UPDATED: EU leaders head for tussle over rescue plans for industry

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BRUSSELS, Dec 15 (Reuters) – European Union leaders will argue on Thursday over how to prop up their countries’ industries, which have been whacked by soaring energy prices since the outbreak of war in Ukraine and now face the threat of subsidy-fuelled U.S. competition.

Poorer EU countries want a coordinated response to the U.S. Inflation Reduction Act (IRA) – $430 billion worth of tax breaks for green energy – because they lack the deep pockets of richer member states like Germany to underpin their industries.

The discussion among 27 leaders in Brussels will be inconclusive, diplomats said, with a draft of the summit decision simply showing that the leaders would ask the EU’s executive Commission to make proposals early next year to safeguard the bloc’s industry.

French President Emmanuel Macron said those proposals should be “a European response” to the IRA.

It was necessary, he said, to “simplify our rules and have a macro-economic response and a level of aid which at European and national level makes it possible to respond, to be the equivalent of what the Americans do.”

Commission President Ursula von der Leyen proposed ahead of the summit to loosen state aid restrictions in renewable energy and clean-tech to shield European industry because the IRA could lead to unfair competition.

“We need to give our answer, our European IRA,” she said in a speech.

However, the EU is split between traditionally interventionist countries that want a joint “sovereignty fund” to ensure a level playing field across the bloc and wealthier states that line up behind free market principles.

“We are in Europe at a point when we risk being desindustrialised, and today our answer is not a common answer,” Belgian Prime Minister Alexander De Croo said.

“It looks a bit like a game of the deepest pockets. And yes, some member states might have deeper pockets but in a few months we all be at the end of what we can do.”

Different approaches over how to defend industry top a year when the EU closed ranks to support Ukraine after it had been invaded by Russia, but often struggled to agree how much pressure to put on Moscow, including through economic sanctions.

RUSSIA SANCTIONS

While any decision on the EU’s response to IRA will be parked for another summit in February or March, the leaders may discuss on Thursday a proposed ninth package of EU sanctions against Moscow.

Member states’ representatives negotiating on this package failed to reach a deal late on Wednesday, despite some progress, diplomats said, with disagreements over whether and how to offer exemptions for an EU ban on Russia fertiliser exports.

“I would like to stress the importance of keeping the sanctions as strong as possible. We are a little bit concerned with attempts to weaken the sanctions under the cover of food security,” said Lithuanian President Gitanas Nauseda.

The leaders are not expected to hold in-depth talks on the EU’s struggle to agree on a natural gas price cap, but rather ask their ministers to “urgently finalise” the work when they meet again on Monday, the draft of the summit conclusions said.

The draft also said leaders would call for more gas deals urgently to replace Russian fuel, including through joint gas buying among EU countries.

Separately, Poland was on Thursday holding up the EU’s formal adoption of a minimum corporate tax for large companies and, by extension, also blocking a whole package of other deals, including financing for Ukraine in 2023, diplomats said, adding that the issue was likely to come up at the summit.

Also, overshadowing the summit will be a corruption scandal that emerged in the EU parliament over the past week.

Belgian prosecutors charged Eva Kaili, a Greek member, and three others for accepting bribes from World Cup host Qatar in a bid to influence EU policymaking. Qatar and Kaili have denied any wrongdoing.

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