State aid should be ‘stopped’, Danish industry minister warns

The current loosening of EU state aid rules should not be prolonged further, Danish Industry Minister Morten Bødskov warned on Tuesday (20 February) while in Berlin to meet his German counterpart, Robert Habeck, a fierce proponent of relaxation of the EU framework.

The EU significantly relaxed its rules for national subsidies, known as state aid, in two tranches of amendments in 2022 and 2023 – in response to the energy crisis, as well as American and Chinese industrial policy.

While bigger member states, such as Germany and France, have been able to use the added flexibility to a large extent to support domestic industries thanks to their bigger fiscal room, smaller member states have repeatedly voiced concerns that the shift could predominantly benefit countries with deeper pockets.

“State aid is not the answer,” Bødskov, who is in charge of industry, business, and financial affairs, told Euractiv in an interview on Tuesday (20 February). “And I think it should be stopped”.

Noting that Denmark had created a successful industrial sector without the use of state aid – in sectors such as in life sciences and renewable energy – he said the public support instrument “is certainly not a tool that we have brought to the table”. 

The Temporary Crisis and Transition Framework (TCTF), which currently gives member states larger opportunities to support domestic industries, should not be extended beyond the next four years – with state-aid packages’ approvals possible until 2025 and actual roll-outs expected until 2027, Bødskov argued.

“I think the window that Europe has opened right now, 2024 and 2025, with a tail to 2026 and 2027, should be it,” he said.

While state aid has been traditionally subject to strict limitations under EU rules, to safeguard market competition, current exceptions include the option, for any EU country, to “match” subsidies offered to individual companies by non-EU countries – in order to prevent the company from relocating abroad.

The scheme, unveiled by Euractiv in early 2023, was first utilised by Germany in January, when the European Commission approved German aid of €902 million to Swedish battery-maker Northvolt for a new production site in Heide, Germany, not far from the Danish border.

Habeck keeps betting on state-aid support

On Tuesday, Bødskov met with Habeck (Greens), a long-time critic of the EU’s restrictions on national subsidies who once compared filling out the necessary paperwork to ageing “dog years”.

Habeck said in July last year that “these state aid negotiations are extremely complicated because Europe is very meticulous about making sure that one country does not take advantage of another”.

“Those who have gone through this once have aged years over an application procedure. It’s like dog years, one year counts as seven, because it’s so, so tedious,” he added.

While Habeck – as well as Germany’s leading government party SPD – has previously called for restrictions on national subsidies to be loosened, he overall backs a bigger-picture approach from the EU as a bloc.

Supporting a new instrument at the EU level to ensure that every member state is encouraged to foster national industries, he clarified to Euractiv on Tuesday that, in the longer-run, his position aligns with Bødskov’s reasoning – but differs on the ways to boost European competitiveness.

“I would say that we agree that Europe is in a particularly competitive situation, especially in a historical comparison. China, as you can see, is trying to take over other markets with state subsidies for mass-produced goods. That can be defined as an aggressive act.”

“If we pass these prices on to the customers, to the economy, we might end up in a vicious circle, and that can’t be right,” Habeck said.

“In other words, we must then distribute subsidies in some form so that the higher production costs do not actually destroy what we want to maintain, namely the competitiveness of the European or German economy,” he explained.

Bødskov, for his part, supports other measures apart from state aid, such as investment in research and development, as well as higher education.

“The key behind the Danish success in the green direction is one thing: The ability to move thousands and thousands of unskilled and skilled workers into new green jobs.”

The project of an EU-wide fund is also being opposed by Germany’s own finance minister, Christian Lindner of the pro-business FDP party, who has generally criticised public subsidies.

Chinese competition

Meanwhile, Bødskov voiced support for the European Commission’s anti-subsidy investigation into Chinese electric vehicles (EVs), which could lead to new tariffs being imposed on electric cars imported from China.

“We cannot close the Chinese economy out of the global economy. And we will compete,” he said. “But we have to compete on a level playing field.”

“And that’s why I think it’s positive that the Commission now, with President Ursula von der Leyen, has taken such a tough stance when it comes to the cars. It’s needed.”

Bødskov, whose country is home to the former world leader in the production of wind turbines, Vestas, did not want to specify if he would encourage a similar investigation to be made on Chinese wind turbines, which the European industry fears could flood the European market over the next few years.

With the recently agreed ‘Net-Zero Industry Act’, the EU aims to tackle 40% of its needs for renewable energy technologies through domestic production by 2030.

[Edited by Anna Brunetti/Zoran Radosavljevic]

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