Competition in Times of Crisis
OpinionOpinion Piece by ZEW President Professor Achim Wambach
Margrethe Vestager, Executive Vice-President of the EU Commission, has expressed concern about the “big differences” in state aid granted by the Member States in connection with the coronavirus pandemic. In particular, she fears that Germany’s aid programmes are giving its companies an advantage over those in countries whose governments cannot afford similar levels of support.
But it’s not that simple. After all, as Commissioner for Competition, she herself makes sure that competition is not harmed by such aid measures. The reality is that state aid may only go to companies that were financially viable at the end of 2019. Loans with a 100 per cent government-backed guarantee are capped at 800,000 euros and, in order to pre-empt state subsidized shopping sprees, large companies that receive aid may not acquire stakes larger than ten per cent in competitors. Moreover, in order to make a meaningful competitive analysis, it is not sufficient to simply compare the currently available aid programmes, as some of these programmes are not being fully depleted while others are being increased when necessary. Instead, it is more relevant to look at the amount of funds used. Finally, the European Investment Bank’s pan-European guarantee fund ensures that companies in less wealthy countries still receive liquidity support.
But passing the state aid test does not necessarily mean that stimulus measures are competition neutral. Deployed properly, they can promote competition. The coronavirus crisis has made it more difficult for start-ups to secure financing and economists are worried that interest in start-ups will wane in the medium term, eroding the competitive stimulus they provide. The German government’s two-billion-euro aid package for start-ups can provide some relief.
Making competition more dynamic
Competition can only be critically affected if the federal government is selective with its support. The planned seven-billion-euro aid package for the Deutsche Bahn is no good news for the other competitors in the sparsely populated rail sector. The tender shoots of competition in the local, long-distant, and cargo traffic could suffer. But competition problems can be avoided, at least in part: earmarked public investment in rail infrastructure would not only benefit all competitors but also rail passengers. Moreover, financial support should either be temporary – as required by state aid regulations – and provide sufficient compensation for the public sector; or, if the aim is to strengthen equity, this should be done according to the criteria of the market economy operator test, i.e. at fair market conditions.
The negotiations on the nine-billion-euro support package for Lufthansa seem to have been concluded – with consequences for competition: the Irish airline Ryanair, for example, has already announced that it will take legal action. In any case, Germany’s aviation industry has not been very competitive after Air Berlin filed for bankruptcy. So why not seize this opportunity to create more competition? For a while now, the German Monopolies Commission has recommended granting competitors of Lufthansa and Eurowings more start and landing rights at German airports, e.g. through auctions. According to news reports, the European Commission seems to take a similar view. With airlines making deep schedule cuts, now is a good time to make competition in the sector more dynamic by granting rights – ideally, however, not only in Germany, but all over Europe.
A longer version of this piece initially appeared on 27 May 2020 in the “Handelsblatt”.