Government advisory council advises against subsidy race with USA

WScientific advisors to the federal government warn of a subsidy race between the EU and the United States. In response to the controversial US subsidy program for more climate protection in Europe, launching programs yourself is not expedient, according to a report by the scientific advisory board at the Ministry of Finance, which is available to the German Press Agency.

Additional debt-financed spending in the EU could push up inflation and lead to higher interest rates. “That would lead to crowding out of investments in other sectors,” warn the scientists. The Inflation Reduction Act in the USA was “born out of political necessity” because higher taxes on CO₂ emissions or an effective CO₂ price are not politically enforceable there.

Subsidy race would do more harm

Europe has significantly more leeway here. The scientists advise, for example, to speed up planning and approval processes, improve cross-border infrastructure and reduce tax and regulatory burdens.

This confirms the position of the Ministry of Finance, State Secretary Florian Toncar said. A subsidy race would do more harm than good. “Rather, the EU should use structural reforms to increase competitiveness, for example by reducing bureaucracy,” said Toncar.

The chairman of the advisory board, economist Jörg Rocholl, welcomed the efforts of the European Union to soften the protectionist elements of the subsidy program in talks with the USA.