In Paris today, the leaders of European politics will bid farewell to Jacques Delors. His current successor Ursula von der Leyen will of course also be attending the funeral service for the former Commission President in the Invalides Cathedral. Because of the ceremony, the program for the Commission’s visit to the new Belgian Council Presidency has been specially adapted and will now take place exclusively in the afternoon.
At the request of the Federal Chancellor, Germany will be represented at the memorial service by Federal President Frank-Walter Steinmeier, who is also to give a speech. In addition to the Marseillaise, the European anthem will also be played.
French President Emmanuel Macron could soon be traveling to Berlin for the event. During his lifetime, former Bundestag President Wolfgang Schäuble left behind the wish that Macron should speak at his funeral service – alongside his successor Bärbel Bas and CDU party leader Friedrich Merz. Paris has confirmed that Macron has been requested. The ceremony will take place on January 22 in the Bundestag. This day also marks the anniversary of the Élysée Treaty between Germany and France.
How and to what extent should companies report on their sustainability efforts? This question was the subject of fierce debate last year – and will still not be resolved in 2024. The standards for sustainability reporting are not yet complete, and the companies themselves still have a few hurdles to overcome before their data is comparable, transparent and uniform.
As part of the EU Commission’s sustainable finance strategy, several legislative proposals provide for extensive reporting obligations:
The measures aim to channel investments into financing the transformation to a sustainable economy. At the same time, this should create an incentive for companies to modify their business models so that they are in line with climate targets, protect nature and are socially acceptable.
With the CSRD, according to which the first companies have had to report since this week, the number of companies subject to reporting requirements across Europe will gradually increase from around 12,000 (according to the previous Non-Financial Reporting Directive) to more than 50,000. In Germany alone, there could be 15,000 and no longer 500 as before.
Data on the economic activities of these companies should be verifiable and comparable. On the one hand, this is ensured by the EU taxonomy’s list of criteria, which companies must address in their sustainability reports. On the other hand, the European Financial Reporting Advisory Board (EFRAG) has drawn up drafts for European Sustainability Reporting Standards (ESRS). An initial set of standards is already in force; the drafts for sector-specific standards are still pending.
With the intention of not overburdening companies, the EU Commission instructed EFRAG in March 2023 to prioritize the work on the sector-independent standards. These were adopted in the summer in a delegated act, which was published in the Official Journal of the EU on 22 December. EFRAG’s original list of criteria with more than 2,000 data points was also significantly reduced by the Commission. The legal act now only contains less than a third of the information that companies must disclose. They can also decide for themselves which data they consider to be material.
Under the CSRD, companies that are already affected by the previously applicable Non-Financial Reporting Directive (NFRD) must apply these standards for the current 2024 financial year. Newly added large companies must report for the first time for the 2025 financial year; listed SMEs have the option of opting out until 2028.
At the end of the year, EFRAG also published three draft guidelines for the “most difficult aspects” of introducing the standards. These are available for consultation by stakeholders until Feb. 2.
Accordingly, drafts for the sector-specific standards are still pending. According to information from EFRAG, this is a “multi-year task”. The committee has already started to develop drafts for four sector standards:
Four other sectors are currently still in the research phase:
Most recently, it was said that the drafts would be published by summer 2024. It is unclear how – and possibly even whether – things will then proceed: after the European elections at the beginning of June, the composition and majorities in the EU Commission and Parliament could change to the disadvantage of the project. Although Parliament cannot amend the delegated act, it must give its consent.
Industry fears for the competitiveness of Europe as a business location due to the additional bureaucracy caused by the large number of laws. Concerning sustainability reporting obligations, the Federation of German Industries (BDI) is calling for “the bureaucratic burden on companies to be kept to a minimum as part of the German implementation of the CSRD”.
These concerns have long since reached the political arena: The German government promised measures to reduce bureaucracy and announced that it would also work with France to achieve this at EU level. It has already held out the prospect of easing reporting obligations for the EU Due Diligence Act and the necessary tightening of the German Supply Chain Due Diligence Act (LkSG).
Regarding sustainability reporting, the German government’s demands to the EU Commission to exempt small and medium-sized companies from reporting obligations were also announced in September.
On the other hand, supporters of the proposed legislation are calling for effective measures to counter the negative effects of economic activities. Companies should take responsibility for their business activities and their global supply chains, i.e. comply with environmental and human rights standards. This is best achieved if companies are obliged to disclose this information.
However, reporting is not a panacea, as the work of the Carbon Disclosure Project, whose member companies voluntarily report on sustainability data, shows: Of the almost 19,000 participating companies, only 4,100 stated that they have developed a concept beyond disclosure to make their respective business model compatible with the 1.5-degree climate target.
