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What should Europe’s industrial policy response to the US look like?

What should Europe’s industrial policy response to the US look like?

Economists in discussion

Lars Feld (left) and Jens Südekum discuss, among other things, the EU Commission’s industrial policy proposals and collective European borrowing.

(Photo: Imago)

Berlin Federal Economy Minister Robert Habeck (Greens) has declared 2023 the “year of industrial policy”. With the latest US subsidy program, the “Inflationary Reduction Act” (IRA), which includes $369 billion in government aid for green industries, demands for government intervention in the economy are mounting in Europe. The EU Commission this week proposed tax breaks and relaxation of state aid rules in response to the IRA.

But how much business policy should be, and where is the limit? Two German economists have very different views. Lars Feld, head of the Freiburg Eucken Institute and independent chief adviser to Finance Minister Christian Lindner (FDP), believes that regulation is also necessary in these times. “Too much industrial policy is harmful,” he says. Jens Südekum, professor of international economics at Düsseldorf, counters: “We get nothing with textbook logic alone.”

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