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Tag: Thierry Breton

  • Europe accuses US of profiting from war

    Europe accuses US of profiting from war

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    Nine months after invading Ukraine, Vladimir Putin is beginning to fracture the West. 

    Top European officials are furious with Joe Biden’s administration and now accuse the Americans of making a fortune from the war, while EU countries suffer. 

    “The fact is, if you look at it soberly, the country that is most profiting from this war is the U.S. because they are selling more gas and at higher prices, and because they are selling more weapons,” one senior official told POLITICO. 

    The explosive comments — backed in public and private by officials, diplomats and ministers elsewhere — follow mounting anger in Europe over American subsidies that threaten to wreck European industry. The Kremlin is likely to welcome the poisoning of the atmosphere among Western allies. 

    “We are really at a historic juncture,” the senior EU official said, arguing that the double hit of trade disruption from U.S. subsidies and high energy prices risks turning public opinion against both the war effort and the transatlantic alliance. “America needs to realize that public opinion is shifting in many EU countries.”

    The EU’s chief diplomat Josep Borrell called on Washington to respond to European concerns. “Americans — our friends — take decisions which have an economic impact on us,” he said in an interview with POLITICO.

    The biggest point of tension in recent weeks has been Biden’s green subsidies and taxes that Brussels says unfairly tilt trade away from the EU and threaten to destroy European industries. Despite formal objections from Europe, Washington has so far shown no sign of backing down. 

    At the same time, the disruption caused by Putin’s invasion of Ukraine is tipping European economies into recession, with inflation rocketing and a devastating squeeze on energy supplies threatening blackouts and rationing this winter. 

    As they attempt to reduce their reliance on Russian energy, EU countries are turning to gas from the U.S. instead — but the price Europeans pay is almost four times as high as the same fuel costs in America. Then there’s the likely surge in orders for American-made military kit as European armies run short after sending weapons to Ukraine. 

    It’s all got too much for top officials in Brussels and other EU capitals. French President Emmanuel Macron said high U.S. gas prices were not “friendly” and Germany’s economy minister has called on Washington to show more “solidarity” and help reduce energy costs. 

    Ministers and diplomats based elsewhere in the bloc voiced frustration at the way Biden’s government simply ignores the impact of its domestic economic policies on European allies. 

    When EU leaders tackled Biden over high U.S. gas prices at the G20 meeting in Bali last week, the American president simply seemed unaware of the issue, according to the senior official quoted above. Other EU officials and diplomats agreed that American ignorance about the consequences for Europe was a major problem. 

    “The Europeans are discernibly frustrated about the lack of prior information and consultation,” said David Kleimann of the Bruegel think tank.

    Officials on both sides of the Atlantic recognize the risks that the increasingly toxic atmosphere will have for the Western alliance. The bickering is exactly what Putin would wish for, EU and U.S. diplomats agreed. 

    The growing dispute over Biden’s Inflation Reduction Act (IRA) — a huge tax, climate and health care package — has put fears over a transatlantic trade war high on the political agenda again. EU trade ministers are due to discuss their response on Friday as officials in Brussels draw up plans for an emergency war chest of subsidies to save European industries from collapse. 

    “The Inflation Reduction Act is very worrying,” said Dutch Trade Minister Liesje Schreinemacher. “The potential impact on the European economy is very big.”

    “The U.S. is following a domestic agenda, which is regrettably protectionist and discriminates against U.S. allies,” said Tonino Picula, the European Parliament’s lead person on the transatlantic relationship.

    An American official stressed the price setting for European buyers of gas reflects private market decisions and is not the result of any U.S. government policy or action. “U.S. companies have been transparent and reliable suppliers of natural gas to Europe,” the official said. Exporting capacity has also been limited by an accident in June that forced a key facility to shut down.

    In most cases, the official added, the difference between the export and import prices doesn’t go to U.S. LNG exporters, but to companies reselling the gas within the EU. The largest European holder of long-term U.S. gas contracts is France’s TotalEnergies for example. 