A study by management consultants PWC shows that the quality and comparability of the data in taxonomy reporting have so far been poor. The key figures are therefore not very meaningful and not useful for investors, for example. Industrial companies therefore need to optimize their data collection and processing and financial institutions need to ensure better standardization. In the long term, however, according to PWC, the taxonomy data will be an important point of reference for investors to determine the sustainability level of their portfolio.
Ms. Müller, an economic wrestling match is raging around the world between China, the USA and Europe. Where do we stand?
Europe must be careful not to lose its formative role; this process has already begun. In the past, the economy built bridges and politics was able to follow suit. Today, we see that other regions are also using economic strength as an instrument to achieve political power. Europe must oppose this and fight to shape further developments itself instead of having them imposed on it by others.
What does that require?
We need a paradigm shift in the minds and actions of everyone in Europe. This is not limited to politics, but it applies to them in particular. We must recognize that Europe no longer automatically has the charisma it once had. We need to recruit partners and alliances, not just explain to others what we think is right and wrong. What is often forgotten in the process: If Germany and Europe want to take responsibility and anchor their values and convictions on climate protection internationally in the long term, then this will only work as an important, globally leading economic area.
Have we lost this influence?
If we are not careful, this can and will happen in any case. We need a different economic policy to regain the strength we need to shape the world. Many in Brussels see the concept of regulation as a competitive advantage – in the false assumption that everyone will follow us. They don’t realize that it is currently leading more and more to isolation instead of a formative role in the world.
What do you mean specifically?
Regulation is good if we set ourselves common goals. However, regulation is counterproductive and acts as a brake if we politically define not only targets but also the instruments. Not only should policy-makers not be the only ones to decide which technology will be implemented when and how. This approach is also increasingly perceived as know-it-all in parts of the world – and rejected as paternalism. This in turn jeopardizes the social support for the climate neutrality mission that is so important. There is no doubt about the goal: we want to and will become CO2-neutral. At the same time, we need to be more open to technology so that we can actually achieve and implement this.
When it comes to EVs, it was the VW Group that was the most rigid in turning the wheel.
There is a big difference between politics and individual companies. A company can and must decide what course it takes. Politics must set the framework. If targets are set politically, accompanying framework conditions are needed to enable the targets to be achieved. What is important here is that leeway in the respective implementation must not only be allowed but made possible.
Doesn’t politics do this all the time, with investments in chip factories – as an opportunity and security for the economy?
Basically, we have to tackle the causes of our competitiveness problems, we can no longer just tinker with the symptoms and temporarily mitigate them. Take the debate about the industrial electricity price. The automotive industry does not benefit from this directly, only indirectly, for example in the case of preliminary products. Nevertheless, we have said that the aid is right and important because it can safeguard strategically important industries here. The same applies to batteries, semiconductors and others. These investments are the right thing to do – especially in this acute situation.
In addition, we now need an open discussion on how we can actually achieve our climate targets – and what is necessary to ensure that we remain economically successful at the same time. Location policy is a decisive criterion here. Bold, major reforms are absolutely essential. This is why we finally need an energy policy that ensures sufficient and therefore affordable energy for everyone.
It sounds simple, but it’s not.
It requires a major joint effort, a strategy that draws up short, medium and long-term concepts – and a little more pragmatism here and there. One example: there is no question that we need a more active energy policy, that is no surprise. Nevertheless, the German government’s power plant strategy is still missing. It is certain that we will need much more energy in the future, especially much more electricity. To achieve this, we need to invest as much as possible now – and simplify approval and planning procedures as much as possible.
Or take the raw materials that are essential for the transformation. Where are the trade agreements that we urgently need? Keyword Mercosur. We are in danger of missing a great opportunity here. The never-ending marathon of negotiations without results is not exactly an advertisement for other regions in the world to conclude agreements with us. We are also too inactive in Africa – and too late.
Who are you accusing of this?
Berlin and Brussels. We have had a corresponding Africa strategy since 2005. Politically, it was never underpinned and filled with life in such a way that we would benefit from it today. Berlin and Brussels should have taken care of it earlier and more strongly. It would have been easier in a position of strength than in the current one. Now we see that others are also confidently taking on a creative role – and our influence and radiance are fading.
Are we being too instructive?
We like to be instructive. Of course, our canon of values must also guide our political actions. At the same time, too much morality in politics often means that the right goals are achieved all the less. We need to be more honest and self-critical in order to achieve more in the end.
Is the world slipping away from us Europeans?
I wouldn’t go that far. But if you look at the BRICS countries, you can see how the world is changing. That there are new alliances that are no longer shaped or inspired solely by our values. So I can only repeat myself: An active energy and raw materials foreign policy and a trade policy with corresponding agreements that focus on diversification, efficiency and resilience are a prerequisite for our prosperity and our economic strength. And thus ultimately also for our influence in the world.
