EU’s response to the inflation must consider a financing scale

The EU’s response to the benefits plan of around 400 billion euros presented by the United States to curb inflation cannot be restricted to State aid and must include a financing scale, claimed the Portuguese Minister of Finance Fernando Medina at the end of the Economic and Financial Affairs Council in Brussels.

The EU Council of Ministers discussed the response to the Inflation Reduction Act adopted by the US and Portugal claimed that an amendment to the state aid scheme must be joined by decisions at the level of financing.

"The difficulty and concern we feel with the matter of State aid and the simple amendment to the State aid criteria is that if the changes are only made in these areas we run the risk, in fact, more than a risk this will be a certainty, of having imbalances in the EU’s internal market, that is, of harming the smaller countries that have less budgetary capacity", he said.

If the measures are restricted to State aids, "only the richer countries will have the financial capacity to support certain types of industry and certain types of activity", replicating what happened with the exceptional benefits authorised during the Covid-19 pandemic, when the two greatest economies, Germany and France, represented almost 80% of the State aids granted, he explained.

"For this reason, we underline that when designing our response to the US programme, the discussion on the thresholds on State aids must be hand in hand with financing. That is, we cannot say "well, now we can give industry and the economy more assistance" without having a financing package and financing allocations that allow us to have equality within the European space", he said.

Otherwise, "to settle a problem of imbalance in our relations with the US, we create an even more serious problem of greater imbalance within the European Union space", he stressed.

Fernando Medina underlined that Portugal is available to discuss changes to the State aids "but we must also discuss the conditions for financing these aids".

As for the intention stated by the President of the European Commission Ursula von der Leyen at the Davos Economic Forum in Switzerland to set up a European sovereign fund, the Minister said that the EU’s response to the United States in financing the green transition "cannot be contained in national budgets".

This response "must be done via mechanisms that ensure equality of treatment within the European space", he said, offering an example: na instrument that small and medium-sized enterprises cannot have access to or that does not contemplate "enhancing technologies or industries under development" may "end up being geared to the countries of the centre, that are more industrialized, and won’t ensure the conditions of equality" in the internal market.

"The idea is good, the concept is good, it’s heading in the right direction. Now, we need to finetune the details, get to know them and define them", he said, adding that the EU cannot lose the race against the US "but the smaller countries cannot lose to the larger ones, in an internal competition that would make no sense to start or heighten at this time."