    It’s not a new argument from the American side but it doesn’t seem to be convincing the Europeans. “The United States sells us its gas with a multiplier effect of four when it crosses the Atlantic,” European Commissioner for the Internal Market Thierry Breton said on French TV on Wednesday. “Of course the Americans are our allies … but when something goes wrong it is necessary also between allies to say it.”

    Cheaper energy has quickly become a huge competitive advantage for American companies, too. Businesses are planning new investments in the U.S. or even relocating their existing businesses away from Europe to American factories. Just this week, chemical multinational Solvay announced it is choosing the U.S. over Europe for new investments, in the latest of a series of similar announcements from key EU industrial giants. 

    Allies or not?

    Despite the energy disagreements, it wasn’t until Washington announced a $369 billion industrial subsidy scheme to support green industries under the Inflation Reduction Act that Brussels went into full-blown panic mode.

    “The Inflation Reduction Act has changed everything,” one EU diplomat said. “Is Washington still our ally or not?”

    For Biden, the legislation is a historic climate achievement. “This is not a zero-sum game,” the U.S. official said. “The IRA will grow the pie for clean energy investments, not split it.” 

    But the EU sees that differently. An official from France’s foreign affairs ministry said the diagnosis is clear: These are “discriminatory subsidies that will distort competition.” French Economy Minister Bruno Le Maire this week even accused the U.S. of going down China’s path of economic isolationism, urging Brussels to replicate such an approach. “Europe must not be the last of the Mohicans,” he said.

    The EU is preparing its responses, such as a big subsidy push to prevent European industry from being wiped out by American rivals. “We are experiencing a creeping crisis of trust on trade issues in this relationship,” said German MEP Reinhard Bütikofer. 

    “At some point, you have to assert yourself,” said French MEP Marie-Pierre Vedrenne. “We are in a world of power struggles. When you arm-wrestle, if you are not muscular, if you are not prepared both physically and mentally, you lose.”

    Behind the scenes, there is also growing irritation about the money flowing into the American defense sector.

    The U.S. has by far been the largest provider of military aid to Ukraine, supplying more than $15.2 billion in weapons and equipment since the start of the war. The EU has so far provided about €8 billion of military equipment to Ukraine, according to Borrell.

    According to one senior official from a European capital, restocking of some sophisticated weapons may take “years” because of problems in the supply chain and the production of chips. This has fueled fears that the U.S. defense industry can profit even more from the war. 

    The Pentagon is already developing a roadmap to speed up arms sales, as the pressure from allies to respond to greater demands for weapons and equipment grows.  

    Another EU diplomat argued that “the money they are making on weapons” could help Americans understand that making “all this cash on gas” might be “a bit too much.” 

    The diplomat argued that a discount on gas prices could help us to “keep united our public opinions” and to negotiate with third countries on gas supplies. “It’s not good, in terms of optics, to give the impression that your best ally is actually making huge profits out of your troubles,” the diplomat said.

    Giorgio Leali, Stuart Lau, Camille Gijs, Sarah Anne Aarup and Gloria Gonzalez contributed reporting.

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    Barbara Moens, Jakob Hanke Vela and Jacopo Barigazzi

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  • EU plans subsidy war chest as industry faces ‘existential’ threat from US

    EU plans subsidy war chest as industry faces ‘existential’ threat from US

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    The EU is in emergency mode and is readying a big subsidy push to prevent European industry from being wiped out by American rivals, two senior EU officials told POLITICO.

    Europe is facing a double hammer blow from the U.S. If it weren’t enough that energy prices look set to remain permanently far higher than those in the U.S. thanks to Russia’s war in Ukraine, U.S. President Joe Biden is also currently rolling out a $369 billion industrial subsidy scheme to support green industries under the Inflation Reduction Act.

    EU officials fear that businesses will now face almost irresistible pressure to shift new investments to the U.S. rather than Europe. EU industry chief Thierry Breton is warning that Biden’s new subsidy package poses an “existential challenge” to Europe’s economy.

    The European Commission and countries including France and Germany have realized they need to act quickly if they want to prevent the Continent from turning into an industrial wasteland. According to the two senior officials, the EU is now working on an emergency scheme to funnel money into key high-tech industries.