Even if climate protection targets or labor rights do not meet our expectations?
If we don’t conclude agreements, others will and we won’t achieve anything. Of course, we want to enforce better standards than other countries. And even if not everything has been negotiated to perfection, it is definitely important to conclude trade agreements and, if necessary, to bring parts of them into force first. Once again, our role has changed. We have to fight for our location, we have to remain attractive for investment. At the turn of last year, I called for this active location policy, relevance through economic strength – and backed it up with corresponding proposals. Unfortunately, after this year, I have to say that our location has not become any more attractive.
Does this mean that the chip industry, battery research and cell production should be relocated back to Europe?
We agree that we want to shape the mobility of the future – and other future fields – from Germany and Europe and be the center for transformation technologies. To achieve this goal, we must be the world’s leading, most attractive and most innovation-friendly location. Yes, we need to secure access to future technologists – which is why it is right to actively promote the establishment of companies in certain areas.
But?
But at the same time, we need to think more freely in our choice of instruments. The Inflation Reduction Act will lead to the development of a lot of green tech in the USA. That would also be possible here because a large number of developers still come from here. We have good research institutions and an almost unique collaborative interaction between business and science, usually well supported by politics. But we make far too little of it.
We have to ask ourselves: What new topics, technologies and ideas are important for us to remain a leading research location? Without blinkers. Without the fear that we as a society should not allow ourselves to engage in debates. Simply open, pragmatic and strategic. One thing is certain: If we no longer have the development centers here, we often no longer have the plants here either.
Make Germany great again?
Those are your words (laughs). It’s actually true: When I talk about de-risking, de-risking must also be made possible. Guiding principle: As autonomous as necessary and as open, global and market-oriented as possible. We live from free trade and our goal must remain free trade. That is why I am very critical of the protectionist efforts in Brussels. My concern is that we will end up harming ourselves as an export nation as a result.
Sounds smooth, but the core question remains vague: How much does the state have to do now? Is it time to rethink investment and state location policy, i.e. to spend a lot of money on improving the competitive situation like the USA and China?
This has several components. The first is that if we were to set targets in Europe and not get more and more instruments, that would be far better. We are currently saying that this technology is the only right one. In many places. Instead, we need to get back to saying: the goal is to avoid CO2. And now you scientists, entrepreneurs, researchers and so on are implementing this in the best possible way. In the USA, they tell companies: Use the dollar in such a way that it reduces CO2 as much as possible. How you do that is your decision. That makes a huge difference.
Are you alluding to the ban on combustion engines?
This is just one of many examples. If we think globally, it becomes clear that we cannot solve the problems in the transport sector with electromobility alone. This is the right path for us, but we have 1.5 billion vehicles on the road worldwide. We can’t just take the easy way out and say: at some point, everyone will be driving electric cars. No, we also have to think about synthetic fuels or other options for the existing fleet. Otherwise, we will not achieve our global climate targets.
What exactly are they demanding?
I am somewhat appalled by the way Brussels is dealing with e-fuels. It is neither constructive nor far-sighted. It is increasingly acting in isolation – as if there is no world out there. Brussels will not determine which cars can be on the road when and how worldwide. We can have more influence if we take an open, creative approach instead of a dirigiste one.
Doesn’t the Commission simply want to prevent everything from slipping away from politics? For example, through an unregulated approach to artificial intelligence?
I think what the EU has done in terms of artificial intelligence is problematic and wrong. Of course, I’m not advocating simply doing everything that AI makes possible. But if we disengage now, others will dominate development. What then? We must have the courage to make development and experimentation possible. Regulation is the second step. It must not be the first.
Why do German car manufacturers almost only build electric vehicles in the premium segment? There is hardly an EV from a German manufacturer that doesn’t cost at least €40,000.
This is a business decision. One thing is certain: our investments will pay off: The EV is on its way to becoming a mass product, which means economies of scale and technological leaps will ensure that prices for e-cars will fall. German manufacturers have already announced significantly cheaper cars. Once again, location and competitiveness are crucial: if all costs, whether energy or fundamental, continue to rise, the mission will not become any easier.
Nevertheless, the German car industry appears much more vulnerable than the French. For example, in competition with China.
I would like to clearly reject that. French manufacturers hardly sell any cars in China and their market share is low, with or without electric vehicles. That changes our perspective. Our ambition is and remains to build the world’s best, most efficient, safest, most digitalized and most climate-friendly cars in the world. And incidentally, our range of different e-models is constantly growing. To come back to the small cars you mentioned: German manufacturers offer four models of small and micro electric cars in Germany. In total, there are eleven models in the small electric car segment and below that are currently available in Germany.
