Companies in the richer European countries such as Germany are being given an unfair advantage because of the relaxing of the state aid rules of the European Union, said European Commission president Ursula von der Leyen, while calling for an agreement on a rescue package for the entire European continent.
It was also possible that the current situation could also pit the single market in danger of being broken up as the richer member countries of the EU are expending money to way out of the current crisis caused by the novel coornavirus pandemic, Von der Leyen suggested in a speech to the European parliament in Brussels.
“What we start to observe now is an unlevelling of the playing field in our single market. Therefore, in response, we need to support those that need it the most; we have to push for investment and reform,” Von der Leyen said.
The restrictions imposed on all EU member countries to prevent governments from providing state aid to their large companies were suspended in middle of March mid the pandemic related crisis.
These rules preventing state aid to private companies by member states of the EU were considered to be a fundamental part of the ecosystem of the EU as these ensured that large companies are not artificially supported by countries and “pick winners” in the European marketplace. But amid fears being expressed by analysts that the EU economy would shrink by 7.5 per cent in 2020 because of the impact of the novel coronavirus pandemic, the EU had triggered an escape clause to bypass the rules.
So far the European commission has approved more than €1.9tn worth of national spending schemes and it also announced recently that this temporary emergency situation would be implemented at least till the end of the current year.
More than half of the state aid approved by the European commission since the pandemic began was from Germany, which is the largest economy of the EU and makes up about a quarter of the GDP of the block. Approval of about one fifth of the emergency spending was for France and Italy.
According to the spring forecast of the European Commission issued last week, the contraction of the German economy because of the pandemic would be far less dramatic compared to most of the other member countries and would stage a more swifter recovery even as the Commission predicted that the contraction of its economy (6.5 per cent) is expected to be the deepest for the German economy since the Second World War.
In contrast, some of the other EU countries are expected to see a steeper contraction such as for Greece which is expected to contract the most at 9.7 per cent because of the closure of the tourism industry of the country due to the travel restrictions induced by the coronavirus pandemic. The GDP of Italy and Spain is expected to contract by 9.5 per cent and 9.4 per cent respectively.
(Adapted from TheGuardian.com)