"It should be an EU principle that we move away from state aid"

To increase Europe's competitiveness it is essential to have a balanced regulatory environment, to strengthen the single market and to create EU-wide instruments instead of state aids. It is important to create attractive investment opportunities for SMEs and start-ups, while maintaining high regulatory standards without overburdening businesses. And within the framework of the Green Deal, we need to develop realistic strategies to tackle climate change effectively without sacrificing the economy - these are some of the issues discussed by Stefano Mallia, President of the Employers' Group of the European Economic and Social Committee (EESC), in an interview with Portfolio.

Portfolio: There is growing talk in Brussels that the EU's competitiveness is declining against its global competitors. Ursula von der Leyen promised a major aid programme to tackle the problem in her State of the Union Address last year. At that time, you said you expected concrete action from the Commission President. What is your vision for a competitive Europe, especially for small and medium-sized enterprises (SMEs)?

Stefano Mallia: When envisioning a competitive Europe, we must build on the strengths of the European Union, such as the stability of our regulatory framework, effective single market practices, and the reliability of the single market itself.

However, my vision goes beyond that. I see a Europe where doing business is not just feasible but exceptionally attractive to foreign investors. This involves creating an environment that is not overly burdensome for businesses to operate in.

What specific measures do you believe are indispensable to create a Europe free from administrative burdens?

The crux lies in striking a balance – maintaining the positive aspects we already have while addressing challenges. Primarily, we need to streamline our regulatory environment. I advocate for a regulatory framework that is less burdensome, with a particular focus on addressing skill gaps, demographic challenges, and energy-related issues.

As we see in the European Economic and Social Committee’s from the employers' side, a competitive Europe is one where the single market is robust.

The Commission considers the internal market as the most important tool for external competitiveness. How would you say this works and what are the critical ingredients for a strong single market?

In essence, a strong single market creates a scenario where European companies compete among themselves within the market. This internal competition not only enhances their competitiveness but also prepares them for external markets. It's about honing our strengths within the EU to excel globally. Of course, there are aspects that are working well, but there is always room for improvement.

Speaking of competitiveness and the single market, Enrico Letta, President of the Jacques Delors Institute, is working on a proposal for the European Commission. He claims that the biggest threat to the single market is state aid. Do you really think it is dangerous to subsidise companies with money?

The principle should be that we move away from state aid. Instead, let's explore how to generate more internal resources for the European Union.

This would enable the creation of instruments applicable across the entire EU, regardless of the country of origin.

There are evident disparities between larger and smaller companies. Larger firms can afford to hire more people, especially in compliance or research and development. It's crucial to ensure that SMEs, constituting a large majority, not only operate but also invest in R&D.

The goal of the Budapest visit

The President of the Employers' Group of the European Economic and Social Committee, Stefano Mallia, visited Budapest on 11 January 2024. He met with Hungarian member organisations, including the presidents of National Association of Employers and Industrialists (MGYOSZ), the National Chamber of Agriculture, the Hungarian Chamber of Commerce and Industry (HCCI) and ÁFEOSZ-COOP.

During the talks, the parties discussed the current state of the Hungarian economy and the most important issues of the upcoming Hungarian EU Presidency. The visit also included a meeting at the Ministry of European Union Affairs with Deputy State Secretary Balázs Molnár, where Mallia was briefed on the priorities of the Hungarian EU Presidency and the organisational background. Stefano Mallia spoke about the challenges facing European companies and their expectations of the institutions in the next EU cycle.

When dealing with startups, we must establish an environment that allows them to truly flourish, develop their intellectual property, and transform it into a commercial product or service.

Therefore, in my view, state aid is not the answer; instead, EU-wide instruments are the appropriate solution.

Would EU cohesion policy be an ideal model for such new EU-level business support programmes? How do you envisage instruments supporting businesses across the EU?

In theory, for me, the cohesion policy is principled, and its logic is correct. Now, we need to continue developing new instruments, and I'm speaking from an economic perspective. We must create tools that enable companies to invest and facilitate the inflow of foreign direct investment.

If we examine the figures, if I'm not mistaken, between 2019 and the respective years, we observe a significant decline in FDI towards the European Union. Concurrently, the United States has experienced an increase in FDI attraction. The question arises: why is this happening? I believe it's because the U.S. has a more straightforward business operation system, incorporating elements like the Inflation Reduction Act.

