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The Battle for the Soul of the European Economy

EuropeVersion Over the past two weeks, a flurry of proposals to reshape Europe’s economic model has emerged from the Berlaymont, a cross-shaped building in Brussels that houses the European Commission.Committees usually closely guard European Unionrules. But things are changing now. The proposals contain ideas on how the government can help companies invest in green technology, reduce reliance on key suppliers (read: China) and boost industrial development. On March 23, after we went to press, from European UnionIts 27 member countries will meet to discuss the changes and develop plans.

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Discussion could reshape the blocVery hardcore.this European Union Essentially the deepest and most comprehensive free trade agreement in the world. Limits on subsidies, as well as common rules and regulations, some very strict, ensure a level playing field.This market awareness is reflected in the fact that European Union There have long been carbon trading schemes for industry and power generation, which will in time be extended to heating and transport.this European Union Foreign trade and investment are also relatively open. Only agriculture remains subsidized and protected from competition.

EU leaders, however, worry that this opening leaves Europe exposed. US protectionism and China’s increasingly assertive attitude are seen as evidence that old certainties must now be reconsidered.For many, the urgency of climate change, the devastation during the covid-19 pandemic, and Russia’s invasion of Ukraine only underscore the need to European Union play more of an intervention role.

The next generation of European subsidies will not be combined with the kind of protectionist “buy local” clauses favored by the US.These would violate WTO rule European Union, at least, is still considered important. But the council is determined to support manufacturers on the continent and reduce reliance on Chinese investment in the green transition. This will require major changes to the internal market, trade policy and state aid rules.

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The most immediate reforms relate to domestic policy. European countries are trying to shorten permitting times for green projects, reduce administrative burdens and train workforces with the skills needed to make heat pumps and install solar panels. The committee also wants them to introduce “regulatory sandboxes” that allow deviations from ordinary rules so innovative companies can experiment.new European Union Rules will provide additional incentives to continue doing so.

The committee also wants to sign long-term agreements with countries that supply key raw materials such as lithium and rare earth metals. That could be trickier because Europe isn’t the only place that needs the minerals. Countries could strike deals directly with other buyers if European politicians demand that material be sourced to meet a raft of green standards. While this will be painful for Europe, the continent’s leaders may have to make peace with the dodgy approach. Upcoming talks with the United States over access to its market for European raw materials could help familiarize the continent’s leaders with troubling trade-offs.

The most significant rule change involves experimenting with protectionism. The commission wants leaders to agree on domestic production targets, a departure from the EU’s usual market-oriented approach. For now, these are just ambitions. Among the things considered “strategic technologies,” they noted, were heat pumps and solar panels, European Union Should produce 40% of what it uses.they also said European Union 10% should be mined and 40% of the resources needed for the green transition should be extracted. If formally adopted, the goals could eventually affect state aid, subsidies and trade policy.

The committee also plans to allow the government to subsidize green investments more freely. In early March, under pressure from governments led by France, it eased strict state aid rules that had prevented governments from tilting the playing field in favor of domestic companies. Countries can now support more generously companies that want to make factories greener or expand renewable energy production. The new approach looks beyond Europe. It will allow governments to pay companies to invest in the EU by matching subsidies offered by other countries, a move aimed at countering the new regime in the United States.

Plans to diversify how the government distributes subsidies and buys things are more subtle. The committee wants governments to consider ways in which suppliers might contribute to the EU’s “resilience” – away from China’s code – when making decisions.If the supplier dominates European Union In the market, if the sales volume of a certain product exceeds 65%, it is considered a problem. However, there is one exception. Companies will be allowed to buy cheaper (Chinese) options if the price difference between the options exceeds 10%.

Imagine the red tape. Britain’s absence as a supporter of markets will be felt acutely by former allies in the struggle for the soul of Europe’s economy. Germany will need to take a stance against intervention (as does France). But its politicians are swinging.The country’s coalition government is divided on many issues and, as European UnionGermany, the largest industrial economy, has deep pockets and could benefit from an inward-looking policy. As a result, the continent’s rulebook is about to change dramatically.

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