A new policy brief from the Delors Centre explores what the US Inflation Reduction Act (IRA) means for Europe’s economy. The study quantifies the dramatic impact US subsidies could have on production costs for various climate-friendly technologies in the US, China and Europe.

The US Inflation Reduction Act (IRA) has rekindled European fears of missing out in the global green technology race. However, EU member states still disagree on whether the greater risk lies in doing too much or too little. At heart, there remains significant confusion on which European sectors stand to lose competitiveness; how much the EU should fret about these losses; and whether there is a need for joint support from the EU level to avoid economic divergence. We take a first stab at the existing sectoral evidence. Our results suggest that the IRA will undercut European production costs in several sectors. This does not mean the EU must mimic the US program. However, it does mean that the EU needs to turn its piecemeal Green Deal Industrial Plan into a coherent strategy. This requires a greater focus on green industries in which Europe can develop a competitive edge and more joint financing at the EU level.

The whole study is available here.

This is How Unfairly Wealth is Distributed in Germany – Article (German, Paywall)
Markus Zydra, Süddeutsche Zeitung, 24.04.23
Die Vermögen in Deutschland sind extrem ungerecht verteilt. Die zehn Prozent vermögendsten Haushalte besitzen 56 Prozent des gesamten Nettovermögens, so die Bundesbank in ihrem Monatsbericht, der am Montag veröffentlicht wurde. Die vermögensärmere Hälfte der deutschen Haushalte besitzt insgesamt gerade einmal drei Prozent des Nettovermögens.

Extreme Wealth is a Serious Problem for Democratic Societies – Interview (German)
Christoph Eisenring, NZZ, 20.04.23
Gabriel Zucman is the enfant terrible of the economists’ guild. Multinational companies and their rich owners are the biggest profiteers of globalisation, he says – and rising inequality is a danger to democracy. Zucman sees tax competition as the prime example of a bad kind of competition.

Macron Plans Reforms à la Hartz – Article (German)
Niklas Zaboji, Süddeutsche Zeitung, 19.04.23
After the pension reform, the French government is already tackling the next major economic policy construction site. Paris is putting pressure on the social partners and striving for full employment.

The False Choice Between Neoliberalism and Interventionism – Article
Yuen Yuen Ang, Project Syndicate, 18.04.23
Over the past 40 years, the United States and other Western liberal democracies have pursued policies that prioritized markets over government intervention. But, as China and even the US have shown, governments are not limited to a binary choice between laissez-faire and top-down planning.

How Inequality Blocks the Climate Transition – Blogpost (German)
Julia Cremer & Vera Huwe, Makronom, 17.04.23
New research shows that higher inequality is also a cause of the climate crisis. A climate-social policy is therefore necessary to increase the effectiveness of climate protection measures.

“Contacts With Richer People are the Decisive Factor for Advancement” – Interview (German)
Nicolas Abe, Der Spiegel, 16.04.23
Who rises in life, who stays behind – and what does that depend on? Harvard economist Raj Chetty has analysed huge amounts of data. He can answer these questions for every region of the USA.

The Myth of Renunciation: This Is Not How Climate Protection Works – Essay (German)
Frank Wiebe, Handelsblatt, 05.04.23
To save the world, we must stop or even reverse economic growth, they say. This sounds plausible, but only distracts from a consistent climate policy.

Fiscal rules entail a fundamental trade-off between enforceability and flexibility. In a recently published article, German Finance Minister Christian Lindner seems to be concerned solemnly with commitment without acknowledging that there exists a trade-off at all. Because he fears that public debt levels will become a ‘subject of political negotiation’, he calls for better enforcement by an one-size-fits all rule to ensure ‘sufficient debt reduction each year’.

Common fiscal rules have to ensure a rapid and sufficient reduction of deficits and high debt ratios, while allowing for necessary public and private investment. Improving the quality of public finances by prioritising spending remains key. To live up to these goals, the reference values of 3 per cent of gross domestic product for the deficit ratio, first set out in the Maastricht treaty, and 60 per cent of GDP for the debt ratio must remain untouched. The excessive deficit procedure in the event of a breach of the 3 per cent deficit criterion has been our most effective enforcement tool in the past. It must not change. […]

In addition, safeguard provisions to ensure an actual decrease in debt ratios exceeding the Maastricht reference values in each year are needed. We also need further measures to ensure compliance by member states, as well as less discretion in the interpretation and application of the rules.

