TO COMPETE WITH THE REST OF THE WORLD, WE NEED AN INDUSTRIAL POLICY
Interview with Alexander de Croo, Prime Minister of Belgium
Of the various initiatives launched by the Von der Leyen Commission, one of the best known is the European Green Deal, guiding the EU to the overarching aim of being climate neutral by 2050. How can this Green Deal be reconciled with the multiple industrial policy proposals and legislation the EU has launched, ranging from batteries to microchips? How do these initiatives contribute to the EU’s autonomy and security, while at the same time ensuring an affordable society for EU citizens? Belgium currently holds the EU Presidency, and has made the EU’s long term competitiveness and industrial policy the second priority of its six point programme. We interviewed Alexander de Croo, Prime Minister of Belgium since October 2020, on what this means in practice, and where the EU needs to progress further.
By Gaston Moonen
Creating a truly single market… through market innovation
Strategic autonomy, greening and industrial policy are well known terms in EU political circles. When asked why Belgium’s Presidency has EU competitiveness and industrial policy as the second priority in its beEU programme, Prime Minister de Croo refers to the first priority: the rule of law. ‘Because our Union is not only a union of markets, but also a union of values. And if you also want the economic side to work well, the rule of law is essential. The rule of law unites us and makes our Union function’.
According to Mr De Croo, industrial policy is high on the agenda because the world has changed geopolitically in a fundamental way. ‘We Europeans believe in democracy, free trade, and rights. The rest of the world has not evolved in the way we Europeans would like to see. More conflict in the world and climate change are forcing us to behave differently and to integrate different parts of European policy better’.
If you want a green EU able to compete with the rest of the world, you also need an industrial policy.
‘Up to now, you could say that our trade, industrial, and climate policies were quite detached from one another. The Green Deal is a good piece of legislation, a good example of how we work. But the flip side of the Green Deal — how we achieve it, and how we support our industry in a world where competition is geopolitically oriented — is the side we miss’. For Mr De Croo, one of the goals of the Belgian Presidency is to see what is needed to make the Green Deal possible from an economic perspective. ‘If you want a green EU able to compete with the rest of the world, you also need an industrial policy. We need to integrate all these pieces that are not well synchronised’.
If you look at the capital that is needed to scale up these innovations, then you see we are falling behind.
But how do we stay competitive with the various objectives and circumstances we are facing, ranging from the EU’s zero emission goals to its high energy prices compared with other regions of the world, from regulation and fragmentation to dependency on imports of critical raw materials? Mr De Croo identifies one of the EU’s major assets: ‘The European continent remains the continent of innovation. In many areas, we are real leaders in terms of innovation. But a few links are missing. If you look at the capital that is needed to scale up these innovations, then you see we are falling behind. One of the reasons for this is that we don’t have a capital markets union. It’s something that has been on the table since 2008, but we haven’t been able to achieve it’
He explains that the capital needed to scale up innovation often comes from US private equity funds, and that a large part of the money that these funds raise comes from Europe: European pension funds that invest in US funds which subsequently finance innovation in the EU. ‘Which means that part of the value added — or part of the value increase — is taken by these US funds. The EU’s answer is often to fund capital with public money, which I don’t think is very efficient, especially because there’s capital here in Europe. Also, innovation — e.g. in pharmaceuticals — arrives first on the US market, and then in Japan and China, before coming to Europe. So even in terms of access to innovation, we fall behind’. In Mr De Croo’s view, this can be avoided by creating a capital markets union. ‘We haven’t been able to do it so far, but in times of crisis we Europeans are able to move forward’
‘Energy costs are a challenge, but we have solutions. In renewables — e.g. offshore wind — we are still the leading continent from a technology point of view’. Mr De Croo notes that the EU created a European energy policy in the space of two years. ‘Who would have thought that we would be able to disconnect from Russian gas in the space of just two years. It turned out that there were alternatives. Yes, there are cost disadvantages; but there are also solutions, and our resilience in times of crisis is enormous. The COVID 19 pandemic and the energy crisis have shown what we can do. Let’s build on that and use the momentum to move forward’.
