Welcome to the Euro Intelligence Podcast. I'm Wolfgang Munchau and with me are Zanemunshank and Jack Smith.

Today we are going to talk about the Inflation Reduction Act and how the EU is reacting to it.

The Commission has proposed this week a big shift in its competition policy to allow member states a lot more freedom

in the way they can deal with competing subsidies from third countries, in this particular case,

the United States. We see Italy is unhappy about it because what will happen is that Germany,

France will use this freedom to their advantage. Germany and France

account for most of the subsidies in the EU anyways. So the question we are asking ourselves

is whether this European reaction, which is really supposed to protect European industry,

whether it might actually create more divisions in Europe. Jack, what do you think?

I certainly think that's the way that it's been going so far. Fundamentally, the problem has been,

the EU has been taking a very long derogation on its state aid framework. It's basically

had kind of temporary framework adjustments since the beginning of the pandemic and has kept on with those.

So quite a few people have said, to what extent can you really call it temporary anymore

when it's been going on since the pandemic and just it seems to be going on forever?

But income tax, yeah, yeah, exactly.

But if you look at it kind of really, France and Germany have been basically kind of disproportionately taking advantage of those changes to the state aid framework so far, at least.

And then if they continue to do so, that will just kind of further unbalance what's going on.

Now, to kind of clarify this for people who are maybe not so familiar

with internal EU political economy, state aid is quite an important area for the EU because

the general attitude that you shouldn't have state aid is an important principle of the single

market, right? In order to ensure that countries can liberalize trade internally between themselves within

the EU, you also need to ensure that countries are not going to be engaging in subsidy

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