Eroding EU fair play? State Aids under Covid-19

On Thursday 19th March 2020, the European Commission adopted a Temporary Framework to enable Member States to use the full flexibility foreseen under State aid rules to support their economy and help overcome the extremely difficult situation triggered by the coronavirus outbreak. On 3rd April, an amendment to the original Temporary Framework was adopted in order to extend the original five types of aid to include the research, development, and expanded production of coronavirus related products, and to facilitate the protection of employment in the Member States.

This Temporary Framework is based on Article 107(3) (b) TFEU and complements those that Member States can use to mitigate the social-economic impact of the coronavirus outbreak in line with EU State aid rules. Article 107(2) (b) TFEU allows compensating specific companies or sectors for the damages directly caused by exceptional occurrences, such as the Covid-19 pandemic.

These are the facts but the dates in which this framework was adopted could lead to the conclusion that the idea of state aids does not originate with Covid-19. In fact, there were already for some time, pressures from several Member States pushing for the relaxation of state aid rules strongly defended by Vice-President Margrethe Vestager. We have to bear in mind this was happening in a context of where some European industrial sectors were in trouble in part due to the difficulties of complying with the ecological transition and with changes in international markets and competitors.

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In fact, the European Battery and the Clean Hydrogen alliances were the planned way to relax competition laws without eroding competence since they were linked to projects of special strategic interest. This approach seemed a good justification for relaxation, but for some sectors, it proved insufficient to save the industrial fabric of many countries.

Covid-19 has been the perfect excuse to change the rules so far and in theory, temporarily. To have the states to step in to help business, as well as people or self-employed, has not only been a good idea, but a necessary one, having in mind the economic freezing due to Covid-19 and the confinement rules followed by most Member States. As it has possibly been a good idea to allow island territories to increase the state aid possibilities included in the minimis aid having in mind the specific difficulties islands face to attract companies to develop their businesses there. However, a careful look to the amount and shares of these state aids by country leave us a great concern about the functioning of the European single market and the inequalities generated among Member States.

If we aim to be more precise, there is no doubt that the European Commission’s own report is a very interesting source of information.  Following the calculations made by Reuters, up to mid-May, 147 state aids to companies had been authorised, worth EUR 1.93 trillion, and in very different forms: subsidies, tax cuts, wage subsidies, support for research, capitalisation, etc. Of the overall amount of aid, those granted by Germany represent around 52% of the total, and those of France and Italy, 17% respectively, far away from the rest of EU countries. So, there is no correlation among the size of the different national economies or the effects of Covid-19 with the amount of state aid received by the companies placed in different member state. On the contrary, the amount of aid they are receiving is related to the financial capacity of different governments and to an institutional design that generates inequalities, particularly within the euro area.

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What does it mean? It could mean this step is eroding European single market. There are companies that are going to be able to survive according to the financial capacity of their states while others will not. It is like in a sport competition, if some runners are doped they will have a better performance of those who are not. Countries with higher financial capability for aiding their companies will translate into a huge advantage for companies in those countries, even if temporarily. In addition, the truth is that the competition will take place in conditions of obvious imbalance in a common market already full of inequalities and with clear signs of divergence, within the Eurozone since the Euro started, and especially since the 2008 financial crisis and the austerity imposed to certain Member States that were just recovering from that process.

However, this is not the opinion shared by Commissioner for Industry, Mr Breton. In the Industry Committee at the European Parliament on the 4th June, he answered to various MEP questions about this issue: “When a member state acts to improve their national situation, it helps improving the rest of the internal market.” Therefore, the aid Germany was providing for its companies was good for everybody.

Nevertheless, we have to question if the huge differences included in the Commission report really support Commissioner Breton words. It will be good to know how the different companies from countries with less financial room feel about these differences in state aid. And if the Commission is really concerned about economic convergence and the functioning of the single market, it should seriously consider the possible inequalities created with such relaxation without proper compensatory measures beyond the Recovery fund.

We need to be aware that economic and industrial sovereignty is an objective in itself for the EU, but a fair play ground should be established for all Member States. We also need to be aware that all that is happening in an international context of diminishing competition as Johnathan Tepper well explains in his book ‘The Myth of Capitalism: Monopolies and the death competition’. A market economy as ours needs competition to work properly and advance. And, at this time of post-crisis Covid-19, when we are debating and planning the conference on the future of Europe, when we are establishing the new long-term strategy for Europe’s industrial future, it is key that the internal market, a shared competence that guides convergence, is present in that road map. For our better common future.

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