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In an interview with EURACTIV, Jim Snabe, the chairman of German industrial giant Siemens, argued that today’s societal challenges require more active state involvement and a new understanding of innovation, while at the same time expressing concern about deteriorating relations with China.
In a speech on the sidelines of the Brussels Economic Forum on May 4, Snabe said it is also necessary to distinguish between bottom-up and top-down innovation.
The former describes a process where innovation more or less emerges naturally from individual companies competing in the free market, while the latter is a more goal-directed process where you define a problem and then look for solutions.
“Sometimes we are a bit too pure in our definition of innovation,” he tells EURACTIV, adding that one cannot rely solely on the bottom-up approach. Especially with the need for the green transition, there was a series of obvious issues that needed to be resolved, he said.
Tipping points require more public investment
While it is sometimes appropriate for policymakers to take a hands-off approach and content themselves with simply defining the rules of the game, in times of infrastructure transition this is not enough, Snabe said.
According to Siemens’ chairman, who also sits on the board of recyclable battery maker Northvolt, Europe is at a “tipping point” where old infrastructures have had to be traded for new, more sustainable versions.
“No country has ever benefited from waiting with infrastructure investments that create upgrade opportunities. For example, whoever is furthest with 5G will get the benefits of 5G before everyone else,” Snabe told EURACTIV.
“We have infrastructures that need an upgrade. And you don’t want that to be just private,” he said, citing 5G mobile infrastructure, energy systems, public transportation systems and buildings as examples.
“Suddenly, the public sector is also making investments,” Snabe said. And when [states] doing so, they also accelerate companies’ investments.”
Advantages and disadvantages of the European political system
At this point, it is necessary to mention that Siemens, which is active in 5G technologies, energy networks and hydrogen, benefits from increased investments in public infrastructure.
In general, more active industrial policies can increase the risk of corporate takeovers, as well-connected companies can use their connections with decision-makers to increase their profits.
When asked about this risk, Snabe argued that the European political system was advanced enough to avoid such problems. “[This] makes sure you make decisions that are right from a country or a region point of view,” he said.
However, Europe’s political system also makes the transition more difficult, as a multitude of administrative and democratic safeguards have made infrastructure investments extremely difficult to implement due to lengthy permitting procedures.
The European Commission recently proposed the Net-Zero Industry Act, which should help drastically shorten licensing periods. Snabe, meanwhile, looks to Europe’s response to the COVID pandemic for inspiration.
“We were even able to get things done in weeks or months, which would normally take years,” he said.
“Why don’t we bring that culture to specific areas where we need the speed, for example around renewable energy systems?” Snabe suggested and suggested to “just cut through all the complexity and do something dramatically simpler.”
Do not disconnect
Turning to the geopolitical outlook, the chairman of Siemens expressed concern about the rising tensions between the major global players, calling it “super worrying”. He argued that collaboration and sharing of ideas were essential for a successful transition.
“We were probably too naive to bet too much on a single big country because of labor arbitrage,” he said, pointing to China. But rather than cut ties with China, Snabe would rather deepen ties with other Asian countries to increase dependency.
“Let’s not even talk about decoupling,” he said, arguing that Siemens was so well established in China that its Chinese business could be run independently.
It is therefore not surprising that Snabe is taking a critical look at the Commission’s forthcoming economic security strategy. The Economic Security Strategy is expected to discuss policies to further reduce the EU’s dependence on third countries, in particular China, through outward investment controls.
“I don’t think we should go too far with that,” he said.
Rising interest rates are taking their toll on the EU budget. Today’s chart shows how EU bond borrowing costs have changed over the past two years for bonds of different maturities.
Since June 2021, the EU has issued bonds with different maturities on about 20 different days. Most were spent to fund the EU’s Next Generation EU pandemic recovery programme. The return of the offering is essentially the return that investors demand in exchange for their investment in EU bonds.
Whether it’s five-year or long-dated 30-year bonds, the cost of borrowing for the EU has risen significantly, up to three percentage points.
