EC and Hungarian gov't on the same page over the new EU funding allocation
Thierry Breton, speaking at a press conference in Paris on Monday, ruled out the possibility of a new EU joint borrowing to finance the development of green projects under the soon-to-be-unveiled Net Zero Industry Act, which aims to boost support for low-carbon technologies, Euractiv reported on Tuesday.
Previously, a new sovereign wealth fund was to have been set up by the European Commission to finance investment in clean industry to compete with the United States. As is well known, the US Inflation Reduction Act (IRA) subsidises companies that locate manufacturing capacity in the US with around USD 370 billion. And in the EU, there are fears that direct financial incentives and tax breaks, as well as safeguard tariffs against imports, will put European producers at a disadvantage and may even lead them to relocate production to the US.
“We are in a context of urgency, and it will be easier to find a political agreement as part of the revision of the MFF [Multiannual Financial Framework] than through joint borrowing,” Breton said, explaining why Brussels has dropped the joint loan.
The Multiannual Financial Framework (MFF) is the EU's long-term budget. The one currently used by the EU has been approved for the period 2021-2027, along with an €800 billion common debt instrument called NextGenerationEU (NGEU), a pool of resources for the post-Covid economic recovery. Breton's argument is logical given that the MFF is also due to be revised in July, to reroute budget lines in light of the war in Ukraine, inflationary pressures and the introduction of the Green Deal Industrial Plan to curb the effects of the US Inflation Reduction Act (IRA) on EU industry.
The Green Deal industrial plan, which was endorsed by all member states at an extraordinary European Council on 10 February, paves the way for looser state aid rules and simplified application procedures.
To counteract the distortionary effects of ramping up national subsidies, the EU Commission has talked of a European Sovereignty Fund to also help member states with limited fiscal powers to finance critical green transition projects.
The Hungarian government has already stated its support for more relaxed aid rules, while Minister of Economic Development Márton Nagy has repeatedly called for an increase in aid intensity in recent weeks.
However, Hungary is also one of the countries that cannot compete with Germany or France (and other major economies) in terms of fiscal strength, which have themselves distributed almost 80% of the EU's temporary crisis framework aid to companies.
The EU's current move does not mean that the sovereignty fund has been abandoned, and if the credit line is rejected, there is still the option of releasing the remaining NextGenerationEU tranches, which are distributed among member states as a share of GDP, to support investment.
“We need financing tools that are accessible to all,” Breton said, highlighting the work he had done with EU leaders to “understand each member state’s financial capacities” and ways to go about supporting clean tech projects equally across the bloc.
A rogue loosening of state aid rules would create profit-grabbing behaviours within the single market, according to critics - a view largely echoed by Commission’s competition chief Margrethe Vestager, who warned on Thursday (9 March) that the state aid relaxation for green tech could only work if it is “proportionate, targeted and temporary”.
On Tuesday, Hungarian Finance Minister Mihály Varga also signalled that he would join the frugal member states - the Netherlands, Germany and Austria - in opposing new joint borrowing. True, the fact that the Hungarian government and the European Commission have not yet reached an agreement on the use of the recovery fund in the rule of law procedure may play a role in this, and so Hungary has received no payments from Brussels so far.
Cover photo: Thierry Breton, EU Internal Market Commissioner. Source: Lukasz Kobus/EU.
