In view of the climate crisis, war and energy insecurity, Europe is facing profound changes for its industry. Companies heavily dependent on oil and gas will have a hard time. But even green and technologically innovative industries that looked like sure winners of European climate policy before the start of the Ukraine war have recently come under pressure from an unexpected direction: the United States.
Two subsidy packages from the administration of US President Joe Biden threaten Europe's competitiveness: the Inflation Reduction Act, the United States' most extensive investment package to date for climate protection in the form of grants, tax credits and loans summing up to $375 billion; and the CHIPS and Science Act, with a further $280 billion to promote the semiconductor industry.
As desirable as massive US action against climate change may be, it is difficult for Europe that only US projects are to benefit from the generous funding. Our continent could see an exodus of precisely those innovative companies that are at the heart of the EU's climate strategy. The Swedish battery manufacturer Northvolt, for example, has already announced that its planned investments in Germany will probably be delayed because expansion in the US now has priority. And Northvolt is not the only case.
In view of the energy crisis, we must do everything we can to massively accelerate the green energy transition. In addition to shorter approval processes and greater development and planning capacities, we also need the necessary capital resources to finance the investments we need. Sadly, increased energy costs have massively restricted the investment scope of many companies and States.
That's why the EU summit on 9-10 February urgently needs to find a European response to the US subsidy packages, in the form of an investment offensive. Yes, there have already been major investment packages, starting with the Juncker Plan, the Recovery and Resilience Facility, the European Guarantee Fund EGF and the new InvestEU program. Through these, the EU economy already has benefited from hundreds of billions of euros. But all these programmes — which have primarily prevented permanent damage from the financial crisis, the euro crisis and the Corona crisis — will not be enough to close future structural investment gaps. The Green transition and digitisation of the economy require an innovation-friendly, long-term investment offensive.
For as large as Europe's investment may be compared to the first 20 years of this century, Europe's level of productive investment still lags behind that of the US by two percentage points of gross domestic product annually since 2010, European Commission data show. Europe's climate investment is admittedly higher this decade than last. But the gap to the requirements of the EU's "Fit for 55" climate package is still €356 billion per year. In addition, the willingness of US companies to innovate has been rising since 2020, while that of European companies has been falling.
It is obvious that public funding alone will not be enough to drive industrial transformation. Moreover, we should be wary of entering into a subsidy race with the US. The solution to the problem lies in mobilising private capital in a targeted manner through public loans and modern financial instruments. The European Investment Bank has shown how innovative projects can be launched — be it Northvolt's battery development, BioNTech's Covid vaccine development or the massive expansion of offshore wind farms in the North Sea.
Whereas in the case of pure subsidies, the funds are irretrievably lost to the public purse, in the case of loans and financial instruments, if the projects are successful, the money flows back and can be used again. In other words, successes in drug research can finance the next wind farm and vice versa.
I therefore think that EU Commission President Ursula von der Leyen's suggestion that Europeans drive industrial renewal with a technology offensive for their own industry makes sense. Whether to finance such a fund via the EU budget or via the member states is a matter for the EU member states to decide in the Council. However, it should be clear to us as a community of medium-sized and small states that we can better master all major tasks together as Europeans instead of going it alone at national level. This is especially true in times of global competition, war and climate crisis.