Investing in Backup Systems to boost resilience: Interview with Mariana Kühnel

Winter: The war also made us aware of Europe´s dramatic energy dependency, particularly on Russian natural gas. How can the economy become independent and mitigate this risk in the medium to long term?

Kühnel: A warm winter and our strong efforts to store gas helped us to avoid energy shortages. But the current crisis is not over yet. To reduce our dependency from Russia, we need to further diversify our energy supply. On the one hand by accelerating the deployment of renewable energy in Europe, on the other hand by building up new energy imports routes. In addition to improving energy efficiency and the availability of renewable electricity, we need to invest in back-up systems, climate-neutral gas, and liquid energy sources to compensate for the resulting volatility. Especially with the goal of climate neutrality by 2050 in mind, we need to employ all alternatives that can contribute to the reduction of greenhouse gases and embrace the principle of technological openness.

Winter: With the new Inflation Reduction Act (IRA), the United States are currently attracting numerous European companies to invest overseas., in particular in the field of renewable energy and infrastructure. What chances do you see and how should the European Union react to avoid the danger of de-industrialization in Europe?

Kühnel: First and foremost, it is important to stay calm. A subsidy race between the EU and the United States is the last thing we need right now. As far as the level of funding is concerned, we see that existing EU funding is in no way inferior to the IRA. However, the IRA comes with much less regulations and bureaucracy than we have here in Europe. Therefore, we can actually learn from the US in this regard, on how a policy design for the EU could look like. In addition, the IRA mainly focusses on mass deployment of green technologies rather than innovation. By focusing on early-stage development and increasing EU resilience to trade disruptions the EU might gain a comparative advantage in the medium to long term.

Winter: The United States are also gaining in importance for European companies in view of the cooling relations with China, which is confidently promoting its role on the global stage. The Chinese Belt and Road Initiative for instance demonstrates the future balance of power. Strategic competition between the U.S. and China is driving global fragmentation as both focus on boosting self-reliance, reducing vulnerabilities, and decoupling their technology sectors.

While China was one of the most promising trading partners just a few years ago, companies are now faced with political unpredictability resulting in unreliable supply chains, to name just one effect. Taiwan is another key flashpoint. How do you see the future development of foreign trade with China?

Kühnel: In these unpredictable times we are currently living in, we can observe a trend that companies are looking into diversifying their markets and supply chains. However, China will remain an important player on the world economic stage given the sheer size of its market. Although 2022 was a tough year for Austrian businesses in China, our trade relations actually increased. From January until November Austrian exports rose by 9.6% and imports registered a plus of 33%.

Winter: Do you see trends that the lessons learned from the supply chain problems over the last few years will lead to a relocation of production back to Europe, for example Eastern Europe?

Kühnel: We have indeed learned that, in addition to efficiency, we need to pay increased attention to resilience and the reduction of strategic dependencies in our international trade relations. Various legislative initiatives at the EU-level, such as the European Chips Act or the Critical Raw Materials Act, are designed to do exactly that. In addition, it is important to also expand our trade relations with like-minded partners and promote global cooperation.

Winter: The European Union has been negotiating an association agreement with the Mercosur countries (Argentina, Brazil, Paraguay and Uruguay) to create stable and predictable rules for trade in goods, services and investments. In 2019, an agreement in principle was reached. What is the strategic relevance of those countries for European companies and which other territories should be on the radar for the future?

Kühnel: Europe is deeply connected with Latin America by common languages, culture, and commerce. We are like-minded partners with shared values and interests. Faced with an unprecedented multitude of crises, it is crucial to deepen our economic ties with this up-and-coming region. In addition, global climate concerns require urgent and coordinated action to ensure a transition toward clean energy. The access to critical raw materials, is one of the preconditions for the digital and green transition in Europe. We should therefore secure our resource supply channels through EU trade agreements.
 
With regards to other areas of strategic interest, the EU is currently negotiating with Indonesia and Australia. We hope that also negotiations with the Philippines, Thailand and Malaysia will soon continue. These potential markets offer great potentials for Austrian businesses. Indonesia and the Philippines combined have over 380 million inhabitants and in the case of Australia offer important resources like Lithium, cobalt, and rare earths metals. When it comes to Africa, there is also a geopolitical need to strengthen the EU’s presence on the continent. In the past we have seen increasing engagement of China and Russia on the continent, mostly to the detriment of the traditional close ties to Europe. Therefore, deepening and improving EU-Africa relations should be a priority.

Winter: Companies in all industries are struggling to find new employees. In view of the demographic developments, there are clear signs of a dramatic shortage of workforce in Europe. On the other hand, fewer and fewer people are willing to work full-time. What are the most urgent actions for both, companies and politics and what role will migration play in the future?

Kühnel: The demographic development and the resulting lack of skilled workers is really challenging for Europe. In Austria, the number of 20- to 65-year-olds is said to decline by 244.000 by 2040. Much more needs to be done to allow companies to fill their vacancies and to close this developing gap. Apart from tapping the domestic potential, by increasing the number of women in full time employment and by mobilising older people, a clear focus must be put on developing a qualified migration policy.