Taking this phrasing seriously, proposal seems to ignore problems of pro-cyclical fiscal policies and political constraints, as pointed out by Sander Tordoir.

Budget policy is at the heart of democracy: you cannot wish politics away. Wolfgang Schäuble, the former German fin minister who was also a staunch proponent of tight fiscal policy, backed out of sanctioning Spain and Portugal in 2016 because he worried about political stability

— Sander Tordoir (@SanderTordoir) April 25, 2023

Moreover, as Olivier Blanchard and Jeromin Zettelmeyer write in a recent report, the German proposal does address the main problem of Commission’s proposal: transparency of and common rules for the debt sustainability analysis (DSA) framework. Whereas Germany seems to regard DSAs as a ‘beast that cannot be tamed and thus must be kept in a cage’, Blanchard and Zettelmeyer underline the strength of DSAs to ‘identify debt risks and adjustment needs’. Hence, they propose transparent rules for the framework to tame the beast:

But DSAs do not bite, and they certainly can be tamed. Rather than going back to simple numerical rules, the German government – and the Commission – should focus on implementing the Council conclusion that “the Commission trajectory should be based on a common methodology to be agreed that is replicable, predictable and transparent, and should include an analysis of public debt and economic challenges.”

In his article, Linder seems to threaten the reform:

Reform of the Stability and Growth Pact cannot be an end in itself. It is only acceptable if we make significant improvements to the framework. Otherwise, changing the rules would not be advisable.

As Blanchard and Zettelmeyer argue, this ‘would be dangerous for the future, and a major blow to the construction of the EU, and must be avoided at all costs’.

Five Proposals for enforceable EU Fiscal Rules – Policy Brief
Sander Tordoir , Jasper van Dijk, Vinzenz Ziesemer, CER, 17.04.2023
The EU’s fiscal rules, which constrain member-states’ budget policies, are in desperate need of reform. They are too complicated, impose unrealistic demands on some countries, and lead to government overspending in economic booms and underspending in recessions. Member-states have only met the rules around half the time they were in force.

CDU is Preparing a Radical Tax Reform – Article (Paywall, German)
Manfred Schäfers, FAZ, 17.04.2023
Top earners should pay more, so that the middle class benefits. The tax reform plans of the CDU also contain new rules for the inheritance tax.

Where Are The Unions? – Article
Rana Foroohar, Financial Times, 17.04.2023
Joe Biden’s Inflation Reduction Act provides opportunities for labour on both sides of the Atlantic to work together.

Eradicating long-term unemployment – Article
Laurent Grandguillaume & Niels Planel, Social Europe, 17.04.2023
Social enterprises can offer the long-term unemployed an exit from the vicious circle of inactivity, France is showing.

Marcel Fratzscher about the German Industrial Policy: „I think that is wrong” – Interview (Paywall, German)
Julian Olk, Handelsblatt, 13.04.2023
The President of the German Economic Policy Institute Roasts the German Government. He advises against drastic consequences of the planned revival of industrial policy.

Illusions of Decontrol – Article
Uwe Fuhrmann, Phenomenal World, 12.04.2023
The myth of Germany’s “social market economy”.

Is Economics Self-Correcting? – Article
Robert Kuttner, The American Prospect, 07.04.2023
There are more economists doing useful real-world work. But the closer you get to the pinnacle of the profession, the less has changed.

Although market advocates like to emphasise the role of competition, capitalism tends to produce monopolies. As a new report from the Global Justice Network shows, huge corporations with immense power dominate the global economy by circumventing laws and taxes and exerting influence over governments.

In 2021, the combined income of the top 500 firms exceeded $3 trillion, equivalent to nearly 40% of the world economy. The concentration of wealth and power in the hands of a few corporations is driving inequality, stifling innovation, and undermining democracy.The rules of the global economy, often designed by the very corporations that benefit from them, perpetuate this cycle of corporate power and wealth accumulation. Monopoly capitalism not only drives higher prices but also shifts power away from the public interest, and hinders efforts to address pressing issues like climate change. Reclaiming, breaking, decentralizing, and dispersing corporate power is crucial for achieving democratic decisions that benefit the majority and promote a fair and just global economy.

Read the whole report Monopoly Capitalism here.