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04 Jun 2009
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DEBATE: IN A RECESSION, NATIONAL GOVERNMENTS SHOULD HAVE THE FREEDOM TO SUBSIDISE THEIR OWN BUSINESSES
Posted by: lallybhoy
Karma:
457
In times of recession, governments should be able to look after their own people first, even if this does include protectionist policies.
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IN A RECESSION, NATIONAL GOVERNMENTS SHOULD HAVE THE FREEDOM TO SUBSIDISE THEIR OWN BUSINESSES
Governments are directly responsible to those that elected them
It is only fair that a government looks after its own people first as that is who their responsibility is towards, and whom they are accountable against. For example, The French Governments main priority should be securing jobs for the French workforce over that of any other EU country, as it is the French people and the French people only that they are accountable towards.
Whilst it is true that governments are elected by their own Member States nationals, it is even more true that the government has an overarching responsibility to do what is best for the European Community. The European Economic Community aims at harmony and economic stability for the whole Community. Member State governments taking economic matters into their own hands will only spell disaster for the Community as whole, and this will ultimately have a negative impact on Member States and those whom elected their national government.
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IN A RECESSION, NATIONAL GOVERNMENTS SHOULD HAVE THE FREEDOM TO SUBSIDISE THEIR OWN BUSINESSES
Article 87 (2)(b) EEC allows for state aid in such circumstances
The European Treaty makes allowances for state aid to be granted to undertakings 'to make good the damage caused by natural disasters or exceptional occurrences'. Since this recession is seen as the biggest in most people's life times, surely the current recession counts as an 'exceptional occurrence'. The whole Community is effected, and so every Member State government should be granted power under this derogation to resolve matters as they see fit.
Derogations are exceptions to the rule. If every member state was granted such a privilege then it is no longer a derogation. What is needed is a new Directive on how Member States are to combat the recession as opposed to allowing Member States a blanket exception so that they can grant aid to any under taking they see fit. This will result in a breaking of the harmonious Community and result in it's demise. Article 2 of the Treaty states that there is to be a convergence of economic performance. This will not be the case if Member States are allowed to subsidise to different economic sectors and to varying degrees.
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IN A RECESSION, NATIONAL GOVERNMENTS SHOULD HAVE THE FREEDOM TO SUBSIDISE THEIR OWN BUSINESSES
Article 87(3)(a) allows for subsidies in areas of serious underemployment
The Treaty allows Member States to intervene in competition law where there is serious under employment. Given the nature of the recession and how Britain's unemployment has tripled during the recession, this derogation should be granted to all Member States suffering from the same economic phenomenon. This would allow governments to grant aid to undertakings which are based in areas where the unemployment rate is particularly high. This would allow the government to prevent areas becoming slums; area pockets where unemployed people reside.
High levels of unemployment are to be assessed on a community wide basis, so that every country is assessed on the same criteria[1]. This requires the Commission to look at the average level of unemployment across the Community and assess unemployment by that yardstick. In the aforementioned case, Netherlands tried to claim under this derogation and failed as although the area had a low level of employment compared to the rest of the Netherlands, it was still relatively high compared to the Community level of employment. Given that the whole Community is going through this recession, all Member States employment is going to be lower, but they will all still be assessed against each other. Only if one Member State has suffered more so will this derogation be granted.
- ^ A-G Fransesco, Phillip Morris, 1980
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IN A RECESSION, NATIONAL GOVERNMENTS SHOULD HAVE THE FREEDOM TO SUBSIDISE THEIR OWN BUSINESSES
Article 87 (3)(b) should be granted as the recession is an important project of the European interest
The recession has had a Community wide effect. The global nature of this recession means that all countries are facing the same financial hardship. Therefore, the recession is something which the Community has an interest in overcoming. To overcome this obstacle, Member States should be allowed to grant subsidies to undertakings about to collapse in order to stimulate the economy. If undertakings collapse, so do the jobs that it created. If there is more unemployment, people are less likely to spend their money, which will result in more undertakings facing liquidation. This cycle needs to be stopped and the national governments are in the best position to do it.
IN A RECESSION, NATIONAL GOVERNMENTS SHOULD HAVE THE FREEDOM TO SUBSIDISE THEIR OWN BUSINESSES
Distortion of inter-state trade
If national governments are allowed to subsidise their own companies in the short term, it may lead to a quicker recovery as the EU will not be seeking for solutions that try and benefit the most countries, therefore leaving all unsatisfied. Once the bigger countries have been able to stabilise their own economies, they will be in a much better position to help the smaller countries with their problems than they would if the whole of the EU was in recession.
The reason behind not allowing governments to aid national undertakings is that it distorts inter-Community trade. Such inter-Community trade will be directly affected if national governments start granting aid to national undertakings. This will make Member States more insular and render the European Economic Community a failure. Member States will not all be able to subsidise at the same level. Poorer countries will therefore feel the brunt. Undertakings originating from such countries will not be able to reduce their prices to the extent that richer Member State undertakings are able to due to the subsidies they receive and therefore their products will not be sold across the European market. This would then lead to more unemployment in the poorer countries. This is not a feasible solution.
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IN A RECESSION, NATIONAL GOVERNMENTS SHOULD HAVE THE FREEDOM TO SUBSIDISE THEIR OWN BUSINESSES
The single market has made us richer
The EU single market has been extremely beneficial to European economies, so why abandon it now for short term goals, when in the long term it is still likely to benefit. For example since 1993 the European commission has estimated that the single market has created 2.5 millions jobs and produced €877 billion of extra prosperity.[1]
- ^ Arguments for the EU, Civitas, 29 April 2009, http://www.civitas.org.uk/eufacts/OS/OS12.htm
IN A RECESSION, NATIONAL GOVERNMENTS SHOULD HAVE THE FREEDOM TO SUBSIDISE THEIR OWN BUSINESSES
Subsidies distort necessary market adaptation
Naturally those suffering most shout loudest. Government must also consider the long term health of industry.The current example is the crisis in General Motors Europe and, in particular, their Vauxhall UK subsidiary. The motor industry has suffered a 50% drop in sales and all manufacturers are suffering. Some capacity needs to be lost so that the survivors can return to profitability. Supporting Vauxhall will reduce potential sales by their competitors. German subsidy of Opel might endanger Vauxhall production in the UK.Government action should exclude susbsidies and instead focus on measures to help those individuals worst affected by the necessary demise of their companies.As a manufacturer, General Motors has been losing ground for years. This recession simply highlights their failure and accelerates the need for adjustment. Look at the monies we taxpayers have lost in the past trying to rescue British Leyland.
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