    The tentative solution now being prepared in Brussels is to counter the U.S. subsidies with an EU fund of its own, the two senior officials said. This would be a “European Sovereignty Fund,” which was already mentioned in the State of the Union address by Commission President Ursula von der Leyen in September, to help businesses invest in Europe and meet ambitious green standards.

    Senior officials said the EU had to act extremely quickly as companies are already making decisions on where to build their future factories for everything from batteries and electric cars to wind turbines and microchips.

    Another reason for Brussels to respond rapidly is to avoid individual EU countries going it alone in splashing out emergency cash, the officials warned. The chaotic response to the gas price crisis, where EU countries reacted with all sorts of national support measures that threatened to undermine the single market, is still a sore point in Brussels.

    European Commissioner Breton especially has led the pack in sounding alarm bells. At a meeting with EU industry leaders Monday, Breton issued his warning on the “existential challenge” to Europe from the Inflation Reduction Act, according to people in the room. Breton said it was now a matter of utmost urgency to “revert the deindustrialization process taking place.”

    Breton was echoing calls from business leaders all over Europe warning about a perfect storm brewing for manufacturers. “It’s a bit like drowning. It’s happening quietly,” BusinessEurope President Fredrik Persson said.

    The Inflation Reduction Act is a particular bugbear to EU carmaking nations — such as France and Germany — as it encourages consumers to “Buy American” when it comes to electric vehicles. Brussels and EU capitals see this as undermining global free trade, and Brussels wants to cut a deal in which its companies can enjoy the same American benefits.

    With a diplomatic solution seeming unlikely and Brussels wanting to avoid an all-out trade war, a subsidy race now looks increasingly likely as a contentious Plan B.

    To do that, it will be vital to secure support from Germany and from the more economically liberal commissioners such as trade chief Valdis Dombrovskis and competition chief Margrethe Vestager.

    At a meeting of EU trade ministers on Friday, Brussels hopes to get more clarity from Berlin on whether they are willing to break their subsidy taboo.

    France has long been calling for a counterstrike against Washington by funneling state funds into European industry to help industrial champions on the Continent. That idea is now also gaining traction in Berlin, which has traditionally been economically more liberal.

    On Tuesday, German Economy Minister Robert Habeck and his French counterpart Bruno Le Maire issued a joint statement to call for an “EU industrial policy that enables our companies to thrive in the global competition especially through technological leadership,” adding that “we want to coordinate closely a European approach to challenges such as the United States Inflation Reduction Act.”

    Apart from the trade ministers’ meeting on Friday, the idea will also informally be discussed among competition ministers next week. One official said European leaders will also discuss it on the margins of the Western Balkan summit on December 6 and at the European Council mid-December.

    Hans von der Burchard, Giorgio Leali and Paola Tamma contributed reporting.

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    Jakob Hanke Vela and Barbara Moens

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  • Elon Musk gives Europe’s digital watchdogs their biggest test yet

    Elon Musk gives Europe’s digital watchdogs their biggest test yet

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    After Elon Musk bought Twitter — and fired almost anyone whose job it was to deal with regulators — the social networking giant is now facing a flood of legal challenges across the European Union.

    The question now is whether the EU’s watchdogs can live up to their ambitions to be the world’s digital policemen.

    Ireland’s privacy regulator wants to know whether the company’s data protection standards are good enough. The European Commission doesn’t know who to ask about its upcoming online content rules. The bloc’s cybersecurity agencies raise concerns about an increase in online trolls and potential security risks.

    Twitter’s unfolding turmoil is precisely the regulatory challenge that Brussels has said it wants to take on. The 27-country bloc has positioned itself — via a flurry of privacy, content and digital competition rules — as the de facto enforcer for the Western world, expanding its digital rulebook beyond the EU’s borders and urging other countries to follow its lead.

    Now, the world’s richest man is putting those enforcement powers to the test. 

    Europe’s regulators have the largest collective rulebook to throw at companies suspected of potential breaches. But a lack of willingness to act quickly — combined with the internal confusion engulfing Twitter — has so far hamstrung the bloc’s enforcement role when it comes to holding Musk to Europe’s standards, according to eight EU and national government officials, speaking privately to POLITICO. 

