Rules for state aid covering research, development and innovation investments (R&D&I) are already relaxed in the European Union, in order to facilitate growth and job creation. Mind you that in this case the bending of competition rules is not confined to very small businesses, the SMEs and mid cups, but covers the entire constellation of the European business sector, including the multinationals. Now the EU Commission tries to further facilitate state aid on R&D&I. Let’s see if this new Commission initiative is as it looks like or it is drafted to help only the big guys.
Favouring the multinationals
In the case of multinationals, most of big groups tend to locate their research and development departments or their specialised affiliate companies on European soil, in order to profit from the high educational and technical standards of the labour force and the always increasing EU subsidies on R&D. This new European Commission initiative further facilitate the conditions under which member states can grant state aid for research, development and innovation activities (R&D&I). By the same token the Commission is very probably aiming at supporting the EU multinationals, a target which is not necessarily negative.
Of course the Commission would not accept that its new proposal is aimed to further help only the big groups. Nevertheless the most important item in this package is the doubling of the threshold above which a clearing is required. Whilst currently, aid for experimental development of up to €7.5 million can be granted without prior Commission approval, under the proposed new rules member states would have to seek Commission approval only if the aid exceeds €15 million per project and per beneficiary.
Last week Commission Vice President in charge of competition policy, Joaquín Almunia, said: “The new Framework we propose means more effective R&D&I aid, fewer distortions of competition and less red tape. It will help Member States reach the targets of the Europe 2020 Strategy for smart, sustainable and inclusive growth. Well-designed public support to R&D&I will enhance competitiveness and will help address the societal challenges the EU is facing.”
Undoubtedly, €15 million per project and per beneficiary is not at all a small amount. It surpasses by far the abilities of SMEs and even of mid cups. Let alone that loan demands for such projects are usually rejected by banks, if the inquiring part is an SME or mid cup firm in the south of Eurozone. It’s not the same for the multinationals, which have many options to finance themselves, while for the SMEs it’s only the banks.
No special provision for the SMEs
The relevant Press release issued by the Commission last week stressed that this new threshold of €15 million refers “to aid for experimental development”. But this category is so broad and becomes even broader with the fact that the above ceiling refers to the aid and not to the total cost of the project. This means the interested party can receive also aid from EU R&D support programmes. In short, the entire cost may exceed the double of the above mentioned threshold.
The Commission doesn’t hesitate even to state it clearly that the whole affair is to support the large company groups. It states, “The proposed framework on state aid for R&D&I is not a stand-alone act but is complementary to the General Block Exemption Regulation (GBER) which sets the conditions for certain aid measures – including R&D&I-aid – to be exempted from prior notification to the Commission. The Framework, in turn, sets the standard for large R&D&I aid that goes beyond the GBER’s limits and requires individual scrutiny by the European Commission before being granted. The GBER is also currently under revision and a new draft has been submitted to public consultation on 18 December 2013. Both the GBER and the framework will offer Member States more possibilities to channel state aid towards boosting innovation, growth and jobs…”.
The Commission insists that this is to help growth and job creation in general, but still no particular support is provided for the R&D&I of SMEs. It should be reminded that 85% of the new jobs in the EU are created by very small firms and SMEs. It’s not only that though. The doubling of the ceiling of aid, above which an announcement to the Commission is required, helps only the wealthy countries, which can afford such expensive aid schemes.
This doesn’t mean that the proposal in question will necessarily trigger negative developments overall. The problem is that no special attention is paid to the needs of the SMEs and mid cups in crisis countries like Greece, Italy, Spain, Portugal and why not Ireland. Given that the available financial options of practically all SMEs are restricted to lenders, and that the banks in the south of Europe are not according any new loans, the Commission initiative is obviously introducing new inequalities and increases the fragmentation within the EU economy.