23 November 2012

Presidency Background Paper: Modernisation of the State aid rules - Impact on EU Competitiveness

The new State aid rules will be simpler and will allow Member States to put in place more aid measures without prior notification to the Commission, provided that they fulfil certain necessary conditions.

The Commission is reviewing all State aid instruments and procedures to ensure that aid is used where it can remedy real market failures, leverage private funds, and promote a dynamic and competitive single market. State aid should be effective, i.e. be granted where it represents a real added value but also efficient, i.e. reach the desired market outcome at the least cost. Public expenditure, when appropriately and proportionally granted, is part of the solution to improve Europe's competitiveness, alongside with trade, research, environment, energy or cohesion policies.

State aid modernisation intends to prevent that State aid results in windfall profits for firms, crowding out of private investment, keeping inefficient and non-viable companies on the market to the detriment of unaided competitors. In times of recession and with Member States being subject to different financial constraints, it is even more important to ensure that aid is only used where needed, is accompanied by the proper conditionality and does not lead to unjustified relocation of economic activities between Member States.

This requires that aid measures are well designed and that the largest aids are subject to a careful scrutiny. We cannot afford to relax our rules at this juncture but we can make them more proportionate to the potential harm. This is also important for competitiveness since poorly designed State Aid interventions are likely to interfere with the necessary market dynamics whereby the most competitive companies grow and gain market share and the least competitive restructure or eventually exit.

The new State aid rules will be simpler and will allow Member States to put in place more aid measures without prior notification to the Commission, provided that they fulfil certain necessary conditions. The Commission intends to enlarge the scope of the block-exemption regulation. However, giving more responsibility to Member States will require them to ensure stronger control of compliance, especially in view of the worrying results of monitoring of aid schemes carried out by the Commission to date. That calls for more transparency on the use of aid and a better evaluation of aid, especially when aid is granted through large schemes.

The reform of the different elements of the package has been initiated with public consultations on several guidelines and regulations. Commission proposals on the Enabling and Procedural regulations will be finalised very soon and will be discussed in the Council in the course of next year.

Full paper

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