State aid, while necessary to stimulate economic growth and support key industries, can lead to distortions in competition within the Single Market. This is particularly true when the aid is closely correlated to member states’ fiscal power. Large economies with substantial fiscal capacities can mobilize resources to finance green technologies more easily, especially under a loosened regime. On the other hand, smaller economies may find themselves at a disadvantage as they cannot muster the same fiscal capacities.
This is where the European Sovereignty Fund comes into play. The fund aims to recalibrate the worst distortion effects of state aid. It serves as a “structural instrument” that would enable EU financing for multi-country Important Projects of Common European Interest (IPCEI). By doing so, it safeguards cohesion and the Single Market against risks caused by unequal availability of state aids.
The Sovereignty Fund represents a novel approach to managing the complexities of state aid and competition within the Single Market. It acknowledges the disparities in fiscal capacities among member states and seeks to level the playing field by providing financial support for projects of common interest.
However, the fund’s success in achieving this goal will largely depend on its ability to take on riskier investments in the green transition and “crowd in” private investments. This approach, while sensible, is not without its challenges.
In the next section, we will delve into the key problems that the European Sovereignty Fund may face and how these could impact its effectiveness.
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