The escalating global race for government subsidies is intensifying pressure on the European Union to further relax its state aid rules, as European industries warn that they risk losing ground to competitors who enjoy cheaper energy and generous state support.
In response to mounting pressure from the global subsidy race, the Commission has already moved to relax the state aid framework, that is, the rules designed to prevent the creation of unfair advantages through state support, now giving European governments greater leeway to financially support their businesses.
In this context, Metlen CEO Evangelos Mytilineos, in a statement to the Financial Times, described “targeted support” as “a welcome step in the right direction,” emphasizing the need to support businesses burdened by high electricity prices and the costs of the European emissions trading system.
Discussions in Brussels are intensifying, as governments in Paris, Berlin, and other European capitals insist that the EU’s state aid policy must be adapted to the new era of geopolitical competition. European officials note that industries in China and other countries are bolstered not only by state subsidies but also by lower energy costs and protected domestic demand.
Former ECB President Mario Draghi has made a similar call, urging investments of hundreds of billions of euros —largely through the public sector—to address the growing threat that heavily subsidized Chinese conglomerates pose to European industry.
However, there are also concerns that Europe risks, in its effort to reduce its dependence on China, of adopting a more state-centric model that aligns with Beijing’s logic and moves away from the traditional principles of the single market.
Meanwhile, in Brussels, concerns are growing about the role of Germany under Chancellor Friedrich Merz regarding the extent of German subsidies to industry. European diplomats warn that such interventions could create distortions in competition and new imbalances in the European economy.
“If Germany subsidizes a power plant instead of fixing the functioning of its electricity market, that has consequences,” noted a senior EU diplomat, indirectly raising the issue of the limits of state intervention in the European economy.