The Era of Rearmament

The Ukraine war reshapes European politics and priorities. From being hopefully protected under a largely US financed and equipped NATO umbrella, the EU is adopting to a situation where they are afraid of being left alone if attacked by Russia.

Two alternatives exist for a way forward. Try to develop an all-European security structure which includes Russia, or rearmament against Russia. 

Nothing indicates the EU and their partners are interested in the first alternative. Peace and negotiation efforts during the Ukraine war have been attempted by Belarus, Israel an Turkey. The west has obstructed the efforts. Now the US has started a peace process, and the europeans are not happy with that. 

The strongly preferred alternative is bolstering the defence as much and as soon as possible. Albeit the possibility of a Russian attac seems unrealistic. Why should Russia attac other European countries,  most of them NATO-members. Ukraine is special, Russia has warned for many years that the country has to be neutral. Of course that can not be used as an excuse for the invasion, but it can explain it.

President of the EU Commission, Ursula von der Leyen, presented last week a defence package. It is based on the assumption that Europe is threthened in a very real way. Europe have to massively boost it`s defence spending. We are in the era of rearmament.

The ReArm Europe plan consists of 5 parts, together they are meant to mobilise close to EUR 800 billion for a safe and resilient Europe.

It is unclear how much weapons and defence systems Europe can produce and how much must be delivered from others.  According to EU`s Compass of Competitiveness is the unions defence industry suffering from a combination of structural weaknesses and decades of underinvestment.

     

 

Time for rent-seeking - EU introduces Clean Industrial Act

Not competitive globally, the EU has presented a plan for competitiveness and decarbonisation - the Clean Industrial Deal.

As prescribed by  Mario Draghi in his report last year, the union will use decarbonisation efforts to catch up with the US, China and others. 

Main elements of the Clean Industrial Deal are

• Affordable energy. To day energy prices are much higher in the EU than in US and China. An affordable Energy Action Plan shall lower the energy bills for industries, businesses and households. 

• Boosting demand for clean products. A Industrial Decarbonisation Accelerator Act is meant to increase demand for EU-made products. The Commission will also review the Public Procurement Framework in 2026 to introduce sustainability, resilience and European preference criteria in public procurement for strategic sectors.

• Financing the clean transition. The EU will mobilise over €100 billion to support EU-made clean manufacturing. Among the measures are adoption of a new Clean Industrial Deal State Aid Framework, decarbonise industry and ensure sufficient manufacturing capacities of clean tech and strengthening the Innovation Fund.

• Promoting circularity in EUs decarbonisation strategy and achieving access to critical raw materials.

• Acquire reliable global partners.

• Actions to get the necessary skills to support the transition to a low-carbon economy, including skills in clkean technologies, digitalisation and entrepreneurship.

This is what the industry has been waiting for! When US (Inflatian Reduction Act) and China are subsidising their industries, its difficult to compete. 

Although EU is implementing Draghis advise, he also warned that using the green agenda to get competitive is risky. If unseccessful it can make the situation worse. 

Keeping the unions extremely ambitious climate policies while fighting for competitiveness prioritising clean tech industry seems like a fantasy. The US has abandoned the climate change strategy, now it is "Drill baby, drill!". And if the EU  can come up with successful and interesting renewables, it will probably be met with US tariffs. 

Versus China the challenge will be to produce better products than the asiatic country. Not an easy task, Chinas electric car and battery industries are highly competitive. 

Perhaps the new big investment in defence industry can strengthen industry and economy, but the color will not be green.