Social Europe

politics, economy and employment & labour

  • Themes
    • European digital sphere
    • Recovery and resilience
  • Publications
    • Books
    • Dossiers
    • Occasional Papers
    • Research Essays
    • Brexit Paper Series
  • Podcast
  • Videos
  • Newsletter

Covid-19 state-aid rules harm poorer member states

Lena Hornkohl and Jens van 't Klooster 11th May 2020

The easing of state-aid rules in the Covid-19 crisis has tilted the competitive playing-field away from those member states where Euro-disaffection is already growing.

state aids, state-aid rules
Lena Hornkohl

Since March the European Commission has granted large exemptions to EU state-aid rules. This gives companies in rich member states an immense advantage over their competitors. Offsetting requires fair burden-sharing on the EU level. Until such measures are forthcoming, the commissioner for competition, Margrethe Vestager, should do more to ensure a fair distribution of state aid among the member states.

Under the normal state-aid regime, governments are not allowed to support their own companies, unless this is justified by reasons of general economic development. At least in theory, the rules promote efficiency and growth by driving out of the market weaker competitors which would not have survived otherwise. The rules also prevent states helping their businesses to obtain a competitive advantage over firms in other member states, creating a level playing-field in the EU.

state aids, state-aid rules
Jens van ‘t Klooster

Serious worry

It is a serious worry when the commission, as in the aftermath of the 2008 financial crisis, loosens its state-aid rules. One of the commission’s first crisis-fighting measures, in fact, was to create a Temporary Framework which allows member states to implement—subject to clearance by the commission—a wide range of state aid. This can take the form of direct grants and tax cuts, but also involve such measures as wage subsidies, deferrals of tax and social-security contributions and cheap loans, as well as specific aid for healthcare research and Covid-19 related medical products. In addition to the Temporary Framework, member states have used a direct state-aid exemption for ‘damage caused by natural disasters or exceptional occurrences’—in particular vis-à-vis the health, tourism, transport, retail and cultural sectors.

All these aid measures have been widely used in the past several weeks, but much more by some member states than by others. With the commission issuing clearance decisions daily, the total amount of aid granted in the Covid-19 crisis stood at around €1.9 trillion in early May. In general, all member states enjoy the same freedom to use the new rules. But, as in the wake of the 2008 crisis, once again there is a marked inequality in how state-aid measures have been used and granted.

Our job is keeping you informed!


Subscribe to our free newsletter and stay up to date with the latest Social Europe content.


We will never send you spam and you can unsubscribe anytime.

Thank you!

Please check your inbox and click on the link in the confirmation email to complete your newsletter subscription.

.

While wealthy member states are responsible for the majority of the cleared measures, other member states are left behind. Germany alone accounts for 52 per cent of aid approved. Spain, which has been one of the hardest hit by the virus, has so far only promulgated a €20 billion guarantee scheme and yet to be clearly calculated umbrella schemes. These inequalities are exacerbated by other measures not qualifying as state aid in the first place, such as suspensions of payments of corporate and value-added taxes or social-welfare contributions, to the benefit of all undertakings.

Impossible choice

The EU’s internal market now presents member states such as Italy and Spain with an impossible choice. They can create a safety net for their firms which matches those available to their French and German competitors. For this, however, they would need to increase their public debts, often already dangerously high. The other option is that their firms will come out of this crisis severely weakened. They may lose a sizeable share of their economy, as companies default, are driven out of the market or face foreign takeovers.

How will increased economic inequalities affect the EU after the crisis ends? It seems very unlikely Spanish citizens will continue to favour a single market whose benefits are distributed so unfairly.

By relaxing state-aid rules and clearing measures at an astonishing speed, the current Temporary Framework enables exactly those inequalities state-aid policy is meant to prevent. The Spanish economy minister, Nadia Calviño, has rightly complained about this. Even the French president, Emmanuel Macron, despite the generous state aid available to French companies, has admitted that it undermines the internal market. Surprisingly, even Vestager, whose directorate-general is responsible for state aid, is openly concerned that EU inequalities will further increase in the aftermath of the Covid-19 crisis.

But there is not a consensus on this. The Austrian finance minister, Gernot Bluemel, wants temporarily to abandon state-aid rules altogether. Such a position is short-sighted, however, since a fair distribution of emergency measures also benefits Austrian exports and ensures a stable future for the EU.


We need your support


Social Europe is an independent publisher and we believe in freely available content. For this model to be sustainable, however, we depend on the solidarity of our readers. Become a Social Europe member for less than 5 Euro per month and help us produce more articles, podcasts and videos. Thank you very much for your support!

Become a Social Europe Member

Fair distribution

There are two ways in which such a fair distribution can be ensured. One is to design emergency measures on the EU level which consist almost exclusively of loans. With private and public debts already at record highs, this will not however be adequate. Alternatively, the EU should simply ensure that member states have sufficient funds to take effective national measures. This can be done through EU-level fiscal measures or central-bank activism.