And: German manufacturers have by far the largest market share of small and micro electric cars in Germany. In the first eleven months of last year, German manufacturers achieved a market share of 46 percent for small electric cars. This means that almost every second small electric car newly registered in Germany comes from a German manufacturer. And: all four models offered by German manufacturers in the small and micro electric car segment are available for less than €40,000.
Would punitive tariffs be an option to counter Chinese subsidies? The French say yes, the Germans overwhelmingly reject them.
Basically, it is not necessarily the smartest solution for a continent that depends on exports to work with punitive tariffs. That always has repercussions. It’s no different with chips. First and foremost, we need to work on our competitiveness. We are not doing that enough in Europe.
Can’t punitive tariffs help?
I would have liked to see a broader discussion of the advantages and disadvantages before punitive tariffs were introduced. Because of course there will be a backlash. A negative spiral is quite possible, which will ultimately cost everyone involved economic growth. In addition, there is something that many people don’t even think about, namely that German companies could also be directly affected by the tariffs. It’s not just us car manufacturers; many German industries produce in China. And everyone who has relocated production to China and re-imports products could ultimately be affected.
Of course, it is important to be self-confident in our dealings with China – and of course we are also extremely critical of many developments there. Economic and innovative strength are crucial if we want to hold our own in the long term.
If you look at the world with Russia, China and the BRICS countries: Has the concept of change through trade failed?
No. It is too easy to declare this concept a failure because we have made ourselves dependent on Russian gas and are now paying the price. On the contrary, I still believe that people and markets that are connected with each other are better able to shape the future together. The best example of this is the companies in the German automotive industry that have built plants in South Africa and hired local employees. Employees who now live in permanent homes, whose children can go to school, who enjoy labor rights and experience our values. This is modern, strategic and future-oriented economic policy – with positive effects for both sides.
Hildegard Müller has been President of the German Association of the Automotive Industry since Feb. 1, 2020.
The technological rivalry between the USA and China is dominating the course of the global economy. At present, Europe is not proactively shaping where the new global dividing lines will run, especially in critical technologies. Europe runs the risk of being left out of the shaping of a new geo-economic order.
There are already signs of this. When the US government imposed far-reaching new export controls on microchip technology against China in the fall of 2022, Europe was taken by surprise. Shortly afterwards, an agreement was announced between Washington, The Hague and Tokyo to align their controls in this area – an agreement in which Washington had effectively transferred its economic and national security interests to Europe.
When it comes to strategic technology industries, Germany in particular is the loser in a zero-sum game with China: China’s market gains in areas such as mechanical engineering, chemicals or recyclables often go hand in hand with losses for Germany. And Beijing is becoming increasingly self-confident when it comes to appropriating the know-how and research potential of European companies while at the same time controlling the flow of important technological inputs.
Europe must go its own way and use its unique strengths to remain an indispensable player in the field of critical technologies. This requires a strategy that goes beyond de-risking – i.e. reducing risks such as supply chain dependencies. At the same time, it would have to strategically increase the dependence of other regions on European technologies.
As the EU cannot dominate entire sectors, it must focus on certain technologies that are crucial for global economic stability. This is the principle of strategic interdependence: because not all risks can be eliminated, it is important to work towards a balance with other states.
Japan offers a model worth emulating with its idea of “strategic indispensability” for key technologies. The EU must also identify technologies and research approaches and invest in them. This involves those approaches that guarantee prosperity and security while maintaining Europe as a global technology hub.
Specifically, policymakers must thoroughly analyze the global technology and research ecosystems and identify European competitive advantages. In quantum technologies, for example, policymakers need to know where globally significant research and production capacities are already developing to promote and strengthen them in a targeted manner. Examples include special lenses, lasers, adhesives, low-temperature cooling systems and single-photon detectors. Research security also means dovetailing European research instruments with precisely these security policy objectives.
These analyses must take into account the speed at which alternative offerings or technologies could develop. The complex lithography systems for the semiconductor industry from Dutch company ASML, for example, will be hard to beat soon. In this respect, Europe has an advantage. In other technologies, however, advantages can quickly erode, as China has proven in electromobility. But supply chain security is also crucial, as China’s heavy dependence on critical raw materials shows.
The EU must take into account the needs and vulnerabilities of its geopolitical rivals. Similarly, the EU should capitalize on its alliances, particularly with technologically advanced allies such as the US, Japan, South Korea and the UK. The aim should be to promote complementary strengths in critical technologies.
To drive this strategy forward, the EU needs a new economic security architecture. A mechanism for economic security could better structure the necessary cooperation in three stages.
Overall, this mechanism could create a stronger Europe that can strengthen international economic security instead of falling victim to increasing uncertainty and insecurity.
Tobias Gehrke is a Senior Policy Fellow at the foreign policy think tank European Council on Foreign Relations (ECFR) in Berlin.