Using the US Inflation Reduction Act as an opportunity
To serve as a springboard out of a crisis, the US launched its Inflation Reduction Act (IRA) in 2022. For Mr De Croo, the IRA contained several elements which were not fair from a free trade perspective, but which have been addressed to a certain extent. However, he also sees several positive aspects of the IRA. ‘For 20 years, we have been complaining that the US should move to our side of the table by supporting green technologies in the fight against climate change. Now they’ve moved in that direction, we should stop complaining and be happy’. As for the EU’s response to the crisis — the Recovery and Resilience Facility (RRF) — he views it as a short term answer. ‘The RRF is good, but limited in time‘
If we use them against competitors outside the EU, I can understand it and feel comfortable with it; but if we use subsidies to compete with one another inside the EU, then we are not on the right track.
Mr De Croo sees the most problematic aspect of the EU’s reaction to the crisis in exemptions from state aid rules. ‘Because we are competing against each other with subsidies. And instead of strengthening the single market, we are dismantling it. I am not always against subsidies if we use them to defend ourselves against state led economies such as China, or against incentives in the US. If we use them against competitors outside the EU, I can understand it and feel comfortable with it; but if we use subsidies to compete with one another inside the EU, then we are not on the right track’.
He refers to the study on the single market which the Council and the European Commission asked Enrico Letta to produce. ‘I understood that some interesting analysis came out of that, particularly the finding that the capital markets union needs to be achieved. Another important point is how we implement our common regulations’. As an example, he refers to the EU’s general data protection regulation (GDPR). ‘On a global scale, the GDPR is quite well regarded. But implementation is different in every EU member state. For a European start up, the GDRP did not solve very much because it is still different everywhere. Another example he cites concerns regulators. ‘They are actually very different from market to market, and I think there is a need for better integration’.
…we have not adapted enough. We need a single market 2.0!’
Prime Minister De Croo explains that although common regulation may be adopted at EU level, important differences occur in terms of implementation. ‘This is really the next dimension. Letta’s report wants us to work on capital markets, the implementation and enforcement of rules, and the behaviour of regulators. The single market dates from the era of Jacques Delors, and is now 39 years old. It is a miracle, and it shows what a visionary he was. The world has changed quite a lot since then, and we have not adapted enough. We need a single market 2.0!’. He notes that this is not an easy subject, but it is important for businesses. ‘And ultimately also for people’.
As Europeans, we are quite good at regulation, but we sometimes do a bit too much of what we are good at…(…) ‘I would like to see a perspective which is built more on trust than on mistrust.
Comparing EU initiatives with US actions, he observes that the EU tends to regulate. ‘To use sticks, while the American approach is about carrots, i.e. incentives. As Europeans, we are quite good at regulation, but we sometimes do a bit too much of what we are good at by overregulating compared with the rest of the world’. This is the feedback he has received in particular from medium sized companies. ‘I would like to see a perspective which is built more on trust than on mistrust’.
Returning to EU initiatives, Mr De Croo considers the EU initiatives taken in the chip sector, with the European Chips Act in 2023, as a good example of how the EU can respond to the IRA. ‘The IRA is built around fiscal incentives — an instrument we don’t have at EU level since things are arranged nationally. Politically speaking, it is interesting that the ones who often oppose any fiscal powers at Union level are those who complain the most’. For Mr De Croo, the European Chips Act was implemented faster than its US equivalent, and was therefore the right approach. ‘We looked to see where our expertise is in Europe, e.g. Frauenhofer in Germany, CEA Leti in France and IMEC in Belgium. EU funds should be allocated on the basis of expertise, not on the grounds that there are 27 of us and everyone needs to have a piece of the cake’.
