Another €6bn (£5.4bn) for Air France-KLM. A rescue package for Monte dei Paschi, the biggest Italian lender. Round after round of government cash sprayed in the direction of German companies ranging from ThyssenKrupp to Tui to Lufthansa, and a €10bn fund to help Spanish companies. Right across Europe, governments are ramping up state aid both to support companies in trouble and to build new industries.
But hold on. All of those companies will be able to use cheap finance to undercut rivals in the UK and elsewhere. It is precisely the “unfair playing field” the EU has been complaining about, except that it is the major European nations that have started fixing the game in their favour.
In truth, over the next few years British companies are going to be facing brutally unfair competition. From court actions, to mobilising a global response, to retaliatory tariffs, our government needs to work out how to fight back against that – or else simply watch as some of our key industries are undermined by rivals from the other side of the Channel.
Hardly a day passes without one European government or another bailing out a major industry. In the past week, Air France-KLM, the Continent’s biggest airline, was reported to be close to another €6bn of funding from the Dutch and French governments, on top of the €10.4bn it was given earlier in the year. Italy is reported to be working on a tax break scheme for Monte dei Paschi, its biggest bank, that amounts to a fresh round of subsidies, as well as recapitalising Alitalia, while Cassa Depositi e Prestiti, its state-owned sovereign wealth fund, has been building up stakes in companies from the stock exchange operator Euronext to the payments company Nexi.
Berlin has been just as busy as its rivals in Rome and Paris. Over the past few months, it has sunk €9bn into a bailout of its airline Lufthansa, while protecting it from foreign takeovers, another €1.2bn into the travel operator Tui, on top of the €3bn it received earlier in the year, and the steel manufacturer ThyssenKrupp is in talks over a €5bn rescue package.
Meanwhile, the Spanish government has created a €10bn fund to take strategic stakes in companies hit by the pandemic, with Air Europa, the budget airline, looking like the first beneficiary.
On top of all that, the EU’s €750bn coronavirus recovery fund will, in large part, be targeted at subsidising the creation of industries especially in areas such as green technology.
If you have a company that wants to raise a few hundred million in cheap cash, and you don’t mind being photographed with a president, chancellor or prime minister, there has never been a better moment. Save a few jobs, and even better coin a slogan about reducing carbon emissions, and the cash is yours.
That’s a problem, however, for the UK. There is no point in pretending that massive subsidies for rivals based in our closest competitors don’t impact on our industries or markets. It is going to be hard for our airlines and airports to compete against subsidised French, German and now Spanish rivals.
Charles de Gaulle has already pulled ahead of Heathrow as Europe’s busiest airport, while, to take just one example, the amount of state aid Air France-KLM has received this year alone is more than double the entire market value of IAG, the parent company of British Airways and Iberia. How is that possibly fair competition?
Likewise, how are British travel firms meant not just to survive the crushing impact of the pandemic but competition from Tui stuffed with state cash? Euronext has cheap money to compete with the London Stock Exchange, and Monte dei Paschi may well be able to use its strengthened balance sheet to muscle aside British lenders and asset managers.
The Prime Minister may be keen to build green energy suppliers in this country, but it will be very hard going if they simply get undercut by French and German rivals dumping cheap kit and power on our market. The list goes on and on.
In the negotiations over a potential trade deal with the EU, Brussels is determined to insist on a “level playing field” between our industries and theirs. But – surprise, surprise – it doesn’t seem in the least concerned when that playing field is tilted heavily in favour of its own industries, nor does it seem anxious to build in any mechanism to stop European companies competing unfairly with British ones.
There is no point in expecting the EU to intervene. Its hyperactive competition commissioner is obsessed with imposing vast fines on Amazon and Apple but turns a blind eye to blatant breaches of the rules by French, German and Italian companies. True, some private companies are taking action. Ryanair, to its credit, has already complained about the Spanish bailout of Air Europa and may go to court. But the UK needs to step up and protect our companies, and it needs to start that now.
Like how? First, we could take court action under World Trade Organisation rules. That would be difficult, and lawyers could debate for a long time whether any penalties would be enforceable. But it would at least dramatise the issue.
Next, and more aggressively, we could impose retaliatory tariffs. That should be fine under WTO rules, and if we could mobilise other countries as well, that would be effective (for example shouldn’t Air France-KLM face levies around the world on landing slots to compensate for all that state aid?).
Finally, we could help our own companies, with cheap funding to match that offered to their rivals. In truth, British companies are facing a wave of unfair competition from across Europe – and our government needs to start standing up to that before it is too late.