In Paris today, the leaders of European politics will bid farewell to Jacques Delors. His current successor Ursula von der Leyen will of course also be attending the funeral service for the former Commission President in the Invalides Cathedral. Because of the ceremony, the program for the Commission’s visit to the new Belgian Council Presidency has been specially adapted and will now take place exclusively in the afternoon.
At the request of the Federal Chancellor, Germany will be represented at the memorial service by Federal President Frank-Walter Steinmeier, who is also to give a speech. In addition to the Marseillaise, the European anthem will also be played.
French President Emmanuel Macron could soon be traveling to Berlin for the event. During his lifetime, former Bundestag President Wolfgang Schäuble left behind the wish that Macron should speak at his funeral service – alongside his successor Bärbel Bas and CDU party leader Friedrich Merz. Paris has confirmed that Macron has been requested. The ceremony will take place on January 22 in the Bundestag. This day also marks the anniversary of the Élysée Treaty between Germany and France.
How and to what extent should companies report on their sustainability efforts? This question was the subject of fierce debate last year – and will still not be resolved in 2024. The standards for sustainability reporting are not yet complete, and the companies themselves still have a few hurdles to overcome before their data is comparable, transparent and uniform.
As part of the EU Commission’s sustainable finance strategy, several legislative proposals provide for extensive reporting obligations:
The measures aim to channel investments into financing the transformation to a sustainable economy. At the same time, this should create an incentive for companies to modify their business models so that they are in line with climate targets, protect nature and are socially acceptable.
With the CSRD, according to which the first companies have had to report since this week, the number of companies subject to reporting requirements across Europe will gradually increase from around 12,000 (according to the previous Non-Financial Reporting Directive) to more than 50,000. In Germany alone, there could be 15,000 and no longer 500 as before.
Data on the economic activities of these companies should be verifiable and comparable. On the one hand, this is ensured by the EU taxonomy’s list of criteria, which companies must address in their sustainability reports. On the other hand, the European Financial Reporting Advisory Board (EFRAG) has drawn up drafts for European Sustainability Reporting Standards (ESRS). An initial set of standards is already in force; the drafts for sector-specific standards are still pending.
With the intention of not overburdening companies, the EU Commission instructed EFRAG in March 2023 to prioritize the work on the sector-independent standards. These were adopted in the summer in a delegated act, which was published in the Official Journal of the EU on 22 December. EFRAG’s original list of criteria with more than 2,000 data points was also significantly reduced by the Commission. The legal act now only contains less than a third of the information that companies must disclose. They can also decide for themselves which data they consider to be material.
Under the CSRD, companies that are already affected by the previously applicable Non-Financial Reporting Directive (NFRD) must apply these standards for the current 2024 financial year. Newly added large companies must report for the first time for the 2025 financial year; listed SMEs have the option of opting out until 2028.
At the end of the year, EFRAG also published three draft guidelines for the “most difficult aspects” of introducing the standards. These are available for consultation by stakeholders until Feb. 2.
Accordingly, drafts for the sector-specific standards are still pending. According to information from EFRAG, this is a “multi-year task”. The committee has already started to develop drafts for four sector standards:
Four other sectors are currently still in the research phase:
Most recently, it was said that the drafts would be published by summer 2024. It is unclear how – and possibly even whether – things will then proceed: after the European elections at the beginning of June, the composition and majorities in the EU Commission and Parliament could change to the disadvantage of the project. Although Parliament cannot amend the delegated act, it must give its consent.
Industry fears for the competitiveness of Europe as a business location due to the additional bureaucracy caused by the large number of laws. Concerning sustainability reporting obligations, the Federation of German Industries (BDI) is calling for “the bureaucratic burden on companies to be kept to a minimum as part of the German implementation of the CSRD”.
These concerns have long since reached the political arena: The German government promised measures to reduce bureaucracy and announced that it would also work with France to achieve this at EU level. It has already held out the prospect of easing reporting obligations for the EU Due Diligence Act and the necessary tightening of the German Supply Chain Due Diligence Act (LkSG).
Regarding sustainability reporting, the German government’s demands to the EU Commission to exempt small and medium-sized companies from reporting obligations were also announced in September.
On the other hand, supporters of the proposed legislation are calling for effective measures to counter the negative effects of economic activities. Companies should take responsibility for their business activities and their global supply chains, i.e. comply with environmental and human rights standards. This is best achieved if companies are obliged to disclose this information.
However, reporting is not a panacea, as the work of the Carbon Disclosure Project, whose member companies voluntarily report on sustainability data, shows: Of the almost 19,000 participating companies, only 4,100 stated that they have developed a concept beyond disclosure to make their respective business model compatible with the 1.5-degree climate target.
