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Nine questions (and answers) about state aid to companies in full Covid

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State aid has always been a subject of controversy between the different countries, since they accuse each other of an unfair distribution that favors national companies. Thus, the United States criticizes European subsidies, the European Union avoids foreign subsidies and China supports its companies.

It is true that the economic crisis that has generated the pandemic of Coronavirus has made different governments strive to rescue their economies and help businesses. Nevertheless, this is not permanent and for many countries this situation is unsustainable. But, which companies do they benefit? Are they sustainable? The nine basic questions about state aid, according to Bloomberg.

HOW DOES STATE AID WORK?

Are the aid granted by state funds to companies or key industries to favor their production. This support is normally provided through loans, direct grants, or tax breaks. In this way, the determined company is ahead of its competitors. Likewise, the State can grant aid to create employment or boost economic growth.

WHAT IS THE CURRENT CONTEXT OF THE AID?

In Europe there is a clear country that stands out in terms of granting aid: Germany. The region has captured the gazes of all its fellow members, its ability to help will further exacerbate the north-south difference. There is also the fear that many of these aids will end up in 'zombie companies', that is, unviable. A situation that is not new, before the coronavirus, Italy has already set off all the alarms for his bank bailouts.

For its part, the United States has criticized European subsidies, specifically aid to aircraft manufacturers such as Boeing.

WHAT HAPPENS IN CHINA?

The trade war between China and the United States has been compounded in recent years in large part by the role of Donald Trump. The former president accused the Asian power of causing unfair competition that harms American companies. A situation that does not seem to be improving with the new Administration. China continues to control a large number of companies that scares many governments. Even, Janet yellen, the new Secretary of the Treasury of the United States, affirmed during her inauguration that China was sinking American companies "By disposing of products, establishing trade barriers and granting illegal subsidies."

HAS STATE AID INCREASED?

Yes, the pandemic has caused governments to become more involved than ever. The coronavirus has triggered a wave of aid states by the countries and central banks. At the beginning of 2021, large amounts of money were given to companies as government support.

So that, Joe Biden has presented a stimulus of 1.56 billion euros ($ 1.9 trillion) to raise the minimum wage and the European Union has invested 1.8 trillion euros ($ 2.2 trillion) to promote green and digital projects, in addition to helping job growth.

WHAT ARE THE MOST BENEFITED INDUSTRIES?

The most benefited sector in terms of state aid is the air. Airlines around the world have been rescued with millions of euros of state funds. Germany, for example, has created a strategic plan to help key industries, which has rescued Lufthansa for 10 billion

A very similar situation has occurred in Spain. The Government of Pedro Sánchez has had to rescue Air Europa with two loans of 457 million euros.

WHO KEEPS THE ACCOUNT?

Member states tried to keep the peace by creating a system to organize subsidies, however, they left a great deal of room for maneuver to be able to provide help without explanation. There are institutions like the World Trade Organization, which deals with the rules governing trade between countries, although without much success.

In this regard, the United States, Japan and the European Union have been working to maintain a series of rules and monitor China.

DOES THE AIDS WORK SUCCESSFULLY?

In most cases, yes. Financial support to companies usually has a positive result. A clear example is the 2008 crisis, subsidies and state aid from banks and large companies rescued the global financial system.

IS IT UNSUSTAINABLE?

Certainly yes. The great economic effort what governments are doing to offer aid to companies, it cannot last forever. Due to the economic crisis arising from the coronavirus pandemic, States tend to help a large number of companies that are in a critical situation, in addition to ensuring the survival of the economy.

Nevertheless, this life support will fall off at some point. The new vaccination campaigns have fanned hope for an economic recovery, yet many companies will fall by the wayside.

Rishi Sunak, the British Chancellor of the Exchequer, has alerted that the levels of state spending in 2020 are not sustainable in the long term. It also ensures that these grants may only last one more year until they are exhausted.

WHO IS AGAINST DEALS?

Michael O'Leary, CEO of the low-cost airline Ryanair, is a common voice in complaints about the distribution of aid state. O'Leary ensures that government support is similar to "selectively giving away billions of euros to their inefficient flag carriers."

Also, some people criticize that countries like Germany have greater maneuverability compared to other governments, like Italy. This produces economic inequality. For this reason, to avoid that companies weakened by the pandemic do not become easy prey, the European Union is the competition rules to restrict acquisitions by foreign entities.

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