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What Europe’s Economy Needs Now

The US Inflation Reduction Act should be seen as a wake-up call for Europe. As the European Investment Bank Group holds its first-ever EIB Group Forum in Luxembourg this week, policymakers can start to deliver what the European economy needs most: smart, targeted investments.

LUXEMBOURG – Faced with growing investment gaps, most European policymakers seem to think it is time for another broad-based stimulus package, despite high inflation and high levels of public debt. But I am afraid they are wrong.

Stimulus would simply force the European Central Bank to increase interest rates further and faster. What we need instead is targeted support, namely investments in sectors that are green and likely to promote resilience and competitiveness. The necessary resources must be mobilized quickly and on an EU-wide scale, with the express goal of mobilizing private investment.

There has been much handwringing in Europe over the threat posed by the US Inflation Reduction Act. Yet despite all the fears it has provoked, the IRA is ultimately a step in the right direction. It provides massive support for green sectors where more investment is urgently needed, and it shows that the United States and Europe are finally aligned in pursuing a sustainable economic transformation. Europeans should welcome US eagerness to scale up its renewable-energy capacity, and that it is putting its money where its mouth is.

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