A study by management consultants PWC shows that the quality and comparability of the data in taxonomy reporting have so far been poor. The key figures are therefore not very meaningful and not useful for investors, for example. Industrial companies therefore need to optimize their data collection and processing and financial institutions need to ensure better standardization. In the long term, however, according to PWC, the taxonomy data will be an important point of reference for investors to determine the sustainability level of their portfolio.
Ms. Müller, an economic wrestling match is raging around the world between China, the USA and Europe. Where do we stand?
Europe must be careful not to lose its formative role; this process has already begun. In the past, the economy built bridges and politics was able to follow suit. Today, we see that other regions are also using economic strength as an instrument to achieve political power. Europe must oppose this and fight to shape further developments itself instead of having them imposed on it by others.
What does that require?
We need a paradigm shift in the minds and actions of everyone in Europe. This is not limited to politics, but it applies to them in particular. We must recognize that Europe no longer automatically has the charisma it once had. We need to recruit partners and alliances, not just explain to others what we think is right and wrong. What is often forgotten in the process: If Germany and Europe want to take responsibility and anchor their values and convictions on climate protection internationally in the long term, then this will only work as an important, globally leading economic area.
Have we lost this influence?
If we are not careful, this can and will happen in any case. We need a different economic policy to regain the strength we need to shape the world. Many in Brussels see the concept of regulation as a competitive advantage – in the false assumption that everyone will follow us. They don’t realize that it is currently leading more and more to isolation instead of a formative role in the world.
What do you mean specifically?
Regulation is good if we set ourselves common goals. However, regulation is counterproductive and acts as a brake if we politically define not only targets but also the instruments. Not only should policy-makers not be the only ones to decide which technology will be implemented when and how. This approach is also increasingly perceived as know-it-all in parts of the world – and rejected as paternalism. This in turn jeopardizes the social support for the climate neutrality mission that is so important. There is no doubt about the goal: we want to and will become CO2-neutral. At the same time, we need to be more open to technology so that we can actually achieve and implement this.
When it comes to EVs, it was the VW Group that was the most rigid in turning the wheel.
There is a big difference between politics and individual companies. A company can and must decide what course it takes. Politics must set the framework. If targets are set politically, accompanying framework conditions are needed to enable the targets to be achieved. What is important here is that leeway in the respective implementation must not only be allowed but made possible.
Doesn’t politics do this all the time, with investments in chip factories – as an opportunity and security for the economy?
Basically, we have to tackle the causes of our competitiveness problems, we can no longer just tinker with the symptoms and temporarily mitigate them. Take the debate about the industrial electricity price. The automotive industry does not benefit from this directly, only indirectly, for example in the case of preliminary products. Nevertheless, we have said that the aid is right and important because it can safeguard strategically important industries here. The same applies to batteries, semiconductors and others. These investments are the right thing to do – especially in this acute situation.
In addition, we now need an open discussion on how we can actually achieve our climate targets – and what is necessary to ensure that we remain economically successful at the same time. Location policy is a decisive criterion here. Bold, major reforms are absolutely essential. This is why we finally need an energy policy that ensures sufficient and therefore affordable energy for everyone.
It sounds simple, but it’s not.
It requires a major joint effort, a strategy that draws up short, medium and long-term concepts – and a little more pragmatism here and there. One example: there is no question that we need a more active energy policy, that is no surprise. Nevertheless, the German government’s power plant strategy is still missing. It is certain that we will need much more energy in the future, especially much more electricity. To achieve this, we need to invest as much as possible now – and simplify approval and planning procedures as much as possible.
Or take the raw materials that are essential for the transformation. Where are the trade agreements that we urgently need? Keyword Mercosur. We are in danger of missing a great opportunity here. The never-ending marathon of negotiations without results is not exactly an advertisement for other regions in the world to conclude agreements with us. We are also too inactive in Africa – and too late.
Who are you accusing of this?
Berlin and Brussels. We have had a corresponding Africa strategy since 2005. Politically, it was never underpinned and filled with life in such a way that we would benefit from it today. Berlin and Brussels should have taken care of it earlier and more strongly. It would have been easier in a position of strength than in the current one. Now we see that others are also confidently taking on a creative role – and our influence and radiance are fading.
Are we being too instructive?
We like to be instructive. Of course, our canon of values must also guide our political actions. At the same time, too much morality in politics often means that the right goals are achieved all the less. We need to be more honest and self-critical in order to achieve more in the end.
Is the world slipping away from us Europeans?
I wouldn’t go that far. But if you look at the BRICS countries, you can see how the world is changing. That there are new alliances that are no longer shaped or inspired solely by our values. So I can only repeat myself: An active energy and raw materials foreign policy and a trade policy with corresponding agreements that focus on diversification, efficiency and resilience are a prerequisite for our prosperity and our economic strength. And thus ultimately also for our influence in the world.
