Smaller EU countries revolt against state aid spree
Several EU countries raised red flags on Thursday (7 March) against the mounting use of national subsidies across the EU, which they warned undermines the foundations of the single market.
At a meeting of industry and competitiveness ministers in Brussels, six EU countries led by Sweden took the floor to criticise the bloc’s ‘over-reliance’ on national subsidies, known as state aid, to secure competitiveness in global markets.
“We need to return to a stricter state aid regime, including control, to ensure that all European companies get a level playing field in the internal market,” Swedish Trade Minister Johan Forssell (M/EPP) said.
Although acknowledging that “global competition is tough, it’s getting fierce,” and strategic measures were needed to counter subsidies by jurisdictions such as the US or China, “we believe those measures should be to ensure the companies’ long-term competitiveness”, Forssell said.
His stance was backed by representatives of Finland, the Czech Republic, Denmark, Ireland, and Poland, with officials from other member states partly echoing their worries.
Reacting to the massive industrial subsidies paid by the US as part of its “Inflation Reduction Act” (IRA), the European Commission announced in 2023 a significant loosening of its state aid rules beyond their historically strict limits on the amount of subsidies allowed within the EU single market.
The new rulebook, known as the ‘Temporary Crisis and Transition Framework’ (TCTF), includes the option for EU countries to ‘match’ foreign incentives, meaning they can offer the same sum as a foreign state to a company that is considering locating a factory in a green industry sector outside the EU, with the aim to secure an investment in Europe instead.
In a letter circulated ahead of the meeting, Sweden and eight other countries called for an end to the current relaxation, warning that “matching aid, in particular, risks the integrity of the single market”.
“Companies are ‘forum shopping’ aid under the TCTF to place their productive investments in a particular member state,” warned the group, which included Estonia, Finland, Iceland, Ireland, Latvia, Poland, Portugal, and the Czech Republic.
State aid should be ‘stopped’, Danish industry minister warns
The current loosening of EU state aid rules should not be prolonged further, Danish Industry Minister Morten Bødskov warned on Tuesday (20 February) while in Berlin to meet his German counterpart, Robert Habeck.
Germany’s Giegold defends case for subsidies
In January this year, Germany became the first country to make use of the new option to match foreign subsidies, granting a total of €902 million in state aid – €700 million of which were direct grants – to Swedish battery maker Northvolt to build a new battery factory in Heide, Germany – after the company had received an offer of €850 million subsidies from the US state of Nebraska.
No further projects that would use the ‘matching aid’ clause are currently planned in Germany. Given the country’s tight budget rules set in its constitutional ‘debt brake’ provision, it is unlikely that a subsidy spree on a large scale could follow in the next few years.
Nevertheless, the group of small countries wanted to “open the debate before the new Commission is installed” following June’s EU elections, an EU diplomat from one of the signatory countries told Euractiv.
During the meeting, German economy state secretary Sven Giegold (Greens) defended his country’s stance on the matter.
“The impression is as if one country was totally distorting the market. This impression is false,” he said with regard to numbers repeatedly circulated by the European Commission, showing that Germany made the most use of both the TCTF scheme and its predecessor – the Temporary Crisis Framework (TCF), which focused on emergency measures in the energy crisis.
“But when discussing these issues, we also have to face economic reality,” Giegold said. “We have competitors globally that do not respect our common rules and where there is no European Commission controlling state aid,” he stressed.
“So, therefore, we have to, if we want to win the race for future industries, regain more control over our own destiny,” he added.
Battery production: Germany first EU country to match US subsidies
Germany will provide €900 million to Swedish battery maker Northvolt, as the first country to make use of the European Commission’s new subsidy “matching” scheme that allows EU countries to counter foreign subsidies with their own offers.
‘Matching aid’ stretched original Commission proposals
Documents from the original European Commission member state consultation, obtained by Euractiv, show that the clause that currently allows ‘matching aid’ goes drastically beyond what the EU executive initially sought to introduce, after pressure from Germany and France and despite fundamental concerns voiced by multiple smaller countries.
Paris and Berlin insisted on a scheme that would allow them to compete at the global level, which the Commission followed in its final changes.
As reported by Euractiv last year, in the first draft circulated to member states in February 2023, the Commission wanted to limit this option to projects in poor EU regions, known as category ‘a’ regions, which have a per-capita GDP below 75% of the EU average.
This would have made it impossible for France and Germany to use it for individual projects, meaning they would only have been able to subsidise factories with a maximum of €100 million aid, or €150 million funds in some rural areas – known as category ‘c’.
The option to match foreign subsidies above €150 million “would therefore be practically unusable for Germany,” the German government complained in its response to the consultation at the time and called for a “significant expansion of funding opportunities for large companies,” both in regional and financial scope.
Similarly, Paris argued that “in France, for example, the terms of the clause limit its application to the overseas territories, unless the project is located in at least three Member states.”
In contrast, already in February 2023, Sweden argued that the proposals on ‘matching aid’ “should not be implemented unless there is solid fact-based evidence that they are necessary and proportionate”.
Nevertheless, when the Commission finally adopted the scheme in March 2023, the scope of the ‘matching aid’ clause was extended both in financial terms and eligibility criteria – to include regions within Europe.
Unlike the initial proposal, the current rules now allow for ‘matching aid’ in an unlimited amount to be used in the much broader category of ‘c’ regions, which are found both in Germany and France.
Had the initial version of the proposed TCTF been adopted, the aid granted to Northvolt in Heide would not have been possible.
The limits were also increased for green industry subsidies without a competing offer from abroad – to €350 million for projects in ‘a’ regions, €200 million in ‘c’ regions, and €150 million elsewhere.
A Commission spokesperson highlighted to Euractiv that the option for ‘matching aid’, alongside the other ‘transition measures’ in section 2.8 of the TCTF is set to come to an end in December 2025.
“The Commission continues to consider that the rules in section 2.8, with their related safeguards, are appropriate within that timeframe,” the spokesperson said.
Chart of the Week
While Germany is the only country that used the option to match foreign aid, other countries have made use of the “Temporary Crisis and Transition Framework”.
The map shows, on a country-by-country basis, the measures approved under the TCTF by 20 February 2024, which were categorised as ‘transition’ measures by the European Commission (as opposed to ‘crisis’ measures, the other category of aid).
When interpreting the data, it is important to keep in mind that the TCTF is only one of the multiple available schemes under which countries can get subsidies for green technologies approved by the European Commission.
Other options include the regular state aid rules for climate and energy technologies (CEEAG), the “Important Projects of Common European Interest” (IPCEIs), and the General Block Exemption Regulation (GBER).
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