The EU must boost funding in the race for green change, warns Paolo Gentiloni

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Brussels’ economy chief has warned that Europe will need to speed up its response to Washington’s inflation cut act as the US program to finance industrial green transition will be bigger than expected.

EU Economy Commissioner Paolo Gentiloni told the Financial Times the bloc has enough money on the table for the immediate future, thanks to programs including the €800bn NextGenerationEU Recovery Fund, which runs until 2026.

But Brussels will have to boost its financial firepower after next year’s European Union elections, he said – possibly through the idea of ​​an already proposed European Sovereign Fund that would pump billions of dollars into key industrial initiatives such as green technologies.

“You have a global race, and in this global race economic support from the public is part of the race – regulation is not enough,” Gentiloni said in an interview. “The allure factor of the IRA is on the rise.”

US programs including the IRA, which was passed by Congress last summer, provide hundreds of billions of dollars in subsidies and tax credits for new investments in renewable energy and green manufacturing, including electric vehicles, hydrogen projects and batteries.

Other governments are rushing to come up with their own green industrial policies in response, pledging to subsidize the industry as concerns grow that the US stimulus will affect jobs elsewhere.

After months of debate, in June the European Commission announced the Strategic Technologies for Europe Platform (STEP), which will allocate €10bn to science and innovation programs over the coming years to “stimulate investment in critical technologies” .

But member states have been reluctant to contribute to the platform, which is part of a controversial mid-term review of the EU’s seven-year budget and a fraction of the size of the US programme.

The Congressional Budget Office initially estimated the IRA to be worth $391 billion, but Goldman Sachs estimated that it could eventually exceed $1 trillion, as it includes uncapped tax credits.

Gentiloni said if it escalates to that kind of scale, the EU will have to react strongly.

The proposed STEP program should be considered a starting point, he said, because the EU recovery fund only runs until 2026. “We need to create the conditions for something more important to happen.”

This is especially important, he said, given the need to counter political arguments that the EU was suffering from being an early mover on environmental issues.

However, with EU elections due next year, it is too late to attempt to pursue such an initiative, he said – especially with cash still available from NextGenerationEU and the EU’s focus on Ukraine. More budgetary support is to be agreed upon.

The political argument, Gentiloni said, should not center on warnings that “the planet will die”, but that green investments will make households prosperous.

“Your family will benefit. Your children will get better jobs. And if we move late, better jobs will be taken by someone else.

Therefore, Gentiloni, a Social Democrat and former Italian prime minister, said “after 2026 the time has come to consider further instruments”.

The current commission took office in 2019 and its term ends next year.

Gentiloni was speaking after a meeting of finance ministers in Brussels, in which they discussed plans to change EU financial rules. Draft legislation unveiled by the economy chief in April would usher in far-reaching reforms to the labyrinthine Stability and Growth Pact by giving states greater ownership of their national debt reduction plans.

Germany has led the charge by introducing stricter minimum debt-cutting requirements into the framework because it demands stricter discipline.

Gentiloni defended the commission’s legislative proposal, but said it was not “untouchable”.

Gentiloni said that if there is an increase in numerical “safeguards” guaranteeing the debt reduction, as Berlin and others have sought, it should be countered by an increase in “fiscal space for investment” under the new rules. Needed.

“You can improve on it. , , But it is very important not to lose the balance,” he said. He said that despite the collapse of the Dutch government and impending elections in Spain, which holds the EU’s rotating presidency, he was not pessimistic about the outlook for negotiating the Stability and Growth Pact.

“My impression is that behind the scenes there are a lot of conversations, discussions, and everybody has an open attitude,” Gentiloni said.