(Bloomberg) -- German Chancellor Olaf Scholz and Italian Prime Minister Giorgia Meloni put on a show of unity, downplaying differing stances on how the European Union should come up with funds to boost investments in climate-friendly technologies.

The European Union has unveiled a road map for how it plans to keep its industries competitive as the bloc tries to catch up to the US and China, which offer huge subsidies to domestic green technologies. Germany and Italy have so far voiced contrasting approaches on the urgency of additional funding and on its use.

“We all agree that we don’t want to get into a global subsidy race,” Scholz told reporters at a joint news conference with Meloni following their talks in Berlin. “We are all very much in favor of coming to an agreement with the US,” Scholz said, adding that local content rules under the IRA framework must not put European companies at a competitive disadvantage.

“We must not be treated worse than Canada and Mexico, if I may make this flippant remark,” Scholz said. “We all agree on this in the European Union.”

European Response

“It’s crucial for us to swiftly arrive at a European response to improve competitiveness of our companies,” Meloni said. “Our position is cautious on changing state aid rules as we all need to maintain a level playing field in Europe.”

The European Commission, the EU’s executive arm, wants to use its Green Deal Industrial Plan to boost national support for companies through investment aid and tax credits, while also tapping into common European funds to underwrite important projects involving sectors such as hydrogen and quantum computing, according to a proposal presented Wednesday.

The plan, which the EU’s 27 leaders will discuss during a summit in Brussels next week, is a response to US President Joe Biden’s Inflation Reduction Act, which includes roughly $500 billion in new spending and tax breaks over a decade. The commission’s plan has received a mixed reception in the EU, with some concerned that the subsidies will only help richer countries like Germany, which have the fiscal capacity to invest in domestic firms. 

Additional Funds

The main point of contention between Scholz and Meloni is their differing views on whether the bloc should come up with additional funds on top of the hundreds of billions of euros of existing, but yet-to-be-tapped state aid money, and if such additional funds must be made available mainly for member states with less fiscal wiggle room.

While Scholz has not categorically ruled out additional EU funds, he has stressed that he first wants to focus on how existing state subsidies from untapped EU programs can be invested faster. For example, Scholz wants the EU to reallocate unused money from the post-pandemic recovery fund and beef up its energy investment program — something Meloni also urges. 

Scholz also wants the bloc to loosen its existing state aid rules and give national governments more flexibility for their subsidy decisions.

“We also support the idea of a sovereign fund, financed by fresh joint debt,” Meloni said. “Of course we know there are different positions but it’s also a matter of timing — such an initiative would need time and we need to give some answers immediately. The fastest answer is full flexibility of existing funds.”

Scholz’s Social Democrats suggested in an industrial strategy paper last month that additional joint financing instruments should be “examined constructively” - a demand which the chancellor has neither rejected nor openly embraced. But people familiar with Scholz’s thinking have told Bloomberg News that he is in principle open to the idea.


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