German Bailouts Can Help Keep EU Economy Afloat, Vestager Says

(Bloomberg) --

Germany's massive domestic bailouts could help the rest of the European Union economy to survive the pandemic even as it outspends nations with less firepower, according to the bloc's antitrust chief.

“It's important for all of us” that Germany is supporting its industry, Margrethe Vestager, the EU's executive-vice president for competition and digital policy, told EU lawmakers on Monday. “To some degree that will work as a locomotive” for the rest of the 27-nation EU.

Her comments come as the EU's role as watchdog of state spending has come under strain, with governments forced to shower firms with subsidies. Vestager loosened rules in March to ease state aid as long as it targeted damage caused by the Covid-19 virus.

She said German spending is “absolutely fine” because despite recent loosening of the rules, the EU's state-aid curbs make sure “no-one can overcompensate” by doling more help than is needed.

She's promising to relax rules again to allow governments to recapitalize companies in trouble or grant subordinated debt that could see taxpayers pay out for a business failure. To date, EU regulators have approved some 1.9 trillion euros ($2.1 trillion) in subsidies, she said.

Government recapitalizations are “doable without bonuses, without dividends, without share buyback programs so that we make sure that remuneration is for taxpayers and not for the other investors,” she told the European Parliament's internal market committee.

“That of course should enable the states also to have an incentive to step outside” and encourage businesses to exit state support, she said.

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Vestager also defended rules that prevent European governments giving full state guarantees for loans to companies. There's a 90% limit for guarantees “to make sure that there's skin in the game, that there is some element of due diligence” on companies' ability to pay, she said. A 100% guarantee comes “back to something that is very similar to a government bond.”

Still, the EU will “have to find ways” to tackle “increasing asymmetries” that could fracture Europe's single market, she said, calling for a European recovery plan as part of a new EU budget to redistribute funds across the bloc.