The EU is not a victim, but a trigger

European Commission President Ursula von der Leyen wants to respond to the protectionist US Inflation Reduction Act (IRA) with a new EU fund. This so-called EU sovereignty fund is intended to finance subsidies in the EU through new common debt. Why this is the wrong way to go from a liberal point of view.

We reap what we sow. The Inflation Reduction Act is not the beginning of a protectionist US economic policy, but rather the American counter-reaction to the interventionist EU policy of the past few years.

When Biden took office in 2021, the EU had already budgeted almost 600 billion euros for financing the European Green Deal - with the clear aim of giving subsidies to the European cleantech industry. If you add in the national subsidies of the member states, the US$369 billion to be spent in ten years is peanuts at best.

The protectionist settlement requirements of the new US law cannot be seen independently of the planned European CO2 border tax, with which the EU wants to protect its companies from cheaper, less climate-conscious competition from third countries.

Accordingly, the EU is not a victim, but a trigger of the new American subsidy policy. A subsidy policy, which would not negatively affect us as a free trade partner of the USA today, if German chlorine chicken fearmongers had not intentionally brought down the EU-US free trade agreement negotiations years ago. So if we want to bring about change among Americans, we should first put our own house in order.

Anyone who now uses US economic policy as a pretext to demand additional EU subsidies will only fuel the negative protectionist race and thus permanently damage the free trade-based global market economy to which Germany owes its prosperity.

It would be suicide for fear of death. We must not jeopardize our market economy principles. A state-interventionist subsidy economy is not a model for the future, but a business model for economic collapse.

Instead of entering into a ruinous competition for isolation and subsidies, the EU must concentrate its policy on advancing globalization and concluding new trade agreements. A single market with almost 450 million inhabitants has enough market power to enforce the existing rules of international trade and economic relations.

The EU does not need any further money pots. The Green Deal funds mentioned have not only not been exhausted, but have not even been tapped by many member states. Only a fraction of the corona reconstruction funds provided have been transferred so far, and the majority of the structural funds from the current EU budget have also remained de facto unused for two years.

So there is not only enough, but more money than is needed. The resulting long-term oversubsidy is poison for the economy. An EU market pumped up with state aid will keep inefficient companies in the market, hinder cost-cutting innovations and thus unleash a disastrous turbo-inflation.

The result would be long-term competitive disadvantages for European companies and significant losses in prosperity for European consumers. Anyone who wants to prevent European cleantech entrepreneurs from receiving two thirds of their income from subsidies, like some farmers, should pull the budget ripcord in good time. The German solar industry has already perished once due to incorrect subsidy policies.

Between 2019 and 2021 alone, the debt of the EU member states increased by 1885 billion euros. The income side of the existing EU debt pots has not yet been finally clarified. Interest rates on EU bonds are growing rapidly.

A relevant part of the EU bonds to finance the Corona Recovery Fund goes to creditors outside the EU. In such difficult times, new EU debt will severely limit the ability of future generations to act and make the EU more dependent on international financiers.

Under these circumstances, to speak of a "sovereignty fund" for the new EU debt pot is so wrong that the opposite is not even true. The debt union is a legal and economic mistake, it needs more reform courage.

A braver Ursula von der Leyen, for example, could not take all of the money from the future generation this time, but take a little from the cows and support the farms in gradually becoming independent of subsidies.

EU Commission officials could be tasked with cutting through more bureaucracy than they create. Member States could ask to maintain the subsidy capacity of EU funds but expand budget flexibility rules to make research and development the largest item in the EU budget.

To put it simply: the EU should focus more on biotech than on organic milk and make enabling technological advances and not subsidizing technological lags the heart of its budgetary policy in the future.

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