    “This will be a major test for European regulators,” said Rebekah Tromble, director of the Institute for Data, Democracy & Politics at George Washington University. She is part of the advisory board of the European Digital Media Observatory, a group helping to shape the EU’s online content rulebook, known as the Digital Services Act (DSA).

    “If Musk continues to act with intransigence, I think there’s an opportunity for European regulators to move much more quickly than normal,” she added. “These regulators will certainly be motivated to act.”

    A representative for Twitter did not return requests for comment.

    Regulatory firepower

    The bloc certainly has the firepower to bring Twitter to heel.

    Under the EU’s General Data Protection Regulation, companies can be fined up to 4 percent of their annual global revenue for failing to keep people’s personal information safe. The Irish regulator, which has responsibility for enforcing these rules against Twitter because the company’s EU headquarters are in Dublin, has already doled out a €450,000 penalty for the firm’s inability to keep data safe.

    As part of the bloc’s upcoming content rules, which will start to be enforced next year, the Commission will have powers to levy separate fines of up to 6 percent of a company’s yearly revenue if it does not take down illegal content. Brussels also has the right to ban a platform from operating in the EU after repeated serious violations.

    “In Europe, the bird will fly by our rules,” Thierry Breton, the French commissioner, told Musk — via Twitter | Kenzo Tribouillard/AFP via Getty images

    Thierry Breton, the European internal market commissioner, reminded Musk of Twitter’s obligations under the bloc’s upcoming content rules in a call with the billionaire soon after his acquisition of the social network. Musk pledged to uphold those rules, even as he has pushed back at other content moderation practices that could hamper people’s freedom of expression on the platform.

    “In Europe, the bird will fly by our rules,” Breton, the French commissioner, told Musk — via Twitter.

    Yet over the last three weeks, European regulators and policymakers have struggled to navigate Twitter’s internal turmoil, according to four EU and national officials who spoke on the condition of anonymity to discuss internal deliberations.

    The likes of Damien Kieran, Twitter’s chief privacy officer in charge of complying with Europe’s tough data protection standards, and Stephen Turner, the company’s chief lobbyist in Brussels, were among scores of senior officials who left since Musk took over.

    Two of the EU officials, speaking about internal discussions on condition of anonymity, told POLITICO that multiple emails to Twitter executives bounced back after those individuals were laid off. One of those policymakers said he had taken to Twitter — scrolling through the scores of posts from the company’s employees announcing their departures — in search of information about who was still working there. A third official said the current confusion could prove problematic when the company had to reveal long-guarded information about the number of its EU users early next year. 

    Others have been fostering wider connections within the company, just in case. Arcom, France’s online platform regulator, for instance, has built ties with high-level executives outside of France and still had a contact in Dublin at the company to answer its pressing questions.

    The policymaking blackholes — fueled by mass layoffs — have been felt beyond the EU. 

    Julie Inman Grant, Australia’s eSafety commissioner who previously ran Twitter’s public policy team in Asia, told POLITICO she had written to the company last week to remind them about its obligations to clamp down on child sexual exploitation on the platform. She had yet to hear back from Musk or other senior officials.

    “We did have a meeting on the books with Twitter,” Melanie Dawes, chief executive of Ofcom, the U.K.’s communications regulator, told POLITICO ahead of her trip to Silicon Valley this week to meet many of the social media companies. “It was canceled.”

    What about privacy?

    Another open question is how Twitter with comply with Europe’s tough privacy rules.

    Although the company’s chief privacy executive had been fired — and rumors swirled Twitter could pull out of Ireland in its cost-saving push — the Irish Data Protection Commission told POLITICO it had yet to open an investigation into the firm.

    A spokesman for the agency said Twitter executives had assured Irish regulators on Monday that Renato Monteiro had been appointed as the company’s acting data protection officer — because it’s a legal requirement to have one — and no changes to how Twitter handled data had been made.  

