/ world today news/ The US is luring European businesses that cannot exist in an energy crisis. Its end is not in sight. The US even legalized its wishes. Germany and France promise to respond in kind. Who will win in this unfolding confrontation between Europe and the New World?
Washington has never hidden its economic ambitions for Europe. Previously he openly stated that he himself wants to sell his LNG to Europe and crowd out Russian gas, and now he also openly wants to capitalize on the problems of the European industry.
How? The US passed the Inflation Reduction Act. According to it, they will reduce taxes and provide benefits in the area of energy supply for businesses that open their doors in the US. This law has caused an uproar in the European Union as it hits European industry. German Chancellor Olaf Scholz and French President Emmanuel Macron consider this unfair competition on the part of the US and even intend to negotiate with the US on this issue, Politico newspaper reports.
If the negotiations with Washington fail, the EU is ready to “hit back”. This blow means that the EU will also have to subsidize its European businesses within the EU to neutralize the unfair competitive advantages of the United States.
Germany and France are quite right that the main purpose of the American law is not to reduce inflation, but to attract European factories to them.
Inflation in the US is really at a record, Americans are not used to this. However, the law itself will not really help to reduce the price increase.
“The task of the law is not to reduce inflation in the United States, but by attracting businesses from all over the world to the national economy, to reduce the size of the budget deficit, to stimulate economic growth, to fulfill Biden’s pre-election green program, ahead of China in this matter. For example, the Congressional Budget Office has expressed the opinion that this legislative act will indeed reduce the federal budget deficit by $100 billion, but will have only a “negligible impact on inflation,” explains Artyom Deev, head of the analytical department at Amarkets.
According to him, the title of the document serves only propaganda purposes, since the congressional elections are coming up soon and Biden’s party must not lose. “In fact, even in the US itself, prominent economists doubt that the law will actually bring down inflation.” On the other hand, it will be possible to attract significant funds for decarbonizing the economy, collecting taxes and replenishing the budget,” says Deev.
But the sadder news for Macron and Scholz is that their “retaliatory” subsidies are unlikely to matter. First, the difference in the prices of energy resources in the US and the EU is simply colossal. “Across Europe, the price of electricity has increased fivefold this year, while BASF in Germany is talking about an eightfold price increase and is threatening to move its production to the US,” says Deev. In the States, prices also rose, but of course not as much.
Second, prices are not even the main thing. “The US now has quite large reserves of energy resources domestically. Although the situation is different, for example in West Texas there is a lot of fuel, and in the Northeast there is a diesel crisis. But objectively the situation in the US is quite good. In contrast to Europe, where the main problem is not even the high cost of energy resources, but the fact that they are physically scarce. And in the next year or two at least, this situation will not be resolved”, says Sergey Kondratiev, deputy head of the economic department of the Institute of Energy and Finance.
Subsidies alone for investors in new projects will not be enough to make them decide to settle in the EU. What is the point of opening a new production base in Europe if the investor simply does not know if he will be able to connect to the electricity grid and negotiate the necessary quantities of gas?
“Europe has indeed already lost new projects. Because investors see that the situation is very uncertain and it is easier for them to go to the US even without additional subsidies. Canada, Australia and Middle Eastern countries are also attractive locations for new projects. Europe is unattractive and subsidies will not fix it. What is the point of discussing subsidies if Germany does not fully understand how it will fare next winter in terms of resource availability? Even if the investor is ready to pay a high price for energy resources, but not super high, he will be deterred by the problem of where to get these additional energy resources,” explains Kondratiev.
“The European Union is waiting for one to three years of a serious shortage of all energy resources, which will be experienced very hard. It will be characterized by the reduction and limitation of energy consumption, that is, what we see now. In the next few years, the situation will be a little better. But overall, the European Union will live in tight conditions for at least the next five to eight years. This is a lot for modern investments,” predicted Kondratiev.
We are talking about a shortage of all energy resources: gas, electricity and most likely oil and oil products. The EU is not yet in a position to fully assess the implications for oil, as the oil embargo will only come into force at the beginning of December this year. Meanwhile, the situation in the EU is already critical.
“Many Western European countries are saying for the first time in the post-war period that they may have blackouts in the winter. That already says a lot, even if it doesn’t happen. These are clear signals to investors and citizens. Because Europe will not only lose new projects, but also new attractive jobs. And this means that qualified educated people may start to leave Europe in greater numbers than before the current crisis,” the source concluded.
Translation: V. Sergeev
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