Europe’s answer to US Inflation Reduction Act risks never happening

There were high hopes in Brussels earlier this week that the long-awaited European Sovereignty Fund, the EU's answer to the US Inflation Reduction Act, had finally arrived.

Those dreams were dashed on Tuesday, when the European Commission announced a “Strategic Technologies for Europe Platform” to take its place. It includes only 10 billion euros ($12 billion) in new funding, compared to the hundreds of billions of dollars available under President Joe Biden's plan for the IRA.

The proposed platform, known as STEP, is supposed to boost investment in the digital, cleantech and biotech sectors thanks to the adaptation of existing programs, using more of the available funding and a top-up expected to create 160 billion euros in total investments, according to the EU executive.

What it is not is the promised European Sovereignty Fund, which was sold as a plan to bolster the EU's production capacity and spur on the development of homegrown clean technologies.

Instead, STEP is a precursor to a “fully fledged Sovereignty Fund that would be created in the future,” commission president Ursula von der Leyen said in a statement.

Now the question is whether the fund will ever see the light of day, as the EU institutions wrap up legislative work ahead of the European elections scheduled for 2024.

Waiting game

The fund that was supposed to be the “structural solution” to the bloc's key investment needs to reach net-zero emissions targets, and other key technologies, is now relegated to just one recital of the STEP regulation.

“While STEP relies on the reprogramming and reinforcement of existing programs for supporting strategic investments, it is also an important element for testing the feasibility and preparation of new interventions as a step toward a European Sovereignty Fund,” the text reads.

“The evaluation in 2025 will assess the relevance of the actions undertaken and serve as a basis for assessing the need for an upscaling of the support toward strategic sectors,” the recital also says.

Despite a first announcement last September and a confirmation that the Sovereignty Fund was about to come, Von der Leyen never provided details on how it would be designed. However, STEP is far from what was promised.

“In order to be indeed fast, we had to modify this idea or to transfer it in a solution which is immediately provided as an agreement [that's] implementable,” EU budget chief Johannes Hahn said on Tuesday, defending the disappearance of the Sovereignty Fund.

“We don't have to reinvent the wheel. Everything is ready, and we can focus on what is needed, and not get lost into negotiations about a new fund,” Hahn said.

This is only the beginning of STEP's legislative journey, as it needs to be approved by the European Parliament and national governments in the Council of the EU to become law.

The platform could be well established in a matter of months, but those hoping for a sovereignty fund to come to light might be kept waiting indefinitely.