Selective retaliation is needed to keep European predators at bay
Its airlines will soon be the strongest in Europe. Its car industry will lead the switch to electric vehicles. And new technologies such as batteries and green energy will receive massive investment. Over the last couple of weeks, it has become increasingly clear the “level playing field” between the EU and Britain that Michel Barnier has been insisting is so important has suddenly been scrapped. Germany and France are using the coronavirus crisis to reboot their economies – and to launch an aggressive, predatory, industrial strategy.
As one of their major economic competitors, the UK has no choice but to respond to that. But how? We should forget about trying to reach a trade deal with the EU if it is simply going to be used as a device for locking our companies up inside a regulatory straitjacket while promoting its own. We should work out which of our own industries might need help as we reboot our own economy. And we should look to selective retaliation against competition that is blatantly unfair. Germany and France can come up with any industrial strategy they want to. That is their choice. But it shouldn’t be at our expense.
Every country in the world is launching emergency programmes to rescue their economies from collapse in the wake of Covid-19. Facing the worst slump for a century or more that is only sensible. But Germany and France are doing something else as well. They are using the crisis to launch a new industrial strategy based on selected national champions, and targeting chosen industries.
Just take a look at the evidence. The German government has stepped in to bail out Lufthansa with €9bn (£8bn), as well as taking a 20pc stake in the airline, and protecting it from foreign takeovers. Even the airline itself admitted it was far more money than it needed to survive, with its chief executive Carsten Spohr arguing the rescue meant the “government was focused on how Lufthansa can maintain its position as a German national champion”. Effectively under state control once again, and with a massively strengthened balance sheet, Lufthansa will be able to pick up distressed assets at fire sale prices, and may well lock up the European airline market. Likewise, the latest stimulus announced by Germany this week included a huge package of support for its auto giants – by far the most important part of the German economy, let’s remember – to switch to electric vehicles. Anyone buying a battery-powered car will get a €6,000 subsidy, and there will be another €2bn to help the manufacturers with R&D. With that kind of help, BMW and Mercedes will be catching up with Tesla very soon.
It is a similar story across the border. Air France-klm is getting €8bn in state help (and president Emmanuel Macron will no doubt soon find the odd billion to match Lufthansa’s funding). Its auto makers are getting billions to move into electric vehicles (an industry that may soon be a Franco-german stitch-up, at least in Europe) and there will be massive investment, along with Germany, in batteries and green energy. At the same time, the EU’S new €750bn bailout fund might be sold as a way of helping the poorer countries recover from Covid-19. The small print is slightly different. A huge chunk of the money will go straight into industrial projects, mostly hand-picked in Berlin and Paris.
You can argue about whether that is a good or bad idea. Industrial strategies have a nasty habit of coming unstuck, with lots of money thrown at “grand projects” that have no real prospect of success. The result may be Concorde rather than Airbus. We will see in time. The question for the UK, however, is surely this. How should we make sure we protect our own economy from a competitive onslaught from the other side of the
‘Germany and France are using crisis to launch a new industrial strategy based on national champions’
English Channel? There are three places we should start.
First, forget about trying to reach a free trade deal with the EU. It wasn’t exactly going that well anyway. Right now, the rest of Europe is clearly not interested in “free trade”, and it certainly wants to keep the playing field with its neighbours as unlevel as it possibly can.
There is no point in accepting EU supervision of our state aid and competition rules while it is ripping up the rule book for its own members.
Next, we should work out ways of helping our own companies compete. We don’t have the same tradition of national champions that the French and the Germans do. And we have different strengths. But as the Chancellor bails out sector after sector, he should certainly look at helping our airlines, aerospace and defence manufacturers, chemicals and drugs companies, our banks and asset managers, our media sector, as well as our booming technology start-ups.
Finally, we should look at selective retaliation. Why should a heavily state-subsidised Lufthansa be allowed free access to Heathrow, Europe’s busiest airport, if it is simply going to undercut airlines that haven’t received billions in state aid? Under World Trade Organisation rules, we can impose tariffs on those state-backed German and French electric cars, and there may be anti-dumping rules that can be invoked as well.
That would help Jaguar Land Rover and Sunderland-based Nissan remain competitive in that growing industry and it would make it harder for Germany and France to dominate.
Where possible, we should limit access to the UK market for companies that are backed by foreign governments. In reality, the coronavirus crisis is being used by some countries to advance their own national champions or else to create new ones. The EU, for all its talk of open competition, is letting that happen. Of course countries can do that if they want to. It is their economy, and their money. But if they are our closest competitor, the UK needs to fight back – because there is no point in standing aside and allowing our market to be exploited.