RIETI Report September 29, 2023

Europe’s Response to the U.S.’ Inflation Reduction Act

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This bi-weekly newsletter will keep you updated with the recent columns, event information and research results by RIETI fellows and other leading economists in Japan and around the world.

In this edition, we are featuring topics related to Europe’s Response to the U.S.’ Inflation Reduction Act. In a recent BBL seminar hosted by RIETI, Dr. Jeromin Zettelmeyer, Director of Bruegel, shared his thoughts on the philosophy of EU economic policymaking, challenges faced by the EU, economic nationalism, and general alternatives.

We hope you will enjoy it. If you have any feedback, we would love to hear from you (news-info@rieti.go.jp).
Editors of RIETI Report (Facebook: @en.RIETI / Twitter: @RIETIenglish / URL: https://www.rieti.go.jp/en/)

This month's featured article

Europe’s Response to the U.S.’ Inflation Reduction Act

Speaker: Jeromin ZettelmeyerDirector, Bruegel

BBL Summary


Bruegel, a Brussels-based think tank, was founded in 2004 on the 50th anniversary of the Élysée Treaty between France and Germany. It employs 50-60 individuals total and is in some ways similar to an international organization, because of the government members. Initially limited to EU governments, the charter was modified after the UK’s departure from the EU, allowing for other governments to hold membership. Despite its contributions, Bruegel has maintained its independence from the European Commission.

Net Zero Industry Act (NZIA)

This presentation has a particular emphasis on the EU’s NZIA, which focuses on the domestic dimension of the EU response to the Inflation Reduction Act (IRA). It is the most recent and weakest response by the EU to the IRA.

Philosophy of EU economic policymaking (at the EU level)

Europe’s market-based model, developed in Germany after World War II, gained consensus in the 1970s and the 1980s, and was codified in the Lisbon Treaty. The treaty defines the competencies of the European Commission, responsibilities of members states, and functioning of the EU. The treaty emphasizes that competition within the EU promotes efficiency and growth without a trade-off between competition and external competitiveness.

This is an important framework, especially in the historical context of some European countries, including Germany and Italy, which during the interwar period, believed that limiting competition within their countries benefitted their competitiveness in international markets. They prioritized the promotion of national champions into global markets, with somewhat disastrous results for the world. The European Treaty’s philosophy of competition and external competitiveness is a stark contrast to that perspective, and it is maintained in order to ensure that a single market is in fact possible throughout the EU by preventing national governments from bolstering their own corporations at the expense of other EU corporations and market-based competition.

The EU also supports the multilateral trading system and World Trade Organization (WTO) because of the belief that international trade and multilateral rules benefit the EU.

The EU has the perspective that growth and development among the EU and its trading partners such as Japan, the U.S., and emerging markets, such as China are positive developments for the EU as well.

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