Economy

EU’s knee-jerk return to national business subsidies could distort the single market in favour of larger states

Ireland’s new MEPs must build on good relations with our partners as global trade barriers come back in vogue and climate fatigue sets in

The European Parliament assembly room

John FitzGerald's face
John FitzGerald
Fri Jun 14 2024 - 06:10

The deal the European Commission negotiated with the UK on Brexit was very favourable for Ireland, North and South. It has avoided a potentially very disruptive change to our trading and political relationships.

When other countries have much bigger issues of domestic concern, it was a big challenge to persuade the 26 other member governments to safeguard Ireland’s special circumstances in the Brexit negotiations.

Our good personal relationships with other political leaders played an important role. If Ireland had had a record like Hungary’s of using obstructive tactics, our concerns would have had much less sympathy.

Irish MEPs in the key political groups in the European Parliament also worked to win the support of their colleagues to ensure the deal was passed.

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The lesson of the Irish Brexit “success” story is that good relationships with those at the centre of the EU decision-making process will be crucial over the next five years to continue to further our interests. Maintaining and developing these relationships is a key task for our new MEPs.

But it can’t just be one-way dealing. We will also need to support other countries on the issues that are important to them, and show ourselves to be team players.

[ China vows ‘all necessary measures’ over EU move to impose additional tariffs on Chinese electric vehicles ]

Ireland’s economic success over the past 50 years of European Union (EU) membership has been based on free trade with EU member states and across the wider world. Our home market is too small to reap economies of scale, so Ireland needs to trade with the wider world.

Eliminating barriers to trade has been vital to the growth of businesses and jobs here. Any widespread reversal of this process, through the erection of tariff barriers by our trading partners, would put this success at risk.

Tariff barriers are wasteful because they protect higher-cost domestic producers of products that can be produced more efficiently abroad. It makes most economic sense for countries to produce those goods and services that they are relatively more efficient at producing, and buy in what can be produced cheaper elsewhere.

Slapping EU tariffs on Chinese electric cars may protect EU car jobs – but also inefficient and expensive EU car producers.

This will mean higher prices for motorists, and more greenhouse gas emissions, given the higher cost of going electric. As we don’t have a domestic car industry, it is easier for us to make this case.

China is seen as subsidising its own producers unfairly, to undercut producers elsewhere and gain a dominant market share, and that perception is driving the rush by the EU and the US to erect tariff barriers on Chinese goods.

The realpolitik is such tariffs are coming. Ireland should seek to limit restrictions on trade with China to products and services where there are genuine strategic concerns.

Small countries’ concerns can be brushed aside by large transnational businesses, but a market of 450 million people can’t be ignored

For more than 30 years a core tenet of EU economic policy has been to ban government subsidies to individual businesses, to create a level playing field.

With both China and the US now subsidising their domestic producers, the knee-jerk response of the EU has been to do likewise, reversing long-established policy.

The least-bad approach would be to pay such subsidies from the EU budget, irrespective of where the firms were located. Instead the EU is permitting governments to give subsidies for new investment in their own countries.

Germany is to pay Intel €10 billion of the €30 billion cost of a new plant. Smaller and poorer EU countries can’t afford to match that level of generosity, so the reintroduction of national subsidies to business potentially distorts the EU single market in favour of large richer countries.

Collective action by the EU is essential in areas where the EU can act at scale. Small countries’ concerns can be brushed aside by large transnational businesses, but a market of 450 million people can’t be ignored. Consumer protection and standards is one such area, climate change another.

While there are signs of climate fatigue in some countries, it is vital that Ireland continues to press for effective EU action on climate change, and delivery of the European Green Deal.

Many of these topics I’ve touched on here barely got a mention in the recent European elections campaign in Ireland, except, unfortunately, for some push-back on climate change from certain candidates.

Sobering reports from the Intergovernmental Panel on Climate Change on our rapidly warming globe, and this week from the Environmental Protection Agency on the state of Irish rivers, show how urgent it remains to tackle climate and environmental pollution.

Our Ministers and our new team of MEPs can play a constructive role in advancing collective EU actions that promote economic fairness and efficiency, and help protect the planet.

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