Politico: US is profiting from war, while the EU countries suffer

  • November 25, 2022
Politico: US is profiting from war, while the EU countries suffer

Top European officials are furious with Joe Biden's administration and now accuse the Americans of profiting from the war while EU countries suffer.

“The fact is, if you look at it soberly, the country that is most profiting from this war is the U.S. because they are selling more gas and at higher prices, and because they are selling more weapons,” one senior official told POLITICO. “We are really at a historic juncture,” the senior EU official said, arguing that the double hit of trade disruption from U.S. subsidies and high energy prices risks turning public opinion against both the war effort and the transatlantic alliance. “America needs to realize that public opinion is shifting in many EU countries.”

EU chief diplomat Josep Borrell urged Washington to respond to European concerns. “Americans — our friends — take decisions which have an economic impact on us,” he said in an interview with POLITICO.

The biggest source of tension in recent weeks has been Biden's environmental subsidies and taxes, which Brussels says threaten to destroy European industry. Despite formal objections from Europe, Washington has so far shown no signs of backing down.

At the same time, the disruptions caused by the war in Ukraine are pushing the European economy into recession, with soaring inflation and devastating cuts in energy supplies, threatening blackouts and rationing this winter.

Trying to reduce their dependence on Russian energy, EU countries are instead turning to gas from the United States, but the price Europeans pay is nearly four times higher than the cost of fuel in America. In addition, there may be a surge in orders for U.S.-made military equipment, as European armies are short of weapons after being sent to Ukraine.

French President Emmanuel Macron said high U.S. gas prices were not "friendly," and Germany's economy minister called on Washington to show more "solidarity" and help lower energy costs.

Ministers and diplomats from other EU countries have expressed frustration that the Biden government is simply ignoring the impact of its domestic economic policies on European allies.

When EU leaders discussed high U.S. gas prices with Biden at last week's G20 meeting in Bali, the U.S. president seemed simply unaware of it, a senior official said. Other EU officials and diplomats agreed that the Americans' lack of awareness of the implications for Europe was a serious problem.

"The Europeans are discernibly frustrated about the lack of prior information and consultation," said David Kleimann of the Bruegel think tank.

Officials on both sides of the Atlantic are aware of the risks that an increasingly toxic atmosphere will have on the Western alliance. Disagreement is exactly what Putin would want, EU and U.S. diplomats agreed.

The growing controversy over the U.S. Inflation Reduction Act (IRA) has put fears of a transatlantic trade war back on the political agenda. EU trade ministers are expected to discuss their response Friday as officials in Brussels work out plans for an emergency military subsidy standby to save European industry from collapse.

"The Inflation Reduction Act is very worrying," said Dutch Trade Minister Liesje Schreinemacher. "The potential impact on the European economy is very big."

"The U.S. is following a domestic agenda, which is regrettably protectionist and discriminates against U.S. allies," said Tonino Picula, the European Parliament's lead person on the transatlantic relationship.

The U.S. official noted that pricing for European gas buyers reflects private market decisions and is not the result of any U.S. government policy or action. "U.S. companies have been transparent and reliable suppliers of natural gas to Europe," the official said. Exporting capacity has also been limited by an accident in June that forced a key facility to shut down.

In most cases, the official added, the difference between export and import prices is not set by U.S. LNG exporters, but by companies that resell gas inside the EU. For example, the largest European holder of long-term U.S. gas contracts is France's TotalEnergies.

This is not a new argument on the American side, but it does not seem convincing to the Europeans. "The United States sells us its gas with a multiplier effect of four when it crosses the Atlantic," European Commissioner for the Internal Market Thierry Breton said on French TV on Wednesday. "Of course the Americans are our allies ... but when something goes wrong it is necessary also between allies to say it."

Cheaper energy has quickly become a huge competitive advantage for American companies as well. Businesses are planning new investments in the U.S. or even moving their existing plants from Europe to America.

Despite the energy controversy, it wasn't until Washington announced a $369 billion industrial subsidy scheme to support green industries under the Inflation Reduction Act that Brussels went into full-blown panic mode.

“The Inflation Reduction Act has changed everything," one EU diplomat said. "Is Washington still our ally or not?”

A spokesman for the French foreign ministry said the diagnosis was clear: These are  "discriminatory subsidies that will distort competition.” French Economy Minister Bruno Le Maire this week even accused the U.S. of going down China's path of economic isolationism, urging Brussels to replicate such an approach. “Europe must not be the last of the Mohicans,” he said.

Behind the scenes, there is also growing irritation over the money flowing into the U.S. defense sector.

The U.S. has by far been the largest supplier of military aid to Ukraine, supplying more than $15.2 billion in weapons and equipment since the war began. According to Borrell, the EU has so far provided about 8 billion euros worth of military equipment to Ukraine.

According to one senior European official, restocking some complex weapons could take "years" because of problems in the supply chain and chip production. This has raised fears that the U.S. defense industry could profit even more from the war. The Pentagon is already developing a roadmap to speed up arms sales as pressure from allies to respond to the growing demand for weapons and equipment grows.
 

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