Luxembourg 23/10/2024
- The Commission acted swiftly to allow EU countries to grant unprecedented levels of state aid during recent crises
- Efforts to monitor the aid member states gave to companies were scaled back
- The need for state aid for EU industrial policy must be analysed better
Since the COVID-19 crisis and Russia’s invasion of Ukