EU subsidy decision shatters shipbuilders

Billions of euros in state subsidies received by Spanish shipyards must be repaid, the European Commission decided on Wednesday in a move industry players fear could sink the massive sector.

EU subsidy decision shatters shipbuilders
The European Commission believes Spain's subsidies to its shipbuilding industry gave the sector an unfair advantage over its rivals. File photo: Daniel Ramirez

State aid received by Spanish shipyards between 2007 and 2011 must be repaid, the European Commission has decided, according to a European Union source talking to AFP.

The Commission believes the subsidies gave Spain's shipbuilding industry an unfair advantage over its rivals. 

The 2007 start date represents a softening of demands compared to an earlier 2005 start date for state aid to be repaid, which had amounted to some €3.0 billion (almost $4.0 billion).

The Commission hasn't revealed the sum to be repaid, according to Spain's El Mundo newspaper.

Spain's industry minister last week said the amount in question could be higher than €2 billion, although that figure was based on a 2005 cut-off date.

Brussels has said Spanish authorities will have to calculate the money to be paid back, said the Spanish daily.

Shipyard owners, meanwhile, still say the demand will crush the sector completely in Spain.

How the EU's competition authorities address the case is being watched keenly by the industry in The Netherlands, France, Greece and Malta, the owners' industry body Pymar also said referring to an ongoing EU competition investigation into state aid there.

The association said on Tuesday that the new Commission plan was "absolutely insufficient," claiming that "the effects on the sector would be the same as under previous proposals — the disappearance of Spain's shipyards."

Representing 19 yards, Pymar said that "the end" of the private shipbuilding industry in Spain would mean the loss of 87,000 jobs.

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EU quizzes Spain on bank aid

The EU is seeking information from Spain, as well as Italy, Greece and Portugal to determine if they have illegally supported their frail banks, officials said on Tuesday.

EU quizzes Spain on bank aid
Photo of EU flags in front of the European Commission in Brussels: Shutterstock

The issue is potentially serious since if the four cash-strapped eurozone countries are found at fault they would have to repay the state aid and find other funds to prop up the banks.

"We can confirm that administrative letters have been sent to Spain, Italy, Portugal and Greece," European Commission spokeswoman Lucia Caudet said, insisting there was no formal investigation at this point.

The Commission, the European Union's executive arm which polices the bloc's competition rules, wants to know if the four countries have allowed their banks to include Deferred Tax Assets as part of their core capital.

A DTA is effectively a loss which the bank keeps on its books to set against future profits, thereby reducing its tax burden.

Core capital, as a percentage of a bank's total assets, is a key measure of a bank's strength.

Authorities worldwide have steadily increased the amount of core capital banks must hold after the 2008 financial crisis and ensuing eurozone debt crisis saw Greece and Portugal bailed out, and Spain seek EU help to stabilize its banks.

EU regulations "already envision that DTA cannot be considered part of core capital and should be phased out by 2019," Caudet said.

She said the rules however did not clearly say that use of DTAs by the banks amounted to state aid and "that is exactly what we are trying to find out now."

Commission spokesman Alexander Winterstein said it would take some time to evaluate the responses.

"At this stage, there is absolutely no view as to whether state aid is involved," he added.