The place subsequent for Europe’s business?

The influence of the power disaster on European business continues to be debated hotly. After I highlighted in final week’s Free Lunch how effectively the continent’s manufacturing has held up, the reactions assorted from denial to stunned delight. As economics professor Daniela Gabor stated in a tweet echoing my very own sentiment, “I used to be very gloomy doomy about carbon shock remedy — and thus far, fairly incorrect. Good one.”

That’s not, in fact, what number of European leaders see it. Excessive power costs are as an alternative seen as an existential risk to the economic base, which, to high it off, is being lured away — so the argument goes — by unfair US inexperienced subsidies. (“We needed you to take local weather change significantly however not a lot that your corporations produce inexperienced know-how in competitors with us,” appears to be the view of some.) Cue a string of guarantees, from reassurances that Washington will tweak its insurance policies in order to depart Europe’s business unhurt, to a dedication to better subsidies again at dwelling.

For the reason that debate rages on, it may well’t harm to take one other dive into the info and what they need to imply for coverage.

Begin with Europe’s spectacular skill to adapt to increased pure gasoline costs. My colleague Shotaro Tani added to the proof of this, reporting on Monday that European customers reduce consumption by one-quarter in each October and November, relative to five-year averages. This was largely accounted for by cuts in business demand for gasoline.

Some reactions to my celebration of this success have come from a local weather change angle. They argue that gasoline reductions have solely been achieved at the price of consuming extra oil, or of substituting coal for gasoline in energy technology. So I went to take a look on the information, and I can reassure the sceptics. The chart beneath reveals the EU’s oil imports, which look fairly flat over this yr and are, if something, beneath pre-pandemic ranges.

And whereas there have been reviews of coal use rising, the numbers are clearly not sufficient to maneuver the needle at an economy-wide scale. Here’s a chart of coal consumption in EU electrical energy technology; once more it stays beneath pre-pandemic ranges.

Others resist the interpretation that Europe’s business has weathered the disaster effectively, as I argued final week. And there are definitely reviews of some manufacturing shutting down. [German chemicals group BASF is a case in point.] However this needs to be seen in opposition to the background of general progress in manufacturing facility output in virtually each European nation, as I documented final week.

For extra element, take the most recent business numbers from Germany. “Trade excluding power and development” — that’s largely manufacturing — produced 0.8 per cent extra in October than one yr earlier. Inside this, “energy-intensive branches” recorded a fall of 12.6 per cent over the yr (these are 5 sectors that account for one-fifth of worth added in business however three-quarters of its power use). So manufacturing that makes use of loads of power contracted sharply, different manufacturing grew, mixed progress was constructive — all of it seems simply how we wish an adaptable capitalist market financial system to behave.

Lastly, some object to evaluating manufacturing facility output in the present day with a yr in the past, given how the pandemic turned our economies topsy-turvy. Honest sufficient. However taking the lengthy view absolutely means specializing in the actual fact I highlighted final week, that the EU’s manufacturing output is bigger than ever. If this can be a disaster, it’s not a nasty one to have.

Admittedly, it’s a counterintuitive scenario. So it’s pure to be disorientated by the better-than-you-think story advised by the statistics (definitely I used to be, as I anticipated issues to be worse). However it’s not wholesome for the general public debate to be confused by concepts about what (as I channelled Mark Twain in one other context) we all know for positive that simply ain’t so.

Take the widespread fear (eminently described by my colleagues over on the Power Supply publication, whose chart I reproduce beneath) that the US is stealing Europe’s bacon, or at the very least its investments into batteries and different applied sciences of the long run.

However there appears to be related angst about Chinese language corporations constructing a lot of battery factories in Europe. Can you actually be complaining about each issues on the identical time? Perhaps that is merely a narrative about enterprise leaders constructing batteries wherever there might be demand for them — which now contains the US, and has clearly not stopped together with Europe. The extra the merrier.

In fact, one can imagine that for “strategic autonomy” causes it’s higher for European battery demand to be met by European-owned or European-controlled battery manufacturing located in Europe. But when that’s the case, it’s a bit wealthy to complain concerning the US making an attempt to realize exactly that with the clumsily discriminatory tax credit European leaders are so up in arms about.

What could be a extra clear-headed mind-set about Europe’s inexperienced industrial future? I had a stab at it in my column on Monday, the place I argued that the EU ought to draw the consequence of being a fossil energy-poor continent: specifically to not attempt to preserve a fossil energy-intensive business. As an alternative focus each on accelerating the inexperienced transition, massively increase renewable energy technology and transmission, and domesticate an business that may thrive in a renewable power system. That might imply pursuing manufacturing strategies which can be adaptable to the volatility of renewable energy — from aligning manufacturing phases with totally different power wants with energy value fluctuations to incorporating thermal and power storage in manufacturing facility amenities.

I used to be happy to learn a punchy op-ed in our pages by Fatih Birol, head of the Worldwide Power Company, arguing alongside related traces: Europe should withstand structurally increased fossil gas costs however it has a possibility to construct an business geared to a decarbonised financial system. However that requires “a grasp plan for the long run that goes past survival mode”.

And eventually, learn the sharp evaluation by Georg Riekeles and Philipp Lausberg of the European Coverage Centre. They name for a new trillion-euro EU financing mechanism primarily based on widespread borrowing. One can quibble with the main points. However that’s the dimensions of ambition that’s required.

Different readables

• Ukraine’s President Volodymyr Zelenskyy is the FT’s Individual of the Yr. Our editor went to interview him.

• This week the EU began its Russian oil import embargo, and the bloc and the G7 launched their value cap on Russian oil offered anyplace on this planet with their corporations’ assist. The EU’s announcement is right here and the US Treasury’s truth sheet right here.

• The price of residing disaster is driving extra ladies into intercourse work.

• The EU-Western Balkans summit occurred in Tirana this week. In a new report, the Vienna Institute for Worldwide Financial Research reveals that it’s excessive time for the EU to begin taking the area significantly and velocity up its integration with the bloc.

• The Financial institution for Worldwide Settlements warns that market crashes may complicate the tightening of financial coverage.

Numbers information

• The share of multinational firms’ income squirrelled away to tax havens didn’t fall after policymakers started to deal with the problem after 2015, new analysis finds. Since world income continued to rise, so did the related tax loss.

• Britons’ wholesome life expectancy is worsening, writes Sarah O’Connor.