Difficult European choices in the new global scenario

The war in Ukraine,added new problems to the European economy, causing both European exports of goods and services to Moscow and import of oil and natural gas to collapse.

The war in Ukraine,added new problems to the European economy, causing both European exports of goods and services to Moscow and import of oil and natural gas to collapse.

One year after the start of the war in Ukraine, important changes are underway in the world economic framework, some that began before the Russian invasion, others accelerated by the evolution of events.

Before Putin's attack on Kiev, the central challenge that dominated the world economy scene was that between the United States and China for technological supremacy. A challenge initiated by Trump and continued by Biden with the application of higher customs duties on imports and the "appeal" to American companies to produce (or bring back) home cutting-edge technologies (microchips, latest generation batteries, semiconductors), gaining independence from China.

Biden also asked Europe to openly take the side of the Americans in the great duel with China. A considerable sacrifice, considering the intensity of economic relations between Europe, Germany in the lead, and Beijing, which should be further expanded with the silk road proposed by the Chinese.

This was the scenario when the war broke out in Ukraine, which added new problems to the European economy. The sanctions have profoundly affected trade between the EU and Russia, causing both European exports of goods and services to Moscow to collapse and Russian imports of oil and natural gas.

Germany above all has entered into a crisis. German growth in 2022, with 1.9%, was lower than both that of France (2.6%) and that of Italy (3.7%) and the euro area average (3.5%). The outlook for this year should confirm last year's trend. According to the International Monetary Fund, the German growth forecast in 2023 is 0.1% against 0.6% in Italy and 0.7% in both France and the Eurozone.

But a new jolt came from the American move to launch the Inflation Reduction Act, a program that makes a $390 billion aid package available to American companies with the aim of fighting inflation and facilitating the environmental and energetic transition.

The aid program includes tax incentives for companies to invest in renewable energy and reduce harmful emissions as well as facilities to increase the energy efficiency of buildings and encourage the purchase of electric cars.

It is clear that Europe, in words "invited" to get on the American bandwagon by reducing relations with China, in fact feels displaced, because Washington's initiative strengthens the competitiveness of American companies to the detriment above all of European competitors, engaged in the ecological and energy transition more than the Chinese, who can easily decide to postpone the application of international climate agreements.

Europe's response to the American move, outlined in the European Council of 9 and 10 February, seems to be to loosen the discipline of state aid, notwithstanding the sacred principles of competition defended by Marghrete Vestager, allowing individual countries to intervene with own funds to favor the ecological transition. The "good practice" of the Next Generation EU program, which mobilized European common resources to revive the economy of the old continent after Covid, would be set aside.

The Germans and the French are thus preparing to allocate substantial national resources for the transition to clean technologies, having large budget spaces (especially the former). Countries like Italy, which have less budgetary space given the high level of debt, will instead be in a bad position and will have to settle for the possibility of allocating part of the unused resources of the 2014-2020 structural funds to environmental transition.

Too little. On the other hand, in a phase in which the new stability plan is being launched, Brussels and Berlin see Italy as the one that has made the most use of the funds from the Recovery Fund and fear that Italians are getting used to it too well!

However, in their short-sightedness they do not understand that the problem is political. The European Union, which is already suffering heavily from the consequences of a war on its doorstep, must now prepare itself for a double American offensive on the economic front. It would be more logical for Europe to appear united in tackling important issues such as those of the ecological and energy transition, in order to gain greater bargaining power in any negotiations with the Americans. Thus it would also achieve the result of being viewed with more respect by both Washington and Beijing. And maybe even from Moscow

Attilio Pasetto

Economics analist