Confronted by competition from Washington’s vast green tech investment plan, European leaders are scrambling to loosen their own subsidy rules and redeploy an array of investment funds.

Thursday’s summit of the 27 EU heads of state or government is expected to be overshadowed by the first war-time visit of Ukraine’s President Volodymyr Zelensky.

But, after their special guest has asked for more weapons, the leaders will turn to their own differences over how to respond to the vast financial firepower of the US Inflation Reduction Act.

European capitals fear the US subsidies for clean tech will lure investment across the Atlantic, and torpedo the bloc’s recovery plans.

The EU executive, Ursula von der Leyen’s European Commission, has prepared a suggested response — but member states are divided over how far to go and how to fund the plan.

Von der Leyen’s plan would see Europe’s tight controls on state subsidies loosened, allow member states to give grants or tax breaks to their own firms building renewable energy and cutting carbon emissions.

But some members fear this could trigger a subsidy war with Washington or undermine their own single market, with big players like France and Germany already stepping up their own state aid.

The anti-subsidy straight-jacket was already loosened as part of the response to the Covid pandemic, and countries such as Italy, Austria, Denmark and Finland oppose making it meaningless.

“On this topic, there’ll always be two for and 25 against,” one European diplomat joked — referring to Germany and France’s ability to exploit looser EU rules with bigger national subsidies.

France and Germany are not in agreement, however, about new joint financing schemes.

Here, Paris sides with Rome and others in promoting new shared investment funds to pool European investment to boost industry and fight off US and Chinese competitors.

Von der Leyen has promised to draw up a blueprint within the next five months for a so-called “Sovereignty Fund” to fund joint investment in strategic businesses.

But the member states are already fighting over whether to even mention this upcoming idea in Thursday’s post-summit joint statement — and some are trying to kill the plan.

Germany will oppose any joint borrowing to finance the fund and with other net contributors to EU funds, such as Sweden or Austria, oppose increased EU membership contributions to pay for it.

This leaves the Commission’s rough menu of existing funds such as the 800-billion-euro NextGenerationEU, which one diplomat from a net contributing country said should be used up before creating something new.

Some 250 billion euros from the fund could be moved to finance European industry’s green transition.

Bringing together other EU investment funds already assigned to investment, innovation and energy would leave Europe not far short of the 370 billion dollars that Washington is looking to spend.

“Europe need not blush,” German Chancellor Olaf Scholz said Wednesday.

Paris is undeterred. An official in President Emmanuel Macron’s office insisted the sovereignty fund plan would indeed be in the final summit statement.

A diplomat from a country opposed to increased spending conceded it would be “noted” but that many countries did not see why it should be talked about before von der Leyen’s formal proposal.—AFP

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