Europe should not copy Bidenomics
euro zone’s economy is increasingly falling behind America’s. As we report, the worst-suffering European economies are grappling with inflation of over 10%, rapid ageing, high public and private debts and exposure to autocracies. This week the IMF said the euro-zone economy would grow by only 0.7% in 2023.
It expects America to grow three times as fast. Europeans increasingly see Biden-style industrial policy as the answer. The EU has loosened state-aid rules that restrict subsidised investment, and aims to set targets for the bloc’s production of green goods.
France and Germany are at loggerheads over how (not whether) to subsidise electricity for industrial users. Britain’s Labour Party, which will probably form its next government in 2024, also aims to spend lavishly on industry. Yet copying Bidenomics is a mistake.
As in America, luring manufacturing with subsidies will waste money and, over time, encourage firms to compete for subsidies rather than customers. And though it is true that France, whose dirigiste economic philosophy is in the ascendant in Brussels, has had some successes with industrial policy, the web of institutions and norms that restrain the excesses of French interventionism are difficult to copy—just as Germany’s economic model could not be transplanted elsewhere when it was held up as a paragon. Europe’s recent experiences are in fact a case study of the power of markets.
After Russia invaded Ukraine, German industry claimed that the loss of Russian gas would cause an economic catastrophe. Instead, industrial production held up as firms quickly adapted. Unlike America, the EU already has a uniform carbon-price mechanism in place.
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