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Brussels targets looser state aid rules at ‘beginning of 2023’

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The European Commission is pushing to loosen the bloc’s state aid regulations as soon as “the beginning of 2023”, in response to pressure from EU member states to rapidly roll out measures to compete with a green stimulus plan in the US.

President Joe Biden’s $369bn Inflation Reduction Act (IRA) to support climate-friendly technologies has sparked widespread anxiety in the EU over fears it will lure companies to the US, prompting Brussels to draw up its own plan that some fear could balloon into a transatlantic trade war.

Ursula von der Leyen, commission president, wrote to the bloc’s 27 national leaders on Wednesday to say that she planned to “adjust our state aid rules for some years . . . to make it easier for public investment”, while rolling out new joint borrowing plans to support spending across the EU.

“Elements of the IRA risk un-levelling the playing field and discriminating against European companies, for example through tax credits and production subsidies,” she wrote.

The letter makes clear that the commission intends to push ahead quickly with the overhaul. It comes ahead of a summit of EU leaders on Thursday where they will debate how to respond to the IRA, which many see as a serious threat to European competitiveness.

There are deep divisions among EU member states on whether a fresh wave of government subsidies is the correct approach and how best to fund it. Some officials fear that a relaxation of state aid rules could enable deep-pocketed member states such as Germany to pump billions into their industries, while fiscally weaker countries are left at a disadvantage.

“It is clear that not every member state has the fiscal space for state aid, and we need complementary European financing . . . to move all together in the same direction,” von der Leyen wrote.

The commission’s response to this is to seek ways of raising fresh EU-level funding in the hope that this alleviates the concerns of member states with less budgetary headroom. Von der Leyen said the commission was planning to “further boost” the EU’s REPowerEU plan, an energy transition fund, while setting up a collective European sovereignty fund to support national capitals.

However, it will not be easy to reach a compromise among the member states on fresh EU borrowing. And officials acknowledge that raising EU cash to hand out as grants — as with the EU’s Covid-19 recovery plan — will be even harder to sell to northern member states including Germany than a new programme doling out EU loans to member states.

Von der Leyen’s proposals come alongside intensive talks between the EU and US over ways of mitigating the impact of the legislation on Europe. German chancellor Olaf Scholz used a speech on Wednesday to call for the EU and US to overcome their differences over the IRA, and not let the conflict escalate.

The US measures must not undermine competition, he said. “That’s why I support the intensive talks between the European Commission and the US . . . When it comes to the transatlantic relationship we mustn’t allow ourselves to be divided. On the contrary, instead of having a big argument, we should co-operate more closely and strengthen common and fair trade with the US.”

Some EU countries, such as France, have pushed for a “Buy European” approach to protect the bloc’s companies, while others are wary of such measures given they could conflict with World Trade Organization rules.

Von der Leyen’s proposals for a “simpler, faster and even more predictable state aid framework” included simplifying the rules for funding projects focused on renewable energy and decarbonising industrial processes, she said.

The planned state aid overhaul would include “further targeted aid for new production projects in strategic clean tech value chains” and “significantly increasing notification thresholds for state aid in these fields”, she added.

Additional reporting by Guy Chazan in Berlin

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