Competitiveness and State aid: France and Germany against 25 skeptical partners

There is a problem and all of Europe agrees on what it is: the loss of competitiveness of continental companies.

There is a structural challenge, the support of the Chinese State for theirs, and a circumstantial one, the legislation approved by the US (known as the IRA) to give hundreds of billions of dollars for the green transition, and everyone agrees in the EU .

The response of the 27 will go through a

, and in that there is consensus in all the capitals and the community institutions.

But from there, there is no longer unanimity in anything: neither what is the ultimate cause of the situation nor what should be the complete recipe.

France and Germany are delighted with the idea of ​​relaxation, which they have been demanding since even before Covid;

they are aligned on the guidelines and are going hand in hand at every step, including a trip this week to Washington, which has generated suspicion, annoyance or open hostility from the rest of the 25 community partners.

These differences were seen this Thursday in Brussels at the informal European Council that brought together the heads of State and Government of the Union, although everything was overshadowed by the visit of the Ukrainian president, Volodirmir Zelenski.

The leaders addressed the issue of US subsidies, and approved a series of generic conclusions on the next steps, but the frictions are very obvious and difficult to come by.

to allow the creation of European giants that face the Chinese or North Americans, but both the Commission and many neighbors feared and fear that this would generate national champions, rather than continental ones.

In addition, both countries are the ones with the most fiscal muscle, as has been seen since 2020 with the aid from the pandemic and the consequences of the war, and what is being generated is a clearly two-speed Europe on this issue and runs the risk of a complete fragmentation of the single market.

On the one hand are those two countries, in favor of changing the aid framework now.

And above all Macron, very aggressive, vehement and trying to drag the rest, with Germany quieter, but rowing at the same time.

On the other,

, who believes that a subsidy war is as bad as a trade war and who believes that Europe's problem is internal, not exogenous.

He is in the bureaucracy, the complexity of the system, the dysfunctional rules or that there are 27 traditions and in some senses 27 national markets, in addition to regional ones.

This makes it much easier for Chinese or North American firms to grow in their markets, generating clear competitive advantages, beyond aid.

The EU, they maintain, has also given its green aid, the Next Generation funds, so it cannot complain if others do something similar.

But they want guarantees, firewalls, very clear boundaries and absolute transparency so that the rich and strong don't come out much richer and stronger and the rest are left even further behind,

In the middle of both blocks, others like Spain and Italy

, which adopt a pragmatic approach.

They see, like everyone else, the clear risk of fragmentation, but since they know what is going to happen, and that the framework is going to be changed, they try to make it as beneficial as possible.

"There is already fragmentation so we want to relax aid, but only for a few years and a few sectors," Moncloa sources explain.

"Some want a wide sleeve, remove all existing procedures. Not that, we want to simplify what is there, but not eliminate everything," they clarify.

They want it to be until 2026, to match it to Next Generation.

They want more agility, more flexibility, that they can use all the money available.

They want the aid to be for companies of the green transition nothing more, temporary and focused.

And that the EU can match every subsidy it grants to the US, to retain companies.

And they want to take advantage so that many demands that until now have been ignored enter the package.

But our country does not see the need for more funds, because there is a lot of approved money already in circulation.

They want efficiency, and relax some thresholds, but not like France, which asks to raise from 10 million euros to 100 the limit from which prior permission from Brussels is mandatory to help certain sectors.

And they demand that there be clauses that prevent internal relocations,

relaxation in pandemic

The EU has been relaxing state aid since 2020 and that makes the orthodox very nervous.

A little more, they maintain, will cause fragmentation and destroy 30 years of construction of the Single Market.

It is not normal for the Franco-German axis to be in the minority, or even isolated in a maximalist position, but it is not the first time either.

Analysts, diplomats and community officials see a challenge in US legislation, and see it as essential to convince Washington that European companies deserve "at least the same treatment as Canada or Mexico."

The issue has been addressed at this informal summit, but a stronger legislative proposal from the European Commission is now awaited and much more discussion will be needed at ministerial level, in Ecofin, to refine the details of the package.

A change in the aid rules, greater flexibility also to access financing instruments (vital for countries with less fiscal muscle of their own), more flexibility also to dispose of the money already mobilized in other instruments but which is blocked (both for the pandemic like the war or the energy bill).

And, of course, the option of a Sovereignty Fund that, in the future, mobilizes more money.

We are a long way off, but in these negotiations it is all a

.

Spain, which next semester assumes the temporary presidency of the Council of the EU, knows this well and is preparing to move its cards.

Everyone has priorities, and although France and Germany are the biggest and most powerful, they can no longer go it alone and wait and assume that the rest will follow without asking.

That time is history.

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