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The EU has prepared for the trade war and has entered the fight for subsidies from China and the USA with a kind of protectionism in order to prevent companies and factories from fleeing to these countries. Alarm bells rang in European capitals when Joe Biden announced the Inflation Reduction Act (IRA), through which he will allocate up to $370 billion to strengthen the industrial structure, particularly in the green sector. The slow European machinery was then put into motion to try to improve its competitiveness in an increasingly aggressive environment, with the intention of reducing dependencies on other powers and increasing its strategic capabilities.
Germany is in danger of no longer being the best student in the EU
The aim of the EU strategy is to make European soil more attractive from a commercial perspective. The main aim is to make the rules as flexible as possible so that companies can produce on the continent again or at least prevent them from fleeing other areas that are making juicy offers in the midst of the ecological transformation of their economy. The first fruits were born this week with the first approval for an EU country to follow one of these beneficial proposals on the other side of the Atlantic.
Brussels has agreed that Germany will grant the Swedish company Northvolt state aid worth 902 million euros to build a gigafactory in the town of Heide to produce batteries for electric cars. His alternative was to go to the United States. By avoiding the relocation of this factory, the European Commission estimates that the region will invest a total of 2.5 billion.
The flexibility of subsidies is one of the EU’s most important tools to counter the protectionism of its competitors and to break with the traditional European position that was suspicious of state aid due to its incompatibility with the free market. However, this principle is not absolute and has always been granted under certain conditions.
The historical development of state aid fluctuated: in the 80s of the last century it reached 2% of the EU’s GDP, but gradually fell to 1% in the 90s and fell to around 0.5 or 0.6% in the first decade 21st century. “However, since 2014, the downward trend has reversed, particularly with the inclusion of large renewable energy plants,” the European Commission says in its reports.
But the big jump came with the coronavirus outbreak in 2020, when the EU responded to the unprecedented slowdown in the global economy with expansionary spending and opted to bail out companies through state aid, which more than doubled. Compared to the 134 billion approved in 2019, the number reached 320 billion in the first year of the pandemic and increased in 2021 (334 billion). In relation to GDP, state aid was over 2%.
In these years, which are the last collected by the European Commission since the information for 2022 will not be published soon, more than half of the aid granted was intended to alleviate the impact of the coronavirus.
However, the capacity of member states to provide this aid is very inequitable and there are concerns within the community club itself about the impact on the internal market due to the threat to equal opportunities.
And Germany, which has the greatest financial strength in the EU, is the big beneficiary of this flexibility, accounting for more than a third of state aid granted across the EU (where it accounts for around 23% of total GDP). In 2021, for example, Berlin granted 36% of the continent’s state aid (121 billion euros). France, the second largest economy, was far behind with practically half (63,000 million, representing 19% of the total allocated).
The European Commission itself warned about this distortion 27 months ago. “Some states would have greater resources to help their companies, even if only temporary exceptions,” warned Internal Market Commissioner Thierry Breton in the middle of the debate about restoring industrial structure to withstand competition from Beijing or Washington. Vice-president and head of competition Margrethe Vestager sent a letter to governments warning that the fight over subsidies could have a “negative impact on cohesion within the European Union” and result in “fragmentation of the internal market”. . The data was irrefutable: Germany and France concentrated 80% of state aid granted in the exceptional context of the pandemic.
However, this trend continued in an increasingly adverse environment and amid a trade war. Given the risk of a European project being relocated, Vestager strongly defended the use of so-called “matching tools” for the first time to meet an offer from the United States. “It is important to be pragmatic in the world,” the commissioner said in response to a question about the benefit that Swedish company Northvolt is getting from the dual-gang trial. For the Commission and the federal government, whose minister appeared alongside Vestager in Brussels, it is fundamental that investments remain on the old continent.
Germany: “We should be happy with any investment in Europe”
“It is good news that we in the EU are finally stopping being innocent of the state aid that the USA and China are granting to attract European companies. But doing so through the flexibility of government aid at the national level means “every man for himself.” Germany can do it and simply did it; Spain cannot do that. We therefore need an investment instrument at EU level to prevent fragmentation of the European internal market and to attract more private investment for innovative projects. “What we have now is a patch,” argued Eva Poptcheva, MEP for Ciudadanos, on the social network X, echoing the suspicions raised by the model.
“We need new systems, new European solidarity,” admitted German Vice Chancellor and Economics Minister Robert Habeck and then pleaded for his country to be able to use its financial strength: “Solidarity also means that those who can invest can be part of one strong economic renewal and do not allow yourself to be viewed with suspicion. “Imagine that Germany does not invest in industrial production in the next decade, that would harm the European economy as a whole.” “We should be happy with any investment in Europe,” added Habeck, who doubted that the EU would was born as a trading alliance, has been better aware of the rules for the internal market for decades. “The real competition we face does not come from Germany with Italy, Denmark, Holland, Hungary or the Czech Republic. It is between the EU and China and the United States,” he concluded.
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