Simply spending more won’t restore Europe’s competitiveness, regardless of whether it comes from national or EU coffers

Belgium takes over the Presidency of the Council of the EU on 1 January and Belgian Prime Minister Alexander De Croo is sending some mixed messages on how to restore the European Union’s economic fortunes in a recent interview with the Financial Times.

He was right in saying that we need to deepen the Single Market and that relaxation of state aid rules is the “exact opposite” of what is needed to regain competitiveness.

State aid has been on the rise since 2013 and ballooned during the covid pandemic. EU Member States trebled the amount they handed to companies. According to European Commission figures state aid reached EUR335 billion in 2021, compared with EUR103 billion in 2015.

But state aid has continued to rise in the wake of the pandemic. According to figures cited by the FT, approved aid totalled EUR733 billion between March last year and August 2023. Exceptional circumstances increasingly are becoming the norm and a pretext to continue splashing the cash on firms.

Unfortunately, Prime Minister De Croo favours bloc-wide incentives and EU coordination of industrial policy to help boost Europe’s economy. His gripe is that larger countries with deeper pockets will hand out more state aid than Belgium can.

He’s not opposed to handouts, rather he believes the money should be distributed at EU level, not national level. This wrongly assumes that Europe can just spend its way to a more competitive future. It can’t.

This mindset puts market mechanisms at risk. We hope that Mr. Draghi will also reach similar conclusions in his competitiveness report when that is published next year. If we really want a more competitive Europe then, amongst other things, we need to create the right conditions for private sector investment, a regulatory framework which supports the innovation needed for the green and digital transitions and overcome needless barriers to cross-border trade. This is a far better way to boost productivity and the only sustainable long-term way to grow the EU economy.