EC president warns state aid is ‘unlevelling the playing field’ in Europe

Ursula von der Leyen conceded that companies in rich countries including Germany have been given an unfair advantage by the relaxation of the EU’s state aid rules, as she called for agreement on a pan-European rescue package.

In a speech to the European parliament in Brussels, the European commission president suggested that the single market was in danger of breaking up as wealthier member states spent their way out of the current crisis.

Von der Leyen said: “What we start to observe now is an unlevelling of the playing field in our single market. Therefore, in response, we need to support those that need it the most, we have to push for investment and reform.”

Brussels suspended the EU-wide state aid restrictions on subsidies to companies in mid-March, to allow governments to prop up big companies.

The rules on government subsidies are normally regarded as a fundamental part of the EU ecosystem ensuring that governments cannot artificially support firms and ‘pick winners’ in the European marketplace. But an escape clause was triggered by the commission as analysis suggested the EU economy will shrink by 7.5% in 2020 – a deeper fall than during the 2009 financial crisis – due to the coronavirus pandemic.

More than €1.9tn-worth of national spending schemes has been approved by the European commission so far, with Brussels announcing in recent days that the temporary emergency regime would last at least until the end of the year.

Germany, whose economy makes up around a quarter of the EU’s GDP, accounts for more than half of the state aid approved by the European commission since the pandemic began. France and Italy account for around a fifth of such spending.

Last week, the commission’s spring forecast suggested Germany would have a far less dramatic contraction of its economy than most other member states, and would recover more swiftly, even though its economic downturn (6.5%) is still expected to be the country’s deepest since the second world war.

Greece’s gross domestic product is forecast to shrink the most, by 9.7%, owing to the closure of its tourist industry. GDP in Italy and Spain is expected to contract by 9.5% and 9.4% respectively.

The commission has been tasked by EU heads of state and government with devising a rescue fund that can be used to aid those countries less able to support their economies.

But there has been intense debate among the 27 member states on the issue. A key question is the balance between loans and grants. Spain and Italy, with the backing of the French president, Emmanuel Macron, are seeking a high degree of financial transfers.

In contrast, the Netherlands, Germany and other northern European countries have argued that money cannot be given without conditions, and that the emphasis should be on the cash being paid back over time.

The EU’s economic commissioner, Paolo Gentiloni, a former Italian prime minister, has also warned of the risks of divergence between member states as they battle to recover from the impact of their lockdowns. On Wednesday he said the risk of an uneven economic recovery posed an “existential threat” to the European Union.

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