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EU finance ministers see some use for EU industrial policy

FILE PHOTO: European Union flags fly outside the European Commission headquarters in Brussels

By Jan Strupczewski

BRUSSELS (Reuters) -European Union finance ministers cautiously backed on Thursday the idea of an EU industrial policy that would help correct market failures, work where better solutions cannot be used or to provide EU public goods, the chairman of the ministers said.

"We did acknowledge that there can indeed be situations in which carefully designed industrial policies can play a useful role," Paschal Donohoe told a news conference after the ministers' discussions.

"But these tend to be where market failures are present, where first best solutions are not available or more positively where we're trying to identify and deliver pan-European public goods," he said.

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The ministers were discussing industrial policy at the level of the 27-nation block because Europe's global competitors such as China and the United States have theirs and use them to gain competitive advantage.

The EU only has separate national industrial policies, moderated by the EU's competition rules to preserve a level playing field, which makes it more difficult to compete globally in sectors where scale is important, like "green" industries.

"There is a growing recognition that with many of the world's largest economies taking a more activist approach to industrial policy, Europe cannot afford to be a bystander," European Economic Commissioner Paolo Gentiloni said.

"In the current geopolitical landscape, there are limits to what we can achieve by continuing to conduct industrial policy only at the national level," he said.

A European Commission paper prepared for the ministers' discussions said France spent around 0.6% of GDP on industrial support in 2019, while Germany and the U.S. spent around 0.4% of GDP each. China spent 1.7% of GDP.

While in France and the U.S. the aid was for research and development, the money in China mainly took the form of production subsidies, credit at below-market rates and subsidised access to land.

The Commission paper said that, because the EU had little money to finance an industrial policy, it could only for now coordinate national policies to avoid fragmentation of its single market.

"Industrial policy would benefit from EU-level funding to facilitate the flourishing of industrial value chains across the Union as a whole," the paper said.

Gentiloni said the discussion on industrial policy would be handled by the next European Commission, due to take office in October and the next European Parliament, which will have its first session in July.

"We must also strengthen the European dimension of our industrial competitiveness with appropriate competencies and funding for industrial policy at the EU level. This should be part of the broader reflection on what happens after the expiry of Next Generation EU in 2026," he said, referring to the EU's post-pandemic joint borrowing called Next Generation EU.

(Reporting by Jan Strupczewski; Editing by Philip Blenkinsop, David Gregorio and Daniel Wallis)