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Newsletter January 2023

Free but over-distorted competition

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Almost a year ago, the war in Ukraine shook this country and, with it, the whole of Europe. In 2023, this conflict on our doorstep and all its consequences will continue to shape the European agenda. The next winter, without any Russian gas whatsoever, is already under preparation. The inflationary effects of higher energy costs must be curbed. To this end, the serious successive interest rate hikes announced by the European Central Bank will require a review of our policy mix in the euro zone.

These are to be discussed in the light of another tremor feared in the European Union at the start of the new year: the risk of fragmentation of the internal market. What was originally called the “Common Market” has always been at the heart of European construction. It is the framework for competition policy and State aid. The extent of its access defines our trade policy. At a time when the integration of this market, which Jacques Delors initiated to make it the deepest in the world today, is marking its 30th anniversary, internal and external forces risk pulling it apart.

Externally, the American subsidies provided for in the Inflation Reduction Act (IRA), which flout the rules of the World Trade Organization, are driving industrial investments at the risk of abandoning the European market. The technological decoupling of the United States in its rivalry with China and the need to get out of our economic dependence on Beijing (as it is currently the case with paracetamol) are forcing European companies to reorganize their value chains and to match the internal market with an industrial policy. The Important Projects of Common European Interest (IPCEI) are a promising instrument to build up the means to manufacture our batteries for electric vehicles, our advanced semiconductors and other key technologies of the future.

Within the Union, among the 27 Member States, each government is watching how others are supporting their own economies, as in the case of Germany’s €200 billion domestic support for its households and businesses in response to the energy crisis. Distortions of competition are feared between States that are able to rescue their industries and those whose public finances do not allow such support. Guaranteeing a level-playing field both between players in the European market and between this integrated market and the rest of the world is the twofold economic challenge on which 2023 opens. It should be the focus of the Swedish Presidency of the EU Council, which is committed to European competitiveness. The Commission will propose a package of measures for the European Council on February 9th and 10th, with the European response to the IRA on the agenda to prevent a trade war between the Allies.

On this pressing issue, the Franco-German government intends to regain the leadership role it lost last year. Ahead of the EU-27 summit, a bilateral Council of ministers scheduled for January 22nd, on the 60th anniversary of the Elysée Treaty, intends to give the momentum in favor of greater flexibility in public aid, access to new guaranteed loans for States (based on the example of the SURE program during the Covid) and support for joint industrial initiatives. In short, a European support that mirrors that of the US.

These geo-economic discussions are linked to those to come on State investment margins, on their debt capacities and on the very own one of the EU. Economic governance is the other European project to be launched in the first half of 2023. The recent ideas communicated by the Commission to review the Stability and Growth Pact serve as a stimulating basis for discussion. Faced with the colossal and collective need for investment to achieve, and socially accompany, the energy and digital transitions, to ensure our defense and to meet the challenges of health and demographic aging, Europe is looking for fresh money, both public (debt) and private (capital markets union).

Our think tank will analyze all these issues in their budgetary, commercial, geopolitical and social dimensions. The credibility of Europe in anticipating, regulating and responding in a world of unbridled power relations is at stake. The ongoing corruption scandal of ‘Qatargate’ has tainted this credibility, deepening mistrust of representative democracy in particular and of the European institutions in general. Restoring citizens’ trust is more challenging than ever before. It will also require political proof that Europe can make a difference, as did towards Covid. From the scope of our aid to Ukraine to the manufacture of electric batteries, from securing energy production to supply chains, and from the screening of foreign investments to the production of medicine, giving flesh to the concept of European sovereignty has become a battle of all fronts and every single day. Let’s move forward in 2023!

Sébastien Maillard, 
Directeur de l’Institut Jacques Delors