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Germany under fire for push to revamp EU-subsidy rules

The German push to allow EU countries to subsidise their industries more extensively has been met with opposition from experts and member states, who fear that the move could give Germany a competitive advantage

By: EBR - Posted: Tuesday, January 17, 2023

Germany is particularly keen on relaxing state aid rules that currently ensure fair competition between EU member states within the bloc. The state aid framework “urgently needs to be reformed and brought up to date” to match the US initiative, reads a strategy paper of the governing SPD from last week.
Germany is particularly keen on relaxing state aid rules that currently ensure fair competition between EU member states within the bloc. The state aid framework “urgently needs to be reformed and brought up to date” to match the US initiative, reads a strategy paper of the governing SPD from last week.

by Jonathan Packroff and Oliver Noyan

The German push to allow EU countries to subsidise their industries more extensively has been met with opposition from experts and member states, who fear that the move could give Germany a competitive advantage, concerns which Berlin has so far largely dismissed.

The EU is currently looking for ways to tackle the €500 billion heavy US-Inflation Reduction Act that has raised concerns that EU industries might relocate to the US to benefit from the subsidy scheme.

Germany is particularly keen on relaxing state aid rules that currently ensure fair competition between EU member states within the bloc. The state aid framework “urgently needs to be reformed and brought up to date” to match the US initiative, reads a strategy paper of the governing SPD from last week.

However, such a move could open a Pandora’s Box and is worrying many of the other member states, who fear that it could give Germany a competitive advantage towards the rest of the bloc.

“Relaxation of our competition and state aid rules is most of the time not the preferable way or the most beneficial way to tackle new challenges,” a spokesperson of the Dutch Ministry of Economic Affairs told EURACTIV.

Instead, relaxing subsidy rules could easily distort competition and growth or lead to a “harmful subsidy race that benefits few and hurts many,” the spokesperson added.

Similar concerns have surfaced in the Czech Republic, where some policymakers fear that such a subsidy race would primarily benefit larger member states.

“If there is a spiral of ‘who gives more’, the Czech Republic will not win,” Czech MEP Ludek Niedermayer (TOP 09, EPP) warned.

“Our interest is, in fact, to make the rules of state aid stricter rather than less strict. And, of course, they should be respected,” the Czech MEP, representing one of the Czech governing coalition parties, added.

However, despite growing concerns among experts and smaller member states, Germany is not currently entertaining these considerations.

Asked by EURACTIV about how Germany addressed these concerns, the economy ministry was reluctant to comment on the issue.

The economy ministry dismissed the concerns by stating that Germany is only pushing for relaxation, not for an “abandonment of the EU’s internal competition control,” a spokesperson told EURACTIV. Instead, the spokesperson argued that the relaxation would make “Europe as a whole fit for the future.”

However, even a relaxation of the EU’s subsidy rules could have huge negative repercussions for the single market and could benefit Germany vis-a-vis other member states, as past experience shows.

Widening Germany’s competitive edge

Responding to the COVID crisis and the energy shock triggered by the war in Ukraine, “countries with deep pockets, which have greater fiscal leeway, have been much more able to counteract and to save their companies and cushion the pressure that has arisen,” Armin Steinbach, professor for EU law and economics at Ecole des Hautes Etudes Commerciales de Paris, told EURACTIV.

“If we now further relax the state aid rules, we will basically increase this imbalance within Europe,” he warns.

According to data from the European Commission, German companies are already the largest beneficiaries of state aid granted in response to the energy crisis, where additional support for companies was tolerated.

Under the so-called Temporary Crisis Framework, Germany has notified more than half of approved state aid (53%), with France (24%) and Italy (7%) following second and third. Thus, the rest of the EU only makes up 16% of notified state aid, despite representing 45% of the EU’s GDP.

“Not all member states have the same fiscal space for State aid. That’s a fact. And a risk for the integrity of Europe,” a letter sent to national ministers by Commission Vice President Margrethe Vestager on Friday reads.

In the letter, which was leaked to EURACTIV, Vestager also proposes the relaxation of state aid rules, but only if a “collective European fund” flanks this, likely financed with additional joint EU debt.

This is vocally supported by Italy and France, who say they would agree to relax state-aid rules only in complement to a new EU fund.

While France pushed alongside Germany to relax the state aid rules in a common position paper, French EU Minister Laurence Boone later clarified that such a move would only make sense alongside a fund on the EU level.

The goal is to “ensure that these means are not appropriated by a single country, which could be the case if we simply make state aid more flexible,” she stated in the EU committee of the French National Assembly last Wednesday (January 11).

“To ensure this, we are going to push for a European instrument to reduce fragmentation and to give the same conditions of simplification and financing to all European countries,” she added.

Italian Prime Minister Giorgia Meloni made similar statements in a meeting with Commission President Ursula von der Leyen in Rome last week.

She emphasised that Italy would only agree to ease state-aid rules if a ‘European Sovereignty Fund’ as proposed by von der Leyen would be set up at the same time, otherwise, Germany would disproportionately benefit from a relaxation of the state-aid rules.

However, Germany has so far fundamentally opposed such an option. According to plans by the German Economy Ministry, leaked by Handelsblatt, Berlin is highly sceptical of financing the response on the European level. Instead, additional funding should be “raised primarily nationally,” the document reads.

German Finance Minister Christian Lindner is especially critical of any European response involving joint European debts.

“A sovereignty fund must not be a new attempt at joint European borrowing. That would only be the same old solution in search of every new occasion to be proposed,” Lindner said in December. “We see no reason for additional European debt,” he added.

*first published in: Euractiv.com

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