European competition rules are an exclusive EU competence, which makes it an area where the commission has immense power. If no fair approach takes shape in the coming weeks, Vestager should reconsider the generous state aids available to companies in rich member states or take active measures to offset their effects—whether via a state-aid solidarity fund which also provides aid to competitors in other member states or future compensatory exemptions which would benefit member states that made less use of the Temporary Framework.

For once, the commission cannot blame current imbalances on the member states—it is its responsibility to solve them.

For a more detailed discussion of the legal aspects of Covid-19 state-aid measures see our earlier Verfassungsblog post

Lena Hornkohl and Jens van 't Klooster

Lena Hornkohl is a competition lawyer in Brussels and a PhD candidate at the Heidelberg University Institute for German and European Corporate and Commercial Law. Jens van ‘t Klooster is a Research Foundation—Flanders postdoctoral researcher at the KU Leuven’s Institute of Philosophy and a member of the University of Amsterdam’s 'A New Normative Framework for Financial Debt' research group.

Home ・ Economy ・ Covid-19 state-aid rules harm poorer member states

Most Popular Posts

schools,Sweden,Swedish,voucher,choice Sweden’s schools: Milton Friedman’s wet dreamLisa Pelling
world order,Russia,China,Europe,United States,US The coming world orderMarc Saxer
south working,remote work ‘South working’: the future of remote workAntonio Aloisi and Luisa Corazza
Russia,Putin,assets,oligarchs Seizing the assets of Russian oligarchsBranko Milanovic
Russians,support,war,Ukraine Why do Russians support the war against Ukraine?Svetlana Erpyleva

Most Recent Posts

trade,values,Russia,Ukraine,globalisation Peace and trade—a new perspectiveGustav Horn
biodiversity,COP15,China,climate COP15: negotiations must come out of the shadowsSandrine Maljean-Dubois
reproductive rights,abortion,hungary,eastern europe,united states,us,poland The uneven battlefield of reproductive rightsAndrea Pető
LNG,EIB,liquefied natural gas,European Investment Bank Ukraine is no reason to invest in gasXavier Sol
schools,Sweden,Swedish,voucher,choice Sweden’s schools: Milton Friedman’s wet dreamLisa Pelling

Other Social Europe Publications

The transatlantic relationship
Women and the coronavirus crisis
RE No. 12: Why No Economic Democracy in Sweden?
US election 2020
Corporate taxation in a globalised era

ETUI advertisement

Bilan social / Social policy in the EU: state of play 2021 and perspectives

The new edition of the Bilan social 2021, co-produced by the European Social Observatory (OSE) and the European Trade Union Institute (ETUI), reveals that while EU social policy-making took a blow in 2020, 2021 was guided by the re-emerging social aspirations of the European Commission and the launch of several important initiatives. Against the background of Covid-19, climate change and the debate on the future of Europe, the French presidency of the Council of the EU and the von der Leyen commission must now be closely scrutinised by EU citizens and social stakeholders.


AVAILABLE HERE

Eurofound advertisement

Living and working in Europe 2021

The Covid-19 pandemic continued to be a defining force in 2021, and Eurofound continued its work of examining and recording the many and diverse impacts across the EU. Living and working in Europe 2021 provides a snapshot of the changes to employment, work and living conditions in Europe. It also summarises the agency’s findings on issues such as gender equality in employment, wealth inequality and labour shortages. These will have a significant bearing on recovery from the pandemic, resilience in the face of the war in Ukraine and a successful transition to a green and digital future.


AVAILABLE HERE

Foundation for European Progressive Studies Advertisement

EU Care Atlas: a new interactive data map showing how care deficits affect the gender earnings gap in the EU

Browse through the EU Care Atlas, a new interactive data map to help uncover what the statistics are often hiding: how care deficits directly feed into the gender earnings gap.

While attention is often focused on the gender pay gap (13%), the EU Care Atlas brings to light the more worrisome and complex picture of women’s economic inequalities. The pay gap is just one of three main elements that explain the overall earnings gap, which is estimated at 36.7%. The EU Care Atlas illustrates the urgent need to look beyond the pay gap and understand the interplay between the overall earnings gap and care imbalances.


BROWSE THROUGH THE MAP

Hans Böckler Stiftung Advertisement

Towards a new Minimum Wage Policy in Germany and Europe: WSI minimum wage report 2022

The past year has seen a much higher political profile for the issue of minimum wages, not only in Germany, which has seen fresh initiatives to tackle low pay, but also in those many other countries in Europe that have embarked on substantial and sustained increases in statutory minimum wages. One key benchmark in determining what should count as an adequate minimum wage is the threshold of 60 per cent of the median wage, a ratio that has also played a role in the European Commission's proposals for an EU-level policy on minimum wages. This year's WSI Minimum Wage Report highlights the feasibility of achieving minimum wages that meet this criterion, given the political will. And with an increase to 12 euro per hour planned for autumn 2022, Germany might now find itself promoted from laggard to minimum-wage trailblazer.


FREE DOWNLOAD

About Social Europe

Our Mission

Article Submission

Membership

Advertisements

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

Social Europe Archives

Search Social Europe

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Follow us on social media

Follow us on Facebook

Follow us on Twitter

Follow us on LinkedIn

Follow us on YouTube