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The EU’s policy of relaxing state aid rules is the “exact opposite” of what is needed to regain competitiveness in response to high energy costs and generous US tax breaks, according to Belgium’s prime minister.
Alexander De Croo told the Financial Times that the EU should instead deepen its single market and put in place bloc-wide incentives for industry.
The EU loosened state aid rules in the wake of Russia’s full-scale invasion of Ukraine last year to help European businesses cope with a surge in inflation fuelled by high energy prices and to promote the green transition.
But De Croo warned against such “derogations on state aid,” adding: “The answer that we’re giving today is exactly the opposite of what it should be.”
EU state support to businesses has increased from €103bn in 2015 to €384bn and €335bn in 2020 and 2021, the peak years of the coronavirus pandemic. Since then aid has continued to balloon: between March 2022 and August this year, the EU approved €733bn in state support, half of which was granted to Germany alone, according to unofficial figures seen by the Financial Times.
“That launches some kind of race. And yes, bigger countries always have [the] deepest pockets,” De Croo said. “At some point you will be at the bottom of your pockets, and then what do you do?”
Earlier this month, the European Commission extended the emergency derogations for state support amid fears of knock-on effects of the conflict in the Middle East on energy supplies, even as it warned member states to wind down energy support measures due to tightening budgets.
Finding ways to keep the European economy competitive while dealing with severe budget constraints and juggling the energy transition has become a key challenge for Brussels.
De Croo, a Flemish liberal who leads Belgium’s coalition government, said that “a revamp of that internal market” was necessary in the face of competition from the US and its landmark subsidy programme, the Inflation Reduction Act.
He said the EU has too many burdensome regulations in place. “The US is good at the carrots . . . What we do is, we’re good at the sticks,” he said. “Regulation isn’t always bad, but we need some more carrots.”
De Croo warned there was a risk that stringent climate policies could mean that industry would relocate to regions with lighter rules. “We need to keep industrial production here.”
An “industry deal” was necessary to complement the EU’s landmark Green Deal and help retain key sectors and businesses, De Croo said. He said this would be a priority for Belgium when it takes over the EU’s rotating six-month presidency in January.
There was no contradiction between climate goals and the needs of industry, as “one is going to help to achieve the other”, he added.
Manufacturing is the economic sector with the highest greenhouse gas emissions in the EU followed by energy, according to Eurostat data.
During its presidency, Belgium plans to organise meetings between policymakers and industry to discuss those issues. De Croo said additional initiatives would be needed to “focus on creating incentives in the right investments” as well as greater synchronisation between countries’ industrial policies.
But it remains unclear where additional funding could come from outside of the private sector, as member states tighten their purse strings and negotiations over a top-up of the EU’s own budget remain mired in difficulties.
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