European Union eyes extending easier state aid rules as Ukraine war rages

(Representative image: Reuters)

The European Union’s executive branch started consultations with member governments on Thursday on a proposal to prolong more relaxed state aid rules and amend them so that nations can support their economies as the war in Ukraine continues.

The bloc’s state aid rules are key to preserving fair competition in the 27-nation bloc, preventing governments from subsidising their industries to give them a competitive advantage over others elsewhere in the bloc.

The problem of uneven government help was thrown into sharp relief last week when Germany announced a support programme for its economy of up to 200 billion euros ($198 billion), a sum that no other country in the EU can match.

The German plan sparked criticism from the European Commission and many EU governments.

Competition Commissioner Margrethe Vestager said the Commission would consult with member states on a proposal to prolong its more flexible regime.

"At the same time, the proposal maintains and strengthens important safeguards to preserve a level playing field and to achieve our green objectives," she said.

The EU relaxed state aid rules in March after Russia invaded Ukraine, allowing state payments to companies and liquidity support in the form of subsidies, loans and guarantees.

It also allowed state aid for up to 30% of company energy bills and investment in renewable energy.

The flexibility is due to expire at the end of the 2022 for liquidity support and measures covering increased energy costs and until the end of June 2023 for aid to support renewables or decarbonisation of industries.

The Commission is now also considering an increase of the state aid ceilings and more liquidity support to energy firms to cover the collateral needed for trading activities.

The Commission also wants to simplify the criteria for supporting businesses facing higher energy prices and for recapitalisations, while keeping incentives for reducing energy demand.