ME’s Europe’s Single Market at Risk event dissects EU’s competitiveness status

The ‘sorpasso’ challenges involving the Maltese industrial sector take centre stage

The “sorpasso” of the Malta’s Gross Domestic Product per capita over that of several G20 member states was highlighted during a seminar organised by Malta Enterprise with the theme Europe’s Single Market at Risk.

A strong line-up of international and local speakers emphasised that with the current geopolitical tensions, the increased pressure being placed on competitiveness and profit margins, Malta needed to further invest in its manufacturing and services sectors. The US Inflation Reduction Act has accelerated the requirement to revise the EU’s Industrial Policy and fast-track investment in Clean Tech. This is being supported by the updating of the EU State Aid framework particularly concerning the General Block Exemption and the rollout of the Net-Zero Industry Act and the Critical Raw Materials Act.

The debate saw the participation of Dan O’Brien, chief economist of the Institute of International & European Affairs in Dublin; Bernardus Smulders, deputy director General State Aid, director general Competition at the European Commission; Martin Sandbu, European Economics commentator at the Financial Times; Neville Gatt, partner at PriceWaterCoopers Malta; Alison Mizzi, president of the Malta Business Bureau and Kurt Farrugia, CEO of Malta Enterprise.

The state of EU’s aid

Cornerstone policies of the European Union since its creation, such as state aid and competition rules, are currently facing unprecedented scrutiny and calls for change. Support for subsidising companies in strategic sectors is rising, including in some EU member states that traditionally opposed to such aid. Although well intentioned, there is an ever-growing debate whether such shifts could threaten the functioning of the EU’s single market, a threat that is particularly concerning for small open economies.

Guest speaker O’Brien said that Europe often lacks confidence in how well it has performed economically. One reason it remains fundamentally strong is because competition in the EU single market is more intense now than in other big economies, to reduce competition by increasing subsidies to existing businesses and creating “national champions” would put this achievement at risk. Small economies, like Malta and Ireland could be the biggest losers.

The Single Market – America – China

He spoke about Europe’s resilience, how economies and businesses have come through multiple shocks – Covid, energy and war better than expected. Despite a weak sentiment, Europe’s economy remains strong. Speaking about the manufacturing industry in Europe, the European manufacturing output does not point to “deindustrialisation”. To date 32.3 million EU citizens still work in manufacturing. Malta has been a success story of resilience, increasing the number of people at work more than 10% in just three years.

Europe should not panic about America but should worry about China. There is definitely a case for Europe to push ahead in some sectors in the area of solar panels which would be the main energy source in the future. The single market is a huge achievement, it has brought huge benefits, it’s not broken so let’s not rush to fix it.

State Aid Regulations – One size (does not) fit all

Smulders stated that state aid rules were never intended to be used as a competitive tool. He mentioned that if anything state aid rules might be seen as being too flexible rather than rigid. This point gave rise to an interesting debate. Smulders added that the tools used for SMEs relate to block exemptions which enable member states to approve aid directly.  De Minimis aid was also flagged giving an indication that the threshold will be revised.

Gatt stated that the single market has a common set of rules. The main thought-provoking observation was as to whether a one-size-fits-all is the right strategy. A common approach might not benefit everyone equally. He added that EU law needs to be flexible and it needs to take into account the specificities of individual MSs as it is not a Federal Government. The needs of individual member states are equally important. The rules needed are those which make every member state as competitive as possible to ensure EU’s competitiveness while safeguarding the single market.

The EU State Aid framework was one of the debated topics during the Maltese Enterprise event. Farrugia called for more flexible state aid rules that cater for each member state’s realities while safeguarding the integrity of the Single Market. The one-size-fits-all is a cliché and it does not tackle the business realities that small islands States and regions such as Malta are faced with, particularly in the area of the recent hikes in transportation costs and irregular connectivity. Strengthening the EU competitive edge and guarantee a level playing field of the bloc should always be a priority to keep up with global competitors. We need to ensure that certain challenges being faced due to our realities as an island are continuously addressed. Not doing so also hampers the functioning of the single market.