24th Jun 2021

EU loosens state aid rules, feels pressure on budget deficits

  • State aid rules are being loosened up for two years, competition commissioner Neelie Kroes has announced. (Photo: European Commission)

The European Commission has given in to calls to loosen up rules on state aid in order to tackle looming economic recession, while some national governments are piling on the pressure for a similar amnesty on their widening budget deficits.

"These changes are justified given the exceptional economic conditions," competition commissioner Neelie Kroes told a press conference on Wednesday (17 December).

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"But given that these are temporary circumstances, today's measures must also be temporary," she added.

Under the changes, which took effect Wednesday, governments will be able to grant direct aids and susbsidised loans of up to €500,000 without notifying the commission. This is more than double the current €200,000 threshold, above which national governments face long procedures and delays.

Governments may also offer guarantees for loans to firms at a reduced premium, as well as subsidise loans and provide risk capital aid of up to €2.5 million per company per year, rather than the €1.5 million that is currently the case.

The new measures come after several member states raised their voices in the last few weeks against the lack of flexibility in the commission's rules.

Ms Kroes rejected the criticism, saying that the EU executive proved it was able to act swiftly and that the delays were caused by countries who did not provide all the necessary information.

Governments want free rides for their deficits

Meanwhile, member states with growing budget deficits, such as France, Italy, Greece and Ireland are putting the commission under increased pressure to loosen up not only state aid rules, but also on the stability pact that binds eurozone countries not to have a deficit of more than three percent of the gross domestic product (GDP). Failure to comply with this provision can trigger expensive fines for the national governments.

Commissioner Joaquin Almunia, responsible for economic and monetary affairs, has already indicated that a deficit of "some decimal points" over the three percent threshold would be allowed next year.

Yet according to EU diplomats quoted by the German daily Suddeutsche Zeitung, more and more countries want to loosen or even temporarily lift the provisions of the stability pact, an idea firmly rejected by Mr Almunia.

Mr Almunia was told not to voice his concerns about the stability pact by the four member states, the German paper reports.

Meanwhile, Berlin is worried that if such attitudes prevail, "the pact will die in the end," the Suddeutsche Zeitung wrote.

Allied with Germany on the matter are Austria, the Netherlands and Finland.

Yet even Germany might soon see its deficit expanding to close to the three percent threshold. After having approved a first stimulus package and with a second one in the works, Berlin's debt is expected to soon reach at least €40 billion.

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