Why deindustrialization of Europe is a serious danger?

 "The "Business wise people" have warned of a subsidy race between Europe and the USA - instead, the EU should adapt its existing funding programs for "green technologies". This is a key point of an analysis presented on Friday by the Council of Experts on the effects of the US Inflation Reduction Act (IRA), a multi-billion dollar subsidy program. It states that in order to strengthen the competitiveness of European companies, additional subsidies would also be required in the EU as an answer to the IRA. "However, a subsidy race would be associated with considerable welfare losses for both the USA and the EU and should therefore be avoided."

The EU is already promoting low-emission technologies to a similar extent as the USA with the IRA, according to a policy brief published for the first time by the five-member Council of Economic Experts. The independent body advises the federal government.

The “Business wise people” are in favor of changing EU funding programs. “The tax breaks of the IRA go hand in hand with greater predictability for companies than the European support programs. They should also cause less bureaucracy than subsidies that are awarded in the application process.”

According to Council member Ulrike Malmendier, the existing EU funding programs could be used to examine how the claiming of subsidies by authorized companies can be simplified and bureaucratic hurdles reduced.

Electricity prices in Germany are 9 cents higher than in the USA

The analysis goes on to say that the Council of Economic Experts only shares the fears expressed by various sides about the IRA to a limited extent. "The subsidies under the IRA itself are expected to have only minor macroeconomic effects on the EU." 

For individual industrial sectors relevant to achieving the climate goals, however, the IRA's production and investment subsidies could increase the incentive, in the USA rather than in the EU to invest.

In general, existing energy price differences are likely to have a much greater impact on the attractiveness of Europe as a location than the IRA itself, according to Council member Achim Truger.

  In the past three months, electricity prices in Germany were an average of 9 cents per kilowatt hour higher than in the USA.

Council member Martin Werding spoke out in favor of rapidly expanding the electricity supply and the energy infrastructure in order to reduce energy costs. To this end, the expansion of renewable energies should be accelerated and hydrogen-capable gas power plants should be built in Germany.”

There is a vicious cycle here. To develop a sustainable economy, you need a lot of cheaper energy. So investments are moving to America from Europe. Low investment level in Europe into these processes give slow development of cheaper energy sources than in America. Energy in Europe stays more expensive longer, so even more sustainable business investments go to America. If we do not change our political leadership in Europe, the deindustrialization of our continent is right around the corner.