(Bloomberg) -- European Union leaders will discuss this week an option to amend its strict state-aid rules by creating a new mechanism to fund projects that span across member states.

A report being prepared by former Italian prime minister Enrico Letta to be presented during the EU summit starting Wednesday will suggest member states could finance a new pan-European initiative to better compete with US and China as European companies lag further behind their global rivals, according to the draft summary seen by Bloomberg.

The EU’s anti-subsidies rules have tried to avoid having member states with deeper pockets, primarily Germany and France, disproportionately finance their firms and distort the level playing field of the bloc’s the single market.

But as competition with global players intensifies, particularly in the digital and clean-energy sectors, the bloc is looking at options to better support companies in an even way and to compete with foreign multinationals on an equal footing.

“We should develop bold and innovative solutions that strike a balance between, on the one hand, the need to quickly mobilize national targeted public support for industry” and “the need to prevent the fragmentation the single market,” according to the draft.

Letta concluded that one way to balance this dilemma would be a “stricter enforcement” of state aid in the 27 member states and an expansion of EU-level funding. This could include creating a new state aid contribution mechanism, which would require national governments to allocate a portion of their national funding for pan-European investments.

The EU relaxed its state-aid rules during the Covid crisis and the energy crunch following Russia’s invasion of Ukraine. As a result, more than half of the subsidies approved under the EU framework were provided by the German government, triggering concerns among some capitals about excessive loosening.

As a response to growing competition from abroad, certain governments had earlier pushed for more funds at the EU level to ensure that all countries could have access to funding. 

--With assistance from Samuel Stolton.

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