.

Collectively, while European countries have repeatedly criticized China in the past on the pretext of Chinese government aid and subsidies to companies, the EU’s attitude toward these interventions is changing under the urgent pressure of the United States.

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