EU funds can finally start flowing to Hungarian businesses. But how can firms ready to develop prepare for this? How has the system of public procurement and grant applications changed? These are just some of the topics that will be discussed at our conference!

I want to avoid individual countries within the single market competing against each other, as this would disrupt the single market – as Mr. Letta states. This is why I emphasize EU-wide instruments, common policies and tools because we function cohesively, not as isolated entities in opposition. If we resort to state aid, it's evident that Germany, France or Italy being historically inclined, will utilize the most state aid, and smaller states like Sweden, Malta, and Finland will inevitably struggle to compete.

As for EU-wide instrument, for example, Horizon Europe and our Resilience and Recovery Fund. These instruments have already been used effectively to strengthen the competitiveness of European industries. The goal is to avoid a situation where state aid, especially at the current levels in some countries, becomes unsustainable. The goal is to foster an environment where companies across the EU can invest in their people, machinery, and technology. Not just big corporations but SMEs also.

Let's circle back to regulatory burdens. You've expressed concerns about the increasing number of legislative obligations. Meanwhile U.S. legislators envy the EU’s regulatory capacity.

The problem is not with regulation in general, but with over-regulation that is too burdensome for firms, especially SMEs. Between 2017 and 2022, the surge in new obligations,

totaling 850 new legislative requirements and around 5,000 pages of regulation, is a cause for concern.

While some regulations are necessary, it's evident that we may have gone too far. President von der Leyen's commitment to reduce reporting requirements by 25% is a step in the right direction, but its implementation needs careful monitoring. A competitiveness test before introducing new legislation is a right approach, ensuring we strike the right balance.

stefano mallia

Let's move on to taxation, a sensitive issue, because Member States are reluctant to let this area slip through their fingers. Do you think this could be a new direction, following the recent introduction by the European Commission of common tax rules such as the carbon-based minimum tax (CBAM) and the global minimum tax?

Taxation is undoubtedly a sensitive area, and the recent introductions by the European Commission raise crucial questions. Meanwhile the global minimum tax initiative is a positive step, as it ensures a level playing field globally.

However, we must proceed with caution to avoid putting ourselves at a disadvantage compared to our global competitors. The devil is in the details, and finding a balanced approach is essential.

And last but not least, I don’t see any option to introduce EU-wide common taxation rules, because are economies are fundamentally different.

Some experts argue that new quasi-tax rules such as CBAM and strict regulation will help the EU gain a competitive advantage as the whole world will have to adapt to our systems, as our rivals such as the U.S., China or Japan will have to meet the same climate change obligations. Is this really a competitive advantage for the EU?

The regulatory environment within the European Union can indeed be an advantage, providing stability and certainty. However, we must be cautious not to overload it. While maintaining high standards is essential, the one-size-fits-all approach may not be practical given the diverse economies within the EU.

As I said, not legislation is the problem, but overdoing it is.

It seems to me that the Commission has taken business for granted. In the sense that business will always be there, business will always make profits, pay taxes, create jobs and so on. And we've exaggerated the amount of legislation we're putting in, perhaps on the social side. And we are not against the social side at all, quite the opposite. But I think there always has to be a balance.

I have the feeling that they have already realised this, because the issue of competitiveness has become more important for the Commission now. For example, we now have a long-term strategy on competitiveness and a promise to reduce the regulatory burden on companies. We have the competitiveness check coming in. We have a long-term competitiveness strategy and the green Deal Industrial Plan. So I hope we will continue on this path.

Moving to the Green Deal and climate change, how do you see the balance between ambitious targets and realistic strategies?

The Green Deal is a commendable initiative, and it's crucial for Europe to take the lead in the green transition. However, my concern lies in the lack of clarity on achieving the ambitious targets set. Climate change is a reality, and while the exceptional cases highlight its impact, we must ensure our goals are realistic.

Periodic reassessments are necessary to avoid disruptions in the markets. As we approach 2024, a new European Parliament and a renewed Commission present an opportunity for an in-depth assessment and potential recalibration of our strategies.

Cover photo: MGYOSZ


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