Even if climate protection targets or labor rights do not meet our expectations?
If we don’t conclude agreements, others will and we won’t achieve anything. Of course, we want to enforce better standards than other countries. And even if not everything has been negotiated to perfection, it is definitely important to conclude trade agreements and, if necessary, to bring parts of them into force first. Once again, our role has changed. We have to fight for our location, we have to remain attractive for investment. At the turn of last year, I called for this active location policy, relevance through economic strength – and backed it up with corresponding proposals. Unfortunately, after this year, I have to say that our location has not become any more attractive.
Does this mean that the chip industry, battery research and cell production should be relocated back to Europe?
We agree that we want to shape the mobility of the future – and other future fields – from Germany and Europe and be the center for transformation technologies. To achieve this goal, we must be the world’s leading, most attractive and most innovation-friendly location. Yes, we need to secure access to future technologists – which is why it is right to actively promote the establishment of companies in certain areas.
But?
But at the same time, we need to think more freely in our choice of instruments. The Inflation Reduction Act will lead to the development of a lot of green tech in the USA. That would also be possible here because a large number of developers still come from here. We have good research institutions and an almost unique collaborative interaction between business and science, usually well supported by politics. But we make far too little of it.
We have to ask ourselves: What new topics, technologies and ideas are important for us to remain a leading research location? Without blinkers. Without the fear that we as a society should not allow ourselves to engage in debates. Simply open, pragmatic and strategic. One thing is certain: If we no longer have the development centers here, we often no longer have the plants here either.
Make Germany great again?
Those are your words (laughs). It’s actually true: When I talk about de-risking, de-risking must also be made possible. Guiding principle: As autonomous as necessary and as open, global and market-oriented as possible. We live from free trade and our goal must remain free trade. That is why I am very critical of the protectionist efforts in Brussels. My concern is that we will end up harming ourselves as an export nation as a result.
Sounds smooth, but the core question remains vague: How much does the state have to do now? Is it time to rethink investment and state location policy, i.e. to spend a lot of money on improving the competitive situation like the USA and China?
This has several components. The first is that if we were to set targets in Europe and not get more and more instruments, that would be far better. We are currently saying that this technology is the only right one. In many places. Instead, we need to get back to saying: the goal is to avoid CO2. And now you scientists, entrepreneurs, researchers and so on are implementing this in the best possible way. In the USA, they tell companies: Use the dollar in such a way that it reduces CO2 as much as possible. How you do that is your decision. That makes a huge difference.
Are you alluding to the ban on combustion engines?
This is just one of many examples. If we think globally, it becomes clear that we cannot solve the problems in the transport sector with electromobility alone. This is the right path for us, but we have 1.5 billion vehicles on the road worldwide. We can’t just take the easy way out and say: at some point, everyone will be driving electric cars. No, we also have to think about synthetic fuels or other options for the existing fleet. Otherwise, we will not achieve our global climate targets.
What exactly are they demanding?
I am somewhat appalled by the way Brussels is dealing with e-fuels. It is neither constructive nor far-sighted. It is increasingly acting in isolation – as if there is no world out there. Brussels will not determine which cars can be on the road when and how worldwide. We can have more influence if we take an open, creative approach instead of a dirigiste one.
Doesn’t the Commission simply want to prevent everything from slipping away from politics? For example, through an unregulated approach to artificial intelligence?
I think what the EU has done in terms of artificial intelligence is problematic and wrong. Of course, I’m not advocating simply doing everything that AI makes possible. But if we disengage now, others will dominate development. What then? We must have the courage to make development and experimentation possible. Regulation is the second step. It must not be the first.
Why do German car manufacturers almost only build electric vehicles in the premium segment? There is hardly an EV from a German manufacturer that doesn’t cost at least €40,000.
This is a business decision. One thing is certain: our investments will pay off: The EV is on its way to becoming a mass product, which means economies of scale and technological leaps will ensure that prices for e-cars will fall. German manufacturers have already announced significantly cheaper cars. Once again, location and competitiveness are crucial: if all costs, whether energy or fundamental, continue to rise, the mission will not become any easier.
Nevertheless, the German car industry appears much more vulnerable than the French. For example, in competition with China.
I would like to clearly reject that. French manufacturers hardly sell any cars in China and their market share is low, with or without electric vehicles. That changes our perspective. Our ambition is and remains to build the world’s best, most efficient, safest, most digitalized and most climate-friendly cars in the world. And incidentally, our range of different e-models is constantly growing. To come back to the small cars you mentioned: German manufacturers offer four models of small and micro electric cars in Germany. In total, there are eleven models in the small electric car segment and below that are currently available in Germany.
