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Hooked on subsidies, and itching for more
April 27, 2007
Germany has urged the European Commission to relax its strict rules on state aid in cases where EU governments compete with non-EU countries for investment. Berlin wants to introduce a "matching" clause that would essentially nullify the Union’s ban on subsidies and allow governments to offer the same aid package as countries outside the union.
Germany’s proposal would mean that if, for example, a US federal state tried to attract investment from a South Korean chipmaker with the help of massive financial incentives, Germany or France could offer the same level of subsidies.
The plan will be discussed at an informal meeting of EU industry ministers starting today, and no doubt it will be wildly popular in other European capitals.
The fact is that European businesses and their governments are hooked on state aid. In 2005, the last year for which figures are available, EU governments spent a staggering €64bn to support the private sector - with Germany accounting for more than €20bn of that total.
No matter how often the Commission insists that subsidies distort trade and competition and lead to a misallocation of capital, governments just don’t seem to get it. Indeed, while the Commission’s hard line against bail-outs and other forms of support initially caused a steep fall in the overall levels of state aid, the figures have barely moved now for several years.
That state aid levels has reached a (worryingly high) plateau is already cause for concern. But to call for a further relaxation of the rules that have brought about so little change in the first place seems seriously misguided.
Germany should look at the sorry state of Poland’s shipyards, which Warsaw is presently keen to supply with further government cash, against some Commission resistance. Years of heavy support have not improved the economic fortunes of the three yards on the Baltic coast, and now they are looking at further painful restructuring rounds - if they can be saved at all.
Quite sensibly, the Union’s current rules on state aid are founded on the principle that in the long run state aid rarely pays. It ill becomes Europe’s largest economy to fiddle with that principle.
