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Germany’s economically liberal neighbours are warming to relaxing EU state subsidy rules for the long term, as they bet on their national industries gaining from Berlin’s big spending plans.
Denmark, Belgium, the Netherlands and the Czech Republic have typically been wary of subsidy races in the EU because they feared being outgunned by the budgets of larger countries.
But their stance has started to shift, four EU diplomats told the Financial Times, as the EU member states anticipate a potential cross-border windfall from the incoming German government’s €1tn spending plans on defence and infrastructure.
“We are not going to complain now that the German locomotive is kicking off again,” said one EU diplomat.
EU rules on subsidies — known as state aid — aim to prevent government spending giving favoured companies an unfair advantage, or shielding ailing industries from competition.
Brussels softened its approach to policing state subsidies after Russia’s full-scale invasion of Ukraine, and now wants to extend that until 2030, enabling member states to more easily inject cash into clean tech and strategic infrastructure projects.
Although some defence projects have long been exempt from state aid curbs, the relaxed regime would make it far easier for Friedrich Merz’s government to rapidly allocate public funds to a wide range of infrastructure projects. EU member states are expected to adopt an extension of the lenient approach in June.
Sander Tordoir, senior economist at the Centre for European Reform, said German support for its industry will create downstream demand for suppliers in other European countries that are reeling from Chinese competition and the threat of US tariffs.
He added that smaller countries could demand that Germany nudge its industry to build factories in other parts of Europe. He referred to the Airbus model, which spread major manufacturing facilities across several European countries. “Such a political bargain would lead to better outcomes from a single market perspective,” said Tordoir.
Bernd Weber, managing director of the think-tank EPICO KlimaInnovation, argued that while the funding will be directed to German industry, it should benefit others “because supply chains are so interlinked”.
Smaller member states see greater benefits from German state subsidies than those of France, which is often more focused on retaining or attracting investment within its own borders. France’s strained public finances limit its current ability to scale up support like Germany.
Recent figures from the European Commission show that use of state aid relative to GDP is higher in some of the EU’s smaller member states.
Some EU capitals remain cautious about Europe’s shift to public subsidies. At an EU summit last month, Belgian Prime Minister Bart De Wever criticised the leaders of Germany and France for pouring so much state aid into their economies, three officials briefed on the meeting said.
A spokesperson for the federation of Belgian enterprises said that fair competition must be guaranteed and that it regrets the possible extension of Europe’s looser state aid rules.
The German spending spree was a “hopeful signal” for clean technology start ups, said Victor Van Hoorn, EU director of Cleantech for Europe. But Brussels should focus on simplifying rules for state aid as they are often “so complex” it is hard for companies to navigate the system, he added.