And: German manufacturers have by far the largest market share of small and micro electric cars in Germany. In the first eleven months of last year, German manufacturers achieved a market share of 46 percent for small electric cars. This means that almost every second small electric car newly registered in Germany comes from a German manufacturer. And: all four models offered by German manufacturers in the small and micro electric car segment are available for less than €40,000.
Would punitive tariffs be an option to counter Chinese subsidies? The French say yes, the Germans overwhelmingly reject them.
Basically, it is not necessarily the smartest solution for a continent that depends on exports to work with punitive tariffs. That always has repercussions. It’s no different with chips. First and foremost, we need to work on our competitiveness. We are not doing that enough in Europe.
Can’t punitive tariffs help?
I would have liked to see a broader discussion of the advantages and disadvantages before punitive tariffs were introduced. Because of course there will be a backlash. A negative spiral is quite possible, which will ultimately cost everyone involved economic growth. In addition, there is something that many people don’t even think about, namely that German companies could also be directly affected by the tariffs. It’s not just us car manufacturers; many German industries produce in China. And everyone who has relocated production to China and re-imports products could ultimately be affected.
Of course, it is important to be self-confident in our dealings with China – and of course we are also extremely critical of many developments there. Economic and innovative strength are crucial if we want to hold our own in the long term.
If you look at the world with Russia, China and the BRICS countries: Has the concept of change through trade failed?
No. It is too easy to declare this concept a failure because we have made ourselves dependent on Russian gas and are now paying the price. On the contrary, I still believe that people and markets that are connected with each other are better able to shape the future together. The best example of this is the companies in the German automotive industry that have built plants in South Africa and hired local employees. Employees who now live in permanent homes, whose children can go to school, who enjoy labor rights and experience our values. This is modern, strategic and future-oriented economic policy – with positive effects for both sides.
Hildegard Müller has been President of the German Association of the Automotive Industry since Feb. 1, 2020.
The technological rivalry between the USA and China is dominating the course of the global economy. At present, Europe is not proactively shaping where the new global dividing lines will run, especially in critical technologies. Europe runs the risk of being left out of the shaping of a new geo-economic order.
There are already signs of this. When the US government imposed far-reaching new export controls on microchip technology against China in the fall of 2022, Europe was taken by surprise. Shortly afterwards, an agreement was announced between Washington, The Hague and Tokyo to align their controls in this area – an agreement in which Washington had effectively transferred its economic and national security interests to Europe.
When it comes to strategic technology industries, Germany in particular is the loser in a zero-sum game with China: China’s market gains in areas such as mechanical engineering, chemicals or recyclables often go hand in hand with losses for Germany. And Beijing is becoming increasingly self-confident when it comes to appropriating the know-how and research potential of European companies while at the same time controlling the flow of important technological inputs.
Europe must go its own way and use its unique strengths to remain an indispensable player in the field of critical technologies. This requires a strategy that goes beyond de-risking – i.e. reducing risks such as supply chain dependencies. At the same time, it would have to strategically increase the dependence of other regions on European technologies.
As the EU cannot dominate entire sectors, it must focus on certain technologies that are crucial for global economic stability. This is the principle of strategic interdependence: because not all risks can be eliminated, it is important to work towards a balance with other states.
Japan offers a model worth emulating with its idea of “strategic indispensability” for key technologies. The EU must also identify technologies and research approaches and invest in them. This involves those approaches that guarantee prosperity and security while maintaining Europe as a global technology hub.
Specifically, policymakers must thoroughly analyze the global technology and research ecosystems and identify European competitive advantages. In quantum technologies, for example, policymakers need to know where globally significant research and production capacities are already developing to promote and strengthen them in a targeted manner. Examples include special lenses, lasers, adhesives, low-temperature cooling systems and single-photon detectors. Research security also means dovetailing European research instruments with precisely these security policy objectives.
These analyses must take into account the speed at which alternative offerings or technologies could develop. The complex lithography systems for the semiconductor industry from Dutch company ASML, for example, will be hard to beat soon. In this respect, Europe has an advantage. In other technologies, however, advantages can quickly erode, as China has proven in electromobility. But supply chain security is also crucial, as China’s heavy dependence on critical raw materials shows.
The EU must take into account the needs and vulnerabilities of its geopolitical rivals. Similarly, the EU should capitalize on its alliances, particularly with technologically advanced allies such as the US, Japan, South Korea and the UK. The aim should be to promote complementary strengths in critical technologies.
To drive this strategy forward, the EU needs a new economic security architecture. A mechanism for economic security could better structure the necessary cooperation in three stages.
Overall, this mechanism could create a stronger Europe that can strengthen international economic security instead of falling victim to increasing uncertainty and insecurity.
Tobias Gehrke is a Senior Policy Fellow at the foreign policy think tank European Council on Foreign Relations (ECFR) in Berlin.
