By Andrea Thomas
BERLIN (Dow Jones) — Federal Finance Minister Christian Lindner (FDP) warned of a subsidy race and trade war with the USA after a meeting with EU Economic Commissioner Paolo Gentiloni. Lindner stressed that the European Union should not respond to the US Inflation Reduction Act (IRA) with an excessive expansion of state aid. Rather, European aid for the green and digital transformation would have to become more agile and get by with less bureaucracy. Gentiloni also encountered resistance from Lindner with his desire for joint EU debt and extensive flexibility in EU debt rules.
“The state aid law has to become more agile, we have to come to decisions faster. But we don’t need an excessive expansion of subsidies in the European Union. We have to improve the market economy framework for our economy, for industry,” said Lindner at a joint press conference with Gentiloni .
You can also make politics for the economy without money, simply by doing without regulation and unnecessary bureaucracy. In addition, there are already planned European expenditures as part of the Next Generation program to mitigate the consequences of the Covid pandemic.
“Starting an excessive subsidy competition with the USA on a large scale – that is not part of the policy of the federal government,” said Lindner. “For this reason, we also see no need for new financing instruments at the European level – common debt. We are convinced that the money that is available is sufficient to support the green transformation, the digital transformation.”
He emphasized that “trade diplomacy” between the EU and the US and not a trade war or trade conflict is currently necessary.
Gentiloni wants new EU debt
Gentiloni had previously called on the federal government to support the demand for new EU debt. In addition to the subsidy race with the USA, he also referred to the high energy prices and competition with China, which posed major challenges for the EU. Large amounts of investment are needed in Europe. Not every member state can act alone here, but what is needed is a common European solution and new debts.
Gentiloni explained at the press conference that Europe is heading for a year of “subdued growth” and not a year of recession due to political decisions by individual states and the EU. The EU Commission’s new economic forecast, which he intends to present soon, will reflect this. The EU faces challenges with “very reduced growth” and these challenges must be met together in order to strengthen competitiveness.
Lindner has doubts about the planned reform of the EU debt rules
With regard to the reform of the EU Stability and Growth Pact, Lindner said that the Commission’s ideas did not yet match those of the Federal Government.
The federal government has doubts that the proposals would lead to a reliable reduction in debt. According to Lindner, common rules are needed instead of bilateral agreements between the European Commission and individual countries.
Gentiloni again emphasized that the individual countries have very different levels of debt and that this must be taken into account when reforming the debt pact. According to the Italian, one must proceed in a differentiated manner when repaying the debt.
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(END) Dow Jones Newswires
January 30, 2023 11:31 ET (16:31 GMT)