June 21. 2024. 2:45

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In defence of the European single market

The EU’s greatest strength in competition with the US and China is its single market, and if state aid regulations are permanently loosened, it will be undermined, write Piotr Arak and Konrad Szymański.

The European Commission has loosened state aid rules in response to the pandemic, a move that has largely benefited Germany and France.

Now, with the proposed Net-Zero Industry Act, the Commission is looking to make these loosened rules permanent, risking further compromise of the single market. This is not only a short-term economic problem but a long-term political one for the EU.

Central European countries, like Poland, have long advocated for a level playing field within the EU, and this latest move by the Commission undermines that principle.

The statistics presented by Competition Commissioner Margrethe Vestager in her recent letter to finance ministers make it clear that Germany and France have already taken advantage of the loosened rules, with 53% and 24% of the €672bn worth of funding approved under the temporary crisis framework going to those two countries, respectively.

This is not just a question of fairness, but also of strategy. The EU’s greatest strength in competition with the US and China is the single market. Instead of undermining it with more state aid, the Commission and member states should be focusing on improving it, by harmonising regulations and continuing work on more trade within the EU.

It is no surprise that the European Commission’s recent proposal to loosen state aid rules further is in line with the interests of the EU’s two largest economies, Germany and France.

This is made clear by a letter from Competition Commissioner Margrethe Vestager to finance ministers, in which she outlines a new approach to make the state aid approvals process simpler and faster and expands coverage to a wider variety of green industry sectors.

The EU proposal is further supported by a new Franco-German initiative towards a green industrial policy in Europe, led by French and German ministers Bruno Le Maire and Robert Habeck.

This initiative calls for new and simpler processes for state aid, and the possibility of more aid provisions for projects in strategic industries such as hydrogen, fuel cell technology, battery, and the semiconductor industry.

The ultimate goal of this initiative is to allow European companies to receive the same level of subsidies as those provided by the US, through grants and tax breaks.

It is important to note that this is not just about the amount of state aid that is approved, but also about the process by which it is approved. The current state aid approval process is already heavily skewed in favour of larger member states, and the proposed changes would only exacerbate this problem.

Other member states, such as Northern, Central European or Scandinavian countries, would be at a significant disadvantage in terms of accessing state aid and competing on a level playing field.

Can every European country afford the same amount of state aid as France and Germany? The answer is simply no. The EU member states have different levels of economic development, different levels of public debt and different levels of fiscal space.

While France and Germany are among the wealthiest and most developed economies in the EU, many other member states, particularly those in Eastern and Southern Europe, do not have the same resources and are not in the same financial position.

It is also important to consider the long-term implications of this move. The EU’s single market is one of its greatest strengths and is essential for maintaining a strong and sustainable economy.

By allowing larger member states to access more state aid, the EU is essentially allowing them to gain an unfair advantage over smaller member states. This will only lead to increased economic disparities and political tensions within the EU, on top of the divides we already have in Europe.

Therefore, the subsidy race is a threat to the composition of the EU itself. We understand that Europe wants not to lose with the US, but it might lose the common values and internal competitiveness on the way.