In his speech of December 4, 2022 at the College of Bruges, the President of the European Commission, Ursula Von der Leyen, in response to the US Inflation Reduction Act (IRA), said: “We are now thinking about how to simplify and adapt our rules on aid State.” This statement may mean the beginning of a revolution. The conclusions of the European Council of February 9 plead, in fact, for a rapid relaxation and simplification of the State aid regime.
The control of this aid, introduced in 1957, is at the heart of the policy and action of the Directorate-General for Competition, undoubtedly the most powerful – and the most criticized – of the services of the Commission. Its principle is simple: State aid which distorts competition in the internal market is prohibited, unless authorized by the Commission. This prohibition in principle is accompanied by a number of exceptions for the reasons of general interest listed in the treaty (public service compensation, minimization of regional disparities, etc.). It is one of the very few federal competences in the EU. It is on this basis that the Commission thus asked Ireland to recover 13 billion euros in tax rebates from Apple which it deemed – pending the Court of Justice to rule – illegal.
This evolution, if it were to be confirmed, is of importance. It calls for a series of remarks.
Firstly, the European Union is still not reforming on its own initiative, but under external constraint, here American. By placing the IRA at the center of her remarks, President von der Leyen recalls a truth which is also a great misconception of Europe: the most powerful of the Member States is indeed… the United States of America. The EU was created after World War II because America wanted it. If today Europe is having so much trouble implementing a defense policy, it is because NATO, that is to say America, although pivoting partially towards Asia, in remains the master. France is the exception that we know. Nothing specific to the European Union either: when the United States decided, the unalterable Swiss banking secrecy was shattered.
The European Union plays Germany’s game
Second point: Europe, by announcing that it will be less strict in terms of State aid – which it has always pretended to deal with only through the prism of competition – is turning its back on the budgetary discipline. Nothing new: in autumn 2003, France and Germany decided together to exempt themselves from the rules of the Stability and Growth Pact. Brussels, despite the institutional reforms of the 2010s (“six-pack” treaty, etc.), has never enforced financial discipline. The Covid crisis and the suspension of the rules of the pact have therefore finished opening the eyes of the most rigorous in this area. The relaxation of the control of State aid – the total amount of which authorized by the Commission had fallen from around 1.2% of European GDP in the early 2000s to half before the Covid crisis – is a further step. in the renunciation of the budgetary seriousness of a euro zone whose the debt is close to 100% of GDP (against 60% provided for by the treaties). In recent years, new exceptions to the orthodoxy in terms of aid have emerged, for example the Ipcei (Important Projects of Common European Interest), which constitute a remarkable innovation because they correspond to public aid paid for development projects. clearly European interest.
Third remark: the EU plays the game of Germany and, to a lesser extent, of France. Indeed, Germany, trapped by its errors in energy matters, has more financial leeway than its neighbor across the Rhine. For what ? Because it alone followed a path of budgetary moderation from 2009, aware of Europe’s inability to impose rigor on other Member States. Its debt is nearly 50% lower than that of France and 30% lower than the euro zone average. After massively resorting to state aid from the spring of 2020, Berlin has the means and the will to continue on this path, as illustrated by the recent decision to devote 200 billion in support of its industry. A relaxation of the control of State aid, driven by a German President of the Commission who does not forget that the European elections are in 17 months, is timely. But in doing politics, she does not forget France either, the main opponent of competition policy for 20 years – therefore, among other things, of the control of State aid – and whose economic DNA remains the same. massive use of public expenditure.
Fourth observation: the questioning of the founding principle of the EU, which is the protection of “small” Member States. The essence of Europe is federalism, the red thread of which, in the United States or in Europe, is to preserve the “small” against the “big”. It is for this reason that the Commission, independent and supranational, is the guardian of the treaties, that is to say the protector of the balance between EU states. It is also for this reason that in 1955, when the Treaty of Rome was negotiated, while agricultural France was encouraging the creation of the Common Agricultural Policy (CAP), the three “small” Benelux states pushed for the development of a state aid control regime. This system, unique in the world, was to protect their companies from unfair competition from German, French or Italian companies benefiting from the public financial power of their respective States.
Money is not magic
Fifth point: the shift between a European Union that is strong internally, but weak externally. Behind the criticism, particularly in France, of the state aid regime, there is an essential reality: the EU knows how to make competition prevail in its internal market. But its market, recalls France, is not an island. It is at the heart of the global economy. Should we continue to deprive ourselves of the massive use of financial weapons, even though the Americans, Chinese, Indians or countries of the Middle East make such extensive use of them, and the WTO is powerless? The question is formidable, although posed by a country with widespread budgetary discredit in the minds of European elites. It is in the name of this legitimate question that France is pursuing – in vain – a long-term undertaking aimed at getting the Commission to reconsider the definition of what competition law calls the relevant markets. But admitting the principle of massive recourse to state aid also means opening Pandora’s box. First between Europeans, because the promoters of public spending, particularly in the south of the continent, are forgetting one thing that the ECB is reminding us: money is not magic! To give free rein to State aid, the more rigorous countries leave with a head start on the impecunious. It is for this reason that in the spring of 2020 the Spanish Minister of the Economy was moved by the massive payments of aid to German companies.
Finally, isn’t a questioning of the state aid regime the first step in dismantling competition policy? Because if we push the reasoning, why not accept crisis cartels? Why, as France has wanted since the early 2000s and again after the Siemens-Alstom affair of 2019 – and still in vain – not dismantle merger law to bring in more European champions? In a recent statement, the current Director General for Competition of the Commission rightly pointed out that the strength of European competition law was precisely due to its fairness to all.
All in all, to those who think that the EU is immutable, the planned development of the state aid regime could provide a scathing denial. It would mark, after the ultra-accommodating monetary policies of the last decade, a new shift in Europe’s center of gravity in economic matters towards less ordoliberalism and more French-style interventionism. Finally, and above all, it would recall this disturbing fact: Europe will be all the less liberal and all the more protectionist the more it knows itself to be weak. The next European summits promise lively debates.
* Bruno Alomar, economist and professor in European affairs, worked at the Directorate General for Competition of the European Commission.