    A data protection official said it was likely that Musk would move such decision-making powers to his inner circle in the United States | Justin Sullivan/Getty images

    A key unanswered question is whether, in the wake of the mass layoffs, Twitter’s operations in Dublin are either shuttered or cut back to an extent that regulatory decisions are made in California and not Ireland.

    Such a change would lead the company to fall foul of strict provisions within Europe’s privacy regime that require legal oversight of EU citizens’ data to be made in a firm’s headquarters within the 27-country bloc.

    A data protection official, who asked to remain anonymous to speak candidly, said it was likely that Musk would move such decision-making powers to his inner circle in the United States. That potential pullback could allow any European regulator — and not just the Irish agency — to go after Twitter for potential privacy violations under the bloc’s data protection regime, the official added.

    This story has been corrected to specify how multiple European privacy regulators may target Twitter for breaching the bloc’s rules if the company pulls out of Ireland.

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    Mark Scott, Vincent Manancourt, Laura Kayali, Clothilde Goujard and Louis Westendarp

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  • Germany mulls breaking subsidy taboo to avoid trade war with Biden

    Germany mulls breaking subsidy taboo to avoid trade war with Biden

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    BERLIN — With only six weeks to avoid a transatlantic trade showdown over green industries, the Germans are frustrated that Washington isn’t offering a peace deal and are increasingly considering a taboo-breaking response: European subsidies.

    Europe’s fears hinge on America’s $369 billion package of subsidies and tax breaks to bolster U.S. green businesses, which comes into force on January 1. The bugbear for the Europeans is that Washington’s scheme will encourage companies to shift investments from Europe and incentivize customers to “Buy American” when it comes to purchasing an electric vehicle — something that infuriates the big EU carmaking nations like France and Germany.

    The timing of this protectionist measure could hardly be worse as Germany is in open panic that several of its top companies — partly spurred by energy cost spikes after Russia’s invasion of Ukraine — are shuttering domestic operations to invest elsewhere. The last thing Berlin needs is even more encouragement for businesses to quit Europe, and the EU wants the U.S. to cut a deal in which its companies can enjoy the American perks.

    A truce seems unlikely, however. If this spat now spirals out of control, it will lead to a trade war, something that terrifies the beleaguered Europeans. While the first step would be a largely symbolic protest at the World Trade Organization (WTO), the clash could easily slide precipitously back toward the tit-for-tat tariff battles of the era of former U.S. President Donald Trump.

    This means that momentum is growing in Berlin for a radical Plan B. Instead of open tariff war with America, the increasingly discussed option is to rip up the classic free-trade rulebook and to play Washington at its own game by funneling state funds into European industry to rear homegrown green champions in sectors such as solar panels, batteries and hydrogen.

    France has long been the leading advocate of strengthening European industry with state largesse but, up until now, the more economically liberal Germans have not wanted to launch a subsidy race against America. The sands are now shifting, however. Senior officials in Berlin say they are increasingly leaning toward the French thinking, should the talks with the U.S. not lead to an unexpected last-minute solution.

    Berlin is the 27-nation bloc’s economic powerhouse, so it will be a decisive moment if Berlin ultimately decides to throw its might behind the state-led subsidy approach to an industrial race with the U.S.

    Running out of time

    The clock is ticking for a truce with Biden that looks increasingly unlikely.

    Recent attempts by a special EU-U.S. task force to address EU concerns have met little enthusiasm on the American side to amend the controversial legislation, the European Commission told EU countries this week.

    “There are only a few weeks left,” warned Bernd Lange, the chair of the European Parliament’s trade committee, adding that “once the act is implemented, it will be too late for us to achieve any changes.”

    Lange said that the failure to reach a deal would likely trigger a WTO lawsuit by the EU against the U.S., and Brussels could also strike back against what it sees as the discriminatory U.S. subsidies by imposing punitive tariffs. Warnings of a trade war are already overshadowing the runup to a high-level EU-U.S. meeting in Washington on December 5.

