Matthew Lynn

Britain should demand a level playing field from the EU

Britain should demand a level playing field from the EU
Lufthansa planes at Frankfurt International airport (photo: iStock)
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It will receive €9 billion (£8 billion) in free money from the government. It will be protected from any threat of a takeover. And, with a restored balance sheet, it will be free to make predatory acquisitions across the continent. It is of course Lufthansa, the German airline, which has just been given a massive package of financial support by its government.

But hold on. Isn't there meant to be a level playing field across Europe? Over the course of the negotiations on a trade deal with the European Union, we have had a series of high-handed lectures from Michel Barnier demanding the UK sign up to EU oversight of state aid and competition rules. Apparently, it would be intolerable to have a major competitor, especially one right next door, playing by different rules. The British government and British companies could get together to rig the market in their favour, which would be completely unfair for everyone else. Yet that doesn't seem to apply to Germany, or indeed to France, which is planning a massive bailout of Air France-KLM.

The Lufthansa rescue is especially outrageous, outdoing even what the French have cooked up (although do doubt President Macron is quickly assembling something better for the Élysée Palace’s favourite airline). Lufthansa will receive a huge cash injection in both loans and equity. It will in effect be protected from a takeover. And, with the German government owning a minimum of 20 per cent of the equity, there is the prospect of more free money to come. With that kind of financial support it will be hard for it not to emerge as the strongest player in whatever remains of the European air industry.

That is hardly fair on everyone else. In truth, the UK should now demand a level playing field of its own. If there is to be a trade deal, and European companies are to be allowed free, zero-tariff access to the British market, the EU should enforce state aid and competition rules on its own companies, and it certainly shouldn’t allow national governments to subsidise their own champions to compete unfairly with British ones. After all, Lufthansa will now be able to undercut British Airways, EasyJet and Ryanair on fares, and may well use its strengthened balance sheet to snap up other carriers that get into trouble (it was only a couple of years ago it was competing with BA to buy Norwegian, for example).

If the EU won’t agree to that, the UK has a perfect right to walk away from a trade deal. After all, what is the point if it is so one-sided? Indeed, if necessary we should impose restrictions of our own. The EU can rig its own market if it wants to, but a state-subsidised, protected company such as Lufthansa should be denied access to Heathrow (the busiest airport in Europe, and one of the busiest in the world) if it is competing unfairly. It would certainly change the tone of the negotiations. And it might even force the EU to start enforcing its rules on its own companies as well as other countries’.

Written byMatthew Lynn

Matthew Lynn is a financial columnist and author of ‘Bust: Greece, The Euro and The Sovereign Debt Crisis’ and ‘The Long Depression: The Slump of 2008 to 2031’

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