Seeing the risk of being abandoned by an industry rushing to take advantage of a $369 billion subsidy program, Berlin he is preparing to show special generosity to enterprises in order to keep them inside Germany. Without specifying the exact amount, the German finance ministry announced yesterday that it would provide double-digit billions of euros to support industries and facilitate their transition to a green economy. To this end, it is creating a mechanism called Carbon Contracts for Difference, which will facilitate the transition of labor-intensive industries from fossil fuels to renewables and hydrogen. This mechanism allows enterprises that reduce emissions to receive subsidies from the German state. In a statement, the ministry emphasizes that energy-intensive industries of all sizes will benefit from the subsidies, and a model for generating cheap electricity from renewable sources is underway.

Berlin’s plans are its response to the apparent risk of deindustrialization facing Europe’s largest economy, and with it the entire Old Continent, whose industries are lured by bold subsidies from the Biden package, as the IRA program is known. But in particular, Europe’s largest economy with the most competitive industries, Germany, is facing a grim reality: Even its historic industries are considering handing over to the superpower without subsidies. Among them is iconic car maker Volkswagen, which has froze its plan to build an electric car battery plant in Eastern Europe and has prioritized setting up a similar plant in America. The bait, of course, is the 10 billion euros in subsidies he estimates he can get from the so-called Biden package for a transition to a green economy. After all, pressure is increasing from the American corporation Intel, which has agreed with Berlin on the construction of a plant for the production of microprocessors in Magdeburg. The agreement provided that the German state would subsidize the American company in the amount of 6.8 billion euros. Now, however, Intel is back with new demands on the German government for additional subsidies of between 4 and 5 billion euros, citing economic difficulties. The microprocessor unit in question is part of a wider investment program that includes production in Europe.

Berlin’s plans are its response to the apparent risk of Germany’s deindustrialization due to the bold subsidies of the Biden package.

A similar stance is taken by battery maker Northvolt, which has already said it will likely choose the US over Germany to install its next major division. Of course, he leaves open the choice of a European country if Brussels gives it more generous support. Northvolt is counting on subsidies of at least 8 billion euros if it locates its unit in the US. Berlin’s actions may, for the moment, reassure those concerned about the risk of deindustrialization in Europe, given that all proposals submitted by the Commission in response to the Biden package have been described by market participants as insufficient. However, at the same time, it justifies the fears of those who have repeatedly pointed out that relaxing EU rules on state aid will increase inequality between EU member states, since this will only work in the interests of strong economies, such as Germany, which can afford to subsidize their industry. .