    MEP Bernd Lange Lange said that the failure to reach a deal would likely trigger a WTO lawsuit by the EU against the U.S. | Philippe Buissin/European Union

    It’s precisely the kind of spat that the German government wants to avoid, as Chancellor Olaf Scholz hopes to forge unity among like-minded democracies amid Russia’s war and the the increasing challenges posed by China. Earlier this month, Scholz’s government made an overture to Washington by suggesting that a new EU-U.S. trade deal could be negotiated to resolve differences, but that proposal was quickly rejected.

    There are sympathizers for the subsidies approach in Brussels, with officials at the EU’s executive saying powerful Internal Market Commissioner Thierry Breton is a leading proponent. Breton is already advocating for a “European Solidarity Fund” to help “mobilizing the necessary funding” to strengthen European autonomy in key sectors like batteries, semiconductors or hydrogen. Support from Germany could help Breton win the upper hand in internal EU strategy discussions over the more cautious Trade Commissioner Valdis Dombrovskis.

    Breton will travel to Berlin on November 29 to discuss the consequences of the Inflation Reduction Act as well as industrial policy and energy measures with Scholz’s government.

    The German considerations even echo calls from top officials of the Biden administration, including U.S. Trade Representative Katherine Tai, who are urging the EU to not engage in a transatlantic trade dispute and instead roll out their own industrial subsidies; a strategy that Washington also sees as way to reduce dependence on China.

    Plan B

    Scholz first indicated late last month that the EU might have to respond to the U.S. law with its own tax cuts and state support if the negotiations with Washington fail to reach a solution, lending support to similar plans articulated by French President Emmanuel Macron, who will meet Biden on December 1 in Washington.

    Although Scholz does not endorse Macron’s framing of the initiative as a “Buy European Act” (which sounds too protectionist for the Germans), the chancellor agrees that the EU cannot stand by idly if it faces unfair competition or lost investments, people familiar with his thinking said late last month.

    Negative economic news, such as carmaker Tesla putting plans for a new battery factory in Germany on hold and instead investing in the U.S., or steelmaker ArcelorMittal partly closing operations in Germany, have increased calls in Berlin to consider more state support to counter a negative trend caused by both the U.S. scheme and high energy prices.

    Although the official government line remains that Berlin is still holding out hope for a negotiated solution with Washington, officials in Berlin say that it could be possible to increase incentives for industries to locate the production of green technologies in Europe.

    A spokesperson for the German Economy Ministry said that faced with the challenges stemming from the Inflation Reduction Act, “we will have to come up with our own European response that puts our strengths first … The aim is to competitively relocate green value creation in Europe and strengthen our own production capacities.”

    The spokesperson warned, however, that both the U.S. and EU “must be careful that there is no subsidy race that prevents the best ideas from prevailing in the market,” and added: “Green technologies in particular thrive best in fair competition; protectionism cripples innovation.”

    One important condition that could help Germany and the EU to safeguard said fair competition and to avoid the global free trade system descending into protectionist tendencies would be to ensure that any EU state subsidies remain in line with WTO rules. That means, in contrast to the U.S. law, that those subsidies would not discriminate between local and foreign producers.

    German Chancellor Olaf Scholz first indicated late last month that the EU might have to respond to the U.S. law with its own tax cuts and state support | Sean Gallup/Getty Images

    Crucially, support is also coming from German industry.

    “In the area of industrial policy and subsidies, we could look at measures that are compatible with WTO rules — as the EU is already doing in the chip sector,” said Volker Treier, the head of foreign trade at the German Chamber of Commerce.

    Treier also stressed that “there must be no discrimination” against foreign investors, but added: “This explicitly does not rule out the possibility of settlement bonuses, which in turn should be available to investors from all countries who would be interested in such investment commitments in Europe.”

    In Brussels, the Commission’s competition department has also made clear that it’s looking with an open mind at upcoming proposals.

    “There are no instruments excluded a priori” when it comes to the EU’s response to the U.S. subsidies, the department’s state aid Deputy Director General Ben Smulders said Thursday.

    Barbara Moens, Suzanne Lynch and Pietro Lombardi in Brussels and Laura Kayali and Clea Caulcutt in Paris contributed reporting.

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    Hans von der Burchard

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