For the first half of this year, the European Commission plans to issue up to €80 billion in bonds. For this amount, a jump of three percentage points means an additional cost to the EU budget of €2.4 billion per year. And more bonds will be issued in the coming months and years.
The European Parliament fears that rising financing costs will affect the EU’s ability to fund its policy priorities and programs as intended.
That is why it adopted a resolution this week calling on the Commission to address the problem this poses to the EU budget. At the same time, it adopted a resolution asking the Commission to come forward “as soon as possible” with an additional package of new own resources to close this budget shortfall.
The European Commission is likely to present its draft proposal for the 2024 EU budget and the mid-term review of the multiannual financial framework before the end of June.
All previous editions of the week’s Economy Brief Chart can be found here.
No commission ban for financial advice for the time being. As Commissioner Mairead McGuinness announced at the end of April, the commission ban for financial advice will not be included in the retail investment strategy to be announced on 24 May. A leaked draft of the Commission’s proposal, seen by EURACTIV, now confirms this. Only in very limited circumstances will advisors be prohibited from being paid in sales commissions rather than by the clients they advise. The Commission wants to rely largely on better customer information so that they are not sold bad financial products. However, the draft proposal also calls for the rules to be reviewed only three years after their implementation to see if the revised rules are sufficiently effective.
EU lawmakers divided on European approach to regulating sex work. The European Parliament is preparing a report “on the regulation of prostitution in the EU”, which calls on member states to decriminalize people in prostitution and criminalize customers and third parties who organize sex services in order to reduce demand. The report is expected to be finalized in May and put to a plenary vote in June, but it has divided EU lawmakers over its proposed regulatory model, wording and general legitimacy of sex work.
Vestager calls for caution as Germany presents an electricity subsidy plan. Last Friday, German Economy Minister Habeck presented his plan for a subsidized electricity tariff for heavy industry. They should get 80% of their electricity needs for just 6 cents per Kilowatt hour, Habeck suggested, to prevent companies from moving production abroad. During a visit to Berlin this Monday, EU competition chief Margrethe Vestager warned against the idea. “Great care is needed if you are going to subsidize energy for companies that compete directly with other companies,” she said. Read more.
European Parliament shows division in debate on budget rules. On Tuesday (9 May), the European Parliament debated the Commission’s proposal for revised fiscal rules. Criticism came from all sides and the battle ran along ideological and national lines. The liberal Renew group in particular seems to be faced with the impossible task of reconciling the positions of its French and German members. Much political work remains to be done to consolidate positions if parliament is to assert itself as an influential player in the legislative process. Read more.
The European Commission is scaling back enforcement of the internal market. The internal market is alive thanks to the harmonization of rules designed to make cross-border economic activities smooth and fair. It is the job of the Commission to monitor this harmonization so that the harmonization actually takes place on the spot rather than being an EU bubble fantasy. An analysis by the Financial Times has now revealed that the current Commission under Ursula von der Leyen appears to be much less diligent in enforcing internal market rules than the Commission of previous presidents.
France’s plans to fight tax fraud ‘lack ambition’, experts say. The French government on Tuesday (May 9) presented a series of measures to combat tax fraud by both individuals and multinationals, though the plan is ambitious and fails to address the root of the problem, experts warn. Read more.
The Austrian government is cracking down on energy companies to counter the rise in inflation. Austria’s government introduced a series of new measures on Wednesday, including profit absorption and stricter reporting obligations for energy companies, amid rising inflation. Read more.
Irish Finance Department Warns of Future Changes to Retirement. The long-term government savings vehicle will not be enough to fully cover future age-related costs, according to an analysis titled ‘Future-proofing the Public Finances – the Next Steps’, published by Ireland’s finance minister on Wednesday. Read more.
The longer-term fiscal challenges facing the European Union. This policy letter from Bruegel makes a number of recommendations for the European fiscal policy to be pursued in the coming years, and calls for some fiscal consolidation. However, it should be done gradually so as not to slow down growth too much.
Additional reporting by Silvia Ellena, Jonathan Packroff, Théo Bourgery-Gonse
[Edited by Nathalie Weatherald/Alice Taylor]
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