German & French Declarations of State Aid War?

The Virus is estimated to claim between 10% and 20% of the lives of all companies in Europe and in the US.

The global lockdown, protectionism and Trump’s over-eager trade wars are forcing many companies into bankruptcy.

In order to overcome the fact that demand has collapsed as a result of the above, governments are now pouring money into their economies as if there is no tomorrow.

Governments have long recognized the fact that fair competition can be killed by generous grants from governments to their own companies. In order to overcome this problem, there are various international agreements that limit what the governments can do to support their own countries and the company is located there.

There are International agreements on what constitutes State Aid, the OECD have set clear rules on the minimum financing terms and conditions that states can give their exporters for financing trade. There are also broad international understandings on what constitutes monopolies and cartels.

In all of these cases, the idea is to restrict governments from disrupting competition between nations by interfering in the open markets without good cause.

Now, however, with the coronavirus many of these regulations have been lifted for the time being. In Europe, Germany and France have been particularly active in easing these limitations and the result is that we have both countries throwing relatively huge amounts of money to protect their companies.

The same reaction has been quite evident in the United States with President Trump has announced huge support for large and small companies.

Big countries have both political and financial clout and if not constrained they behave like bullies as we have seen the United States behaving.

In this brave new world, it would be useful to make sure that Germany and France do not abuse their position as the largest economies in Europe to secure advantages for themselves, using their political and financial clout.

Unfortunately for us small countries it appears that Germany and France may be seeking to support their national hero companies. This is worrying since amounts involved are huge in both relative and absolute terms when compared to the smaller or weaker countries inside the EU.

The fact that their automobile industries and their airline industries have received such huge financial support is not a very comforting fact when both are heavily involved in fossil fuels.

Photo; The Library of Congress, French succoring wounded German from Bain News Service as publisher

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