Conflict at the shipyard

The tense conflict between the European Commission and Spanish shipyards over tax deductions for financial sponsors of naval activity is a perfect example of the distance separating theoretical principles from political decisions by European governments to surreptitiously sustain employment, especially in the industries worst hit by the recession. The EC’s competition commissioner, Joaquín Almunia, is demanding the return of around 2.8 billion euros in tax breaks granted by the Spanish government to the companies that fund the shipyards; the builders are refusing to pay, claiming that the tax lease system is legal.

The principle is unequivocal: Europe does not accept state aid, because it violates competitive equality. And that is the way it should be. But lying underneath the principles is political management, and it would not be too risky to assert that public subsidies, dissimulated to a greater or lesser degree, are the favorite defense tool in all euro-zone countries. The difference is that in France, Germany and Italy this public aid is protected by sophisticated regulations, and if there is ever a complaint against French or German decisions, EU bureaucracy typically finds a way to muddy the water and delay the sentences.

But this should not be the main argument for Spanish negotiators, since in that case they would be simply justifying a violation on the grounds that it is an extended practice. The fact is — and this is perfectly defendable — that the European tax system is not yet fully in synch, and it is not clear that a tax benefit always constitutes a state subsidy. Informed schools of legal thought hold that they are not; there are cases in which the tax deductions were returned, and others where they were not. Almunia (a Spaniard) is fulfilling his role by rigorously defending a return of the tax breaks, but it is not clear whether his position would win a court case.

Rational solution

 The case also throws up another complicating factor: the tax benefits were approved by the Spanish government. Therefore, like it or not, there is a degree of responsibility on the part the administration and considerable damage to the credibility of the country’s judiciary. It does not seem like a good idea to make the confrontation deeper. European authorities should be very concerned about the weakness of the continent’s shipyards, which are losing market share to their Asian counterparts.

That is why the most rational solution would be a negotiation to figure out the real extent of the damage to jobs in case the money were returned, as well as how much of that amount is attributable to public subsidies and how best to minimize the damage to the naval industry. In this strategy, the minister and the regional governments involved have committed a serious tactical error by applying pressure on EU authorities with their allegedly united front.

When you are attempting to negotiate, you don’t issue threats. And the image of industry unity is tantamount to pitting the shipyard workers against Brussels.