State aid and other policies: who is in the driver seat?

The EU’s state aid regime is designed to be reactive. Let me explain. Member States may use subsidies to drive their domestic agendas. They may aim to attract investment, secure employment, promote R&D, accelerate green policies, stabilise financial systems, maintain critical infrastructure. State aid rules provide no EU mandate to judge these objectives.  They only aim to ensure that the aid does not distort the level playing field or trigger an arms race where countries would aim to gain advantages by topping each other’s subsidies and taxpayers would have to face the bill. The idea is not for the EU to encourage aid, but to boost its efficiency and to limit its negative effects.   

Objectives outside competition may have played a role for how the Commission approached cases. The tax cases are an example, even though the desire to prevent a race to the bottom in corporate tax rates is in line with the overall objective of avoiding wasteful subsidy races. Equally, divestiture and restructuring obligations for banks may be influenced by considerations that go beyond level playing field considerations, but their main objective is to ensure that banks to not use state aid to grab market share from more healthy competitors or to move into new markets abroad.

In relation to the Covid crisis, we are now facing a different discussion. Can the Commission force Member States to use state aid in line with other EU policies? If France uses state aid to reduce air traffic emissions this is one thing and there is no reason for the Commission to oppose this. But if other Member States are more generous and do not impose similar restrictions, state aid rules cannot easily be used to force their hands, as welcome as such an approach may be under the EU’s climate change agenda. The Commissioner applauded the green aspects of the French aid in a side comment. But she made sure that it was clear that this was not a reason for the approval. Indeed, other carriers are getting Covid aid without such conditions.

There is also the “deep pockets” discussion. Some Member States can afford aid more easily than others, This may create a benefit for their companies. This is not a unique Covid feature.  And it is not something the EU’s state aid regime can change. The only remedy is not to open the flood gates too widely. State aid can and should bridge crisis-related liquidity issues that even the most competitive companies may face. But some of Europe’s companies faced productivity issues, even before the crisis. Under normal circumstances, aid that would address such issues can only support a restructuring. Crisis support is only available to companies that were not previously in difficulties.