On January 11th, 2013, the Vice-president of the European Commission in charge of competition, Joaquin Almunia, came to King’s College London to discuss the process of modernisation of State aid rules launched in May 2012 and due to be completed with the adoption of concrete instruments by mid-2014.
This article aims at summarizing the main points of his intervention. Additionally, there will be complementary remarks by Dr Vince Cable, UK Secretary of State for Business, Innovation and skills.
Commissioner Almunia reminded that already the Spaak report (1956) discussed State aid and suggested to give the Commission the power to control public support to private economic entities, a solution that was adopted already in the Treaty of Rome (1957).
He also highlighted the fact that no other country or trade-block has such a policy of controlling State aid.
It is worth noting that the Treaty articles on State aid have not changed (or barely changed) since the beginning of European integration…
However, State aid control has become more and more sophisticated, due to the number and variety of government interventions. Moreover, since 2008, companies and governments have had to cope with the impact of the crisis. So, there was a need for reforms. Commissioner Almunia believes the current reform takes into account these elements and follows the tradition of adapting to new issues and challenges.
According to him, the objective of State aid policy is to “find the right balance between State intervention and the “invisible hand””. In addition, due to the crisis, States have to spend money more efficiently. Less money must be spent, but the quality of services must be kept.
A potential solution is to improve competition in the single market, a measure that will cost nothing and produce growth. Smart investments are also needed to stimulate economic growth. So, in sum, “EU countries have to do more with less”. Therefore, State aid policy has to become more strategic, in order also to help achieve the EU2020 strategy goals. This is important, as “citizens want to hold public authorities and companies accountable” and State aid control can help them for that.
Taking these objectives into consideration, the reform will promote “good aid”, i.e. aid that limits competition distortions, fixes market failures and pursues EU interests, e.g. green technologies, development of human capital. On the other hand, “bad” aid, such as indefinite life support to deficit-making companies, will be more strictly controlled.
To succeed, the Commission intends to focus on the biggest distortions.
Moreover, it will clarify the definition of common principles that apply to its assessment of State aid. So, notions such as market failure will be treated the same way in all guidelines.
In addition, the Commission wants to ensure to receive relevant market information in good time. Accordingly, the procedure will also be reformed.
Joaquin Almunia concluded his speech by saying that “the mission given by the Founding Fathers is still valid”, but “the methods have to be updated” and by insisting once more on the “three strong messages of the reform”:
– State aid policy is not a bureaucratic obsession, but helps to avoid the loss of taxpayers’ money.
– Increase the trust in the single market, helping it to be dynamic.
– Focus public spending and tax policy on common European objectives.
Dr Vince Cable focused on the importance of State aid control, especially in the current times of crisis, when State aid shall correct market failures (which can be a systemic collapse, a situation of cartel, or the presence of high externalities) and promote economic growth.
He started by indicating that, in 2011, if we exclude the Banking sector, UK provided aid in the amount of €4.8 billion. In France and Germany, it was 2.5 more (over 12 and 13 billion euros, respectively)!
He then addressed two critiques often made by opponents of a strict State aid control:
– “In other countries, there are lots of subsidies. Why can’t we do that?” But in fact, the overall level of subsidy outside the EU is not greater than within the EU! Furthermore, there are rules of the WTO to prevent unfair subsidisation. They could be tougher, but they exist… Commissioner Almunia confirmed that reciprocity [with other countries] cannot be interpreted as justifying a reduction in the level of State aid control.
– “We’ve got to do something to save people’s jobs…” But doing this in a hurry rarely leads to successful results.
Finally, Dr Vince Cable expressed some British concerns regarding the Commission’s proposals. In particular, he underlined that there are cases where big companies can genuinely be provided incentives to invest without distorting competition.
A workshop was organised in the afternoon by KCL’s Centre of European Law. It will be the subject of another article.