Monday, 7 November 2022 — Oriental Review

The U.S. is luring in European businesses that cannot exist in the energy crisis. Washington has even legitimized this process. Germany and France are trying to resist. Who will win in this unfolding confrontation between Europe and the New World?

Washington has never concealed its economic claims on Europe. Earlier, it explicitly stated that it wanted to sell its SNG to Europe itself, refouling Russian gas. Now it wants to capitalize on the troubles of European industry that were caused by the enforcement of anti-Russian sanctions.

How? The U.S. passed the “Inflation Reduction Act”. Under it, the U.S. will cut taxes and provide energy incentives for businesses that open on U.S. soil. This law caused uproar in the European Union, because it hits European industry. German Chancellor Olaf Scholz and French President Emmanuel Macron consider it unfair competition from the U.S. and even intend to conduct negotiations with the U.S. on the issue, Politico newspaper reported.

If negotiations with Washington fail, the EU is ready “to strike back”. By this blow, the EU will also have to subsidize its European enterprises inside the EU to offset the unfair competitive advantage of the United States.

Germany and France are absolutely right that the main aim of the U.S. law is not to lower inflation, but to lure European factories to their own.

Inflation in the U.S. is indeed record high, something Americans are not used to. But the law itself will not really help to lower prices.

The purpose of the law is not to reduce inflation in the U.S., but to reduce the budget deficit by attracting businesses from all over the world to the U.S. economy, to stimulate economic growth and to implement Biden’s electoral “green program”, surpassing China in this matter.

For instance, the Congressional Budget Office was of the opinion that the legal act would indeed reduce the federal budget deficit by $100 billion but have only a minor effect on inflation.

The title of the document serves only propaganda purposes, since the Congressional elections are coming up, and Biden’s party cannot lose. In fact, even in the U.S. famous economists doubt that the law will actually reduce inflation. But it will raise a lot of money to decarbonize the economy, collect taxes and replenish the budget.

But the much sadder news for Macron and Scholz is that their “retaliatory” subsidies are unlikely to change the situation dramatically.

First of all, the difference in energy prices in the U.S. and the EU is enormous. In Europe as a whole, energy costs have risen fivefold this year, while BASF in Germany is claiming an eightfold increase in costs and threatening to move production to the US. In the States, prices have also risen, but certainly not as much.

Secondly, prices are not even the main thing. In the U.S., there is now a large enough supply of energy resources on the domestic market. Although the situation is different, for example there is a lot of gas in West Texas, while in the Northeast there is a diesel crisis. But objectively, the situation in the U.S. is quite good unlike 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 cannot be solved.

Subsidies to investors in new projects will not be enough for them to decide to settle down in the EU. What is the point of opening new production facilities in Europe if an investor has no idea whether he will be able to connect to the network and contract the required volumes of gas?

Europe has indeed already lost out on new projects. Because investors see that the situation is too uncertain, and it’s easier for them to go to the U.S. even without any additional subsidies. Canada, Australia, and the Middle East are also attractive sites for new projects. Europe is unattractive, and subsidies will not fix that. What is the point of discussing subsidies if Germany does not fully understand how it will survive the next winter in terms of resources? Even if an investor is willing to pay a high price for energy, but not too high, he will be discouraged by the problem of sources of additional energy resources.

The European Union is expecting one to three years of severe shortages of all energy resources which will be very difficult to endure. It will be characterized by the reduction and limitation of energy consumption, which is what we are witnessing now. In the next few years, the situation will be somewhat better. But on the whole, the European Union will be living in cramped conditions for at least the next five to eight years. This is a very long time for modern investments.

We are talking about a shortage of all energy resources: gas, electricity, and, most likely, oil and petroleum products. The EU has not yet been able to fully assess the consequences of the oil embargo, since the oil embargo will not come into force until early December of this year. Meanwhile, the situation in the EU is already critical.

For the first time since the war, many countries in Western Europe are saying that they may have winter rolling blackouts. This already speaks volumes, even if it does not 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 larger numbers than they did before the current crisis.