Big vs small: EU faces big subsidy rift before facing US

The European Union is thinking about injecting more subsidies into its industry to counter U.S. efforts to ramp up its green technologies sector

Raf Casert,Samuel Petrequin
Thursday 12 January 2023 17:20 GMT

As the European Union thinks about injecting more subsidies into its industry to counter U.S. efforts to ramp up its green technologies sector, fears only increase that the continent's giants will profit at the cost of the small member states.

And if the EU's approval of subsidies to counter the impact of Russia's war in Ukraine are anything to go by, such fears are justified.

Sweden, which holds the EU presidency, warned Thursday about the need to preserve a balance to make sure that Germany and France don't strong-arm smaller member states and boost their national powerhouses will billions in subsidies that others simply don't have.

It would fundamentally threaten the EU's cherished “single market” where all industries from the 27 nations, be they from wealthy Germany or poorer Bulgaria, can compete as much a possible on an equal footing.

The EU’s response to the U.S. subsidies imbedded in the $369 billion Inflation Reduction Act must avoid “a competition on who can provide the most state aid” within the EU, Swedish Industry Minister Ebba Busch said. “We would have a situation where we would distort competition on the internal market, and particularly, disadvantage the smaller states within the union.”

The EU member states are already gearing up for precisely that battle when their leaders will meet for a two-day summit in Brussels on Feb. 9-10. For sure, most of the public debate will center on how to confront Washington without unleashing a trans-Atlantic trade war, but among member states, the urge to protect national interests will be at play as well.

Subsidies that member states can use to counter Washington and keep green industries in Europe are a given and European Commission President Ursula von der Leyen has proposed the idea of a European sovereignty fund to support the ecological transition of the bloc’s industry.

The point will be to make any effort more balanced than the 540 billion euros in state aid specifically approved up to now to allow member states deal with the impact of Russia's war in Ukraine.

Almost half of the approved state aid, or 49.33 %, was linked to Germany, while almost a third, or 29.92%, was requested by France. In comparison, southern nations like Italy, with 4.73% and Spain, with 1.86%, injected a lot less into their economies. The state aids can amount to grants, loans and financial guarantees.

The EU spent decades seeking to ween member states of excessive subsidies to outdated industries that in the end hampered nations in preparing for the future.

EU authorities made a fundamental change to the system when the economies were hit by the global coronavirus pandemic in 2020 and the fallout of the war in Ukraine came last year.


Raf Casert reported from Brussels.

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