EU applicant states find it hard to end aid culture

Date: 03/12/1998

By Peter Chapman

WOULD-BE EU member states from central and eastern Europe have a great deal of work to do to break the habit of subsidising their industries, according to a senior European Commission official.

The warning from Asger Petersen, deputy director-general of the Commission's competition department, comes as the accession countries ponder the first results of the Union's screening process designed to gauge their readiness for entry.

This assessment revealed serious problems over state aids in all five of the central and eastern countries in the 'first wave' of applicants: Hungary, Poland, Estonia, the Czech Republic and Slovenia.

Under EU rules, the subsidies paid to industry by governments are strictly controlled to ensure that they do not distort the market.

Petersen, speaking at a conference on state aids in Brussels, said the scale of the problem in the applicant countries from the old Soviet bloc, where state subsidies were the norm, was enormous and they had to overcome a massive cultural hurdle.

"The concept of state aid is for them a very strange thing. It is very difficult for them," he said.

He contrasted this with the efforts of the candidate countries to mirror other parts of the EU rule book, particularly its tough anti-trust regime which regulates the way companies operate.

The Commission has some of the harshest anti-trust regulations in the world, including the power to fine companies up to one-tenth of their turnover for breaches of the rule book. "We are advancing very well with anti-trust, but it is not the same for state aid," said Petersen.

The Commission already has agreements with the front-running candidate countries to phase out many subsidies to key industrial sectors such as coal, steel and shipbuilding.

But member states like the UK still complain that state-subsidised industries in central and eastern Europe (for instance, Poland's steel and household coal sector) are damaging their own firms, which are subjected to the full rigours of the market.

The EU wants to ensure the candidate countries have effective controls in place to ensure these problems are not perpetuated when they join the Union.

Petersen, who recently held talks with officials from the east German Länder in Berlin, also sounded a gloomy note over efforts to tackle state aids within the Union. "The new Länder remain an active area. I must say I am still rather pessimistic over the situation," he said.

Article looks at the question of state aid in the applicant countries of Eastern and Central Europe.