He views this approach as the way forward: first identify expertise and then allocate funds on that basis. ‘Take IMEC, for example: how do we draw other industries into the expertise that IMEC has? First, you create expertise, but then you open it up to the rest of industry. That is the right answer’. He is not in favour of giving outright subsidies. ‘For example, I met the CEO of Intel who was going through Europe with a shopping cart to see where he could get the most subsidies — we’re talking about billions — for his new plant. I said: “You know, I can give you access to 2 000 PhD students in electronics: that we can offer, that we do have at IMEC. Subsidies we don’t do, because we think you’re better off with the knowledge infrastructure provided by 2 000 PhDs. It’s your choice”’.
One of his concerns is how to coordinate knowledge better in order to be a stronger player outside the single market. ‘Twenty years ago, Europe was the leader in the photovoltaics industry. Today, everything has moved to China. There is a risk that the same will happen with the offshore wind
industry. Internal competition is good, but we need to coordinate more. We have a tendency not to act towards the outside as a single market. I am not advocating protectionism, but better use of our knowledge so we can stay ahead on the innovation side’.
He concludes that the European Chips Act was a good response. ‘If we want to stay ahead in the field of innovation, that’s the way forward: we need to assess how good different players are, with the attitude of “if some of us get better, then we all get better”‘. In his view, this is different from the RRF approach, where everyone wants their own piece of the cake.
EU stepping up to its global role
Mr De Croo thinks that for EU citizens and voters, the world has changed, as has the EU’s position in it. ‘We used to be the centre of the world, but we are less so today. There are different models, and you might not agree with them, but they are there. The idea that we are leading and setting the direction: that has changed.’ Nevertheless, he believes Europe still has many assets to play a global role. ‘We remain a major player in the world: a major trading partner and investor. In this geopolitical environment, you need to act with words, but sometimes you also need to show some muscle, the leverage you can have’. He adds that everything the EU has done over the past few years shows that it has the capability to act. ‘As the EU, we are a geopolitical force, which has been the ambition of the Von der Leyen Commission from the beginning. We are not where we should be, but we are on our way. The transformation we have undergone in a short period of time is quite remarkable’.
…sometimes you also need to show some muscle, the leverage you can have.
Another ambition with which the current Commission can be credited is the European Green Deal. In his contact with industry, farmers and entrepreneurs, it struck Mr De Croo that nobody was saying that we should scale back on the Green Deal. ‘I was at an industry summit in Antwerp, where every part of the energy sector was represented. The reaction I heard was: “The Green Deal is there, we want to do this, and we want to be part of it”. We need to create the right environment to do it. What everyone wants is a lighter administrative burden. Costs will nevertheless continue to be an important factor, whether in farming or elsewhere’.
Mr De Croo believes that the way the EU trades with the rest of the world will be essential. There is a risk that production will go somewhere else, where norms are less strict. ‘We need to address this; we need more reciprocity in the way we deal with the rest of the world. Keeping industry here is good for jobs and prosperity. But even if you don’t believe in that, industry moving away from Europe is a bad thing from a planetary perspective because you will have more emissions and pollution elsewhere. Yet another reason why it is important to keep industry here, including food production’. He refers to the EU Common Agricultural Policy, which accounts for around 35 % of the EU budget. ‘In the past, the question was whether such a large amount was necessary. Today, it is quite clear why it is necessary. The EU budget is about 1.3 % of the EU’s GNI, so less than 0.5 % of our GNI is for the EU Common Agricultural Policy, i.e. something which affects us at least twice a day. We need to allow farmers to develop and innovate’
…industry moving away from Europe is a bad thing from a planetary perspective because you will have more emissions and pollution elsewhere.
Forcing others to adapt to us
The risk of importing resources or products that do not meet EU conditions, e.g. environmental ones, is an issue that Mr De Croo feels both the member states and the EU need to address. ‘In terms of inputs, access to energy is crucial, particularly for Belgium as an energy hub, with natural gas and soon hydrogen coming in. We also need to stimulate investments that drastically reduce CO2, by helping on the fiscal side, providing a stable business environment with certain incentives. This is all national policy’.
At EU level, he sees the Carbon Border Adjustment Mechanism (CBAM) as an important tool. ‘You can be the greenest producer in the world, but if somebody on the other side of the planet is not and then dumps their product on your market, you have a problem. The CBAM forces the rest of the world to adjust to us’. He stresses his belief in trade, and the need for the EU to remain open to the rest of the world. ‘I just want reciprocity. What the Chinese are allowed to do here, I would love to be able to do in their market, which is certainly not the case today. The huge trade imbalances we see today between China and Europe are a matter not only of price, but also of access’. He recalls an experience he had in China at the end of 2023. ‘When they said they were protecting their share of our market, I replied that they should know because they’ve been doing it for decades. Now the Commission is carrying out an investigation into electrical vehicles, which is fine under WTO rules. If it’s fair, then that’s OK; if it’s not, then we should act’.
The CBAM forces the rest of the world to adjust to us.
On all these issues, Mr De Croo believes it is important for the EU’s members to stick together. ‘Others try to divide the EU: the Chinese, the Russians and even our British friends during the Brexit talks. As long as we stick together, particularly where trade and the single market are concerned, then everyone understands their value’. Mr De Croo believes that politicians should also realise their limitations as market regulators. ‘As regulators, we need to set objectives and say we have certain incentives to reach them. The technology they use is up to them. As Europeans, we have a tendency to define not only the objectives, but also the way to get there. This is not a good thing, because as policymakers we are not good at innovation. We need to be good at governance and let industry do the innovating, and be less definitive when deciding what type of technology we need’. He gives hydrogen as an example, and has doubts about whether it is efficient enough as an energy carrier. ‘The way things look now, electrification comes first, then blue hydrogen, and then the transition to green hydrogen’
We need to be good at governance and let industry do the innovating…
Although he is less concerned about innovation in Europe, he is concerned about labour. ‘You know, Belgium is a country with rather high labour costs. We have automatic inflation indexing here, and recently the rate was +14 %. But when I talk to businesses, this is not their immediate priority. Their priority is the availability of people: “Even if they’re expensive, at least give us the people”. Labour shortages are not only killing specific jobs, but often some related jobs as well’. Sometimes we need organised migration. We should do this together in the EU and reach comprehensive agreements in other parts of the world’. He stresses that Europe is still an attractive place to live for many people. ‘I mean, is there a better place to live in the world than Europe? That’s why so many people want to come here!’ He adds that there should nevertheless be clear conditions from the outset about length of stay and returns. ‘We somehow need to create a circular migration model, with people taking knowledge back to their home country or region’.
Mr De Croo is a staunch believer in innovation as a means of achieving the EU’s various goals, and thinks that the solution of ‘degrowth’ that some people are suggesting is not the way forward. ‘None of us have ever solved our biggest challenges by shifting into reverse gear. We need innovation and investment, and that is not going to happen with negative economic scenarios. Solutions are going to come from innovation. Our way of life will only really change if we have the technology to support it’.
Solutions are going to come from innovation. Our way of life will only really change if we have the technology to support it.
He believes that the ECA can provide important insights into the nature and impact of policymaking. ‘First of all, one thing the ECA does as a public auditor is to provide transparency. And transparency is the best disinfectant for anything that goes wrong. We are human, and humans make mistakes, so bring those mistakes into the open and see what we can learn’. He highlights a second need: ‘Make us more efficient. What the ECA does in its reports is to identify what works well and what doesn’t’.
When it comes to the effectiveness of industrial policies, Mr De Croo notes that some may obviously work better than others. ‘It’s also interesting to know how well everything fits together. Its almost makes sense that there are silos, but if we can integrate them, then so much the better’. By way of conclusion, he observes that ‘We are constantly being challenged by our voters, and that is how democracy works. But we should also be challenged by experts who say, “We’ve looked at this, and this is how it can be improved”. So, keep challenging us!’.
