Berlin proclaims (European) ‘year of industrial policy’

Berlin and Brussels say they are ready to respond to the growing global challenge posed by dedicated industrial policies now favoured by major powers, like America’s Inflation Reduction Act.

The Inflation Reduction Act, which contains a “domestic content” component, years of concerted industrial policy in key industries by Beijing, and South Korea’s €135 billion Green New Deal have shone the spotlight on a global competition for leadership in clean industries.

There are “challenges to be met,” Robert Habeck, Germany’s vice-chancellor and minister of economy and climate action, explained at the country’s annual industrial conference on Tuesday (29 November) .

“The next year will definitely be dominated by industrial policy. Those who believe that we will let Germany fall apart as an industrial site did not take into account the German industry.”

“Securing Germany as a business location, creating conditions that enable industry and value creation to stay here, to produce here, and to organise the ramp-up of future markets’ goods in Germany” will be key, he added.

“European, robust response” on US subsidies

Whenever Germany promises to bring the fiscal firepower of the world’s fourth-largest economy to bear, other EU countries watch on with some concern – Berlin’s €200 billion state aid scheme already sparked discontent from Vienna to Paris. 

Germany intends to tackle the challenges arising from the US government’s flagship Inflation Reduction Act in a broader EU context, instead of through domestic policy.

”Europe should do its homework,” Habeck noted, adding that ”we need our own European, robust response” to the IRA.

France and Germany “will develop our strategies together,” he highlighted. Concrete action will come within weeks, increasing the speed and precision of state aid as well as a “WTO-compatible local content rule.” 

Habeck wants to tie the rule to transport CO2 emissions, insisting that “it only makes sense” to transport new climate-friendly products in a near CO2-neutral way – instead of shipping it across an ocean.

The EU’s Internal Market Commissioner Thierry Breton, a Frenchman, spoke after Habeck and agreed to the necessity of a European response to the US policy.

However, he stressed that negotiations with the US on the Inflation Reduction Act were still ongoing. 

Europe hopes to achieve an exemption for European manufacturers from the “local content” obligations, which, Habeck insisted, would violate international trade law.

This will also be discussed during the meeting of the Trade and Technology Council (TTC), a biannual transatlantic forum, which will take place next Monday (5 December).

Breton warned, however, that “we cannot put all our bets on this”. Neither Breton nor Habeck expect the talks to yield much progress. 

Last week, Paris and Berlin jointly agreed to push a common approach for boosting EU industrial policy. “Together we want to give impetus to a European industrial policy that strengthens our future competitiveness,” Habeck explained last week.

New EU industrial policy platform

On Wednesday (30 November), the European Commission will launch a “Clean Tech Europe Platform,” Breton announced. 

The new initiative will “provide support for EU manufacturing” of key industries, such as wind, solar, electrolysers, heat pumps and the electrical grid. Its framework was first proposed by Germany in late September, under the name “European Platform for Transformational Technologies,” although the name appears to change on a weekly basis.

On top of that, the “European Sovereignty Fund”, first mentioned by European Commission President Ursula von der Leyen in her annual address in September, should provide “adequate financial firepower”, Breton added.

“I believe it is time that we encourage private investment, facilitated by state aid support, in innovative projects, but also in projects that contribute to EU sovereignty and resilience,” Breton explained.

Currently, the EU’s flagship €10 billion “Important Projects of Common European Interest” (IPCEI) scheme provides support to innovative projects, while regular manufacturing of clean technologies is not supported. Berlin, Paris, and Breton seek to change this.

“In my view, [we should] set up a financial capacity to ensure investment into projects of interest for the EU sovereignty across the world industrial spectrum,” Breton noted.

“This financial capacity should be modular, quickly mobilised, reactive and diversified” and include “grants, procurements, loans, and equity,” he added.

Political backing from Germany’s key interest groups

German industry is already under pressure, as energy prices more than quadrupled in 2022. On 28 November, the consultancy PwC warned that “key sectors of German industry are under enormous pressure and at risk of migrating.”

The president of the German industrial association BDI, Siegfried Russwurm, echoed similar warnings. 

“The threat of an exodus is real,” he told reporters at the annual industry conference, citing a survey among 600 small- and medium-sized enterprises, where 20% entertained “concrete plans” to migrate, fuelled by energy prices.

Without an adequate response to the energy crisis, Breton warned of a “high risk of rapid de-industrialization in Europe.”

The influential metalworker trade union IG Metall, with close ties to Chancellor Olaf Scholz’s SPD, have affirmed their backing. “We need an offensive in industrial policy, especially now, after the years of crises.” insisted Jörg Hofmann, head of IG Metall.

[Edited by János Allenbach-Ammann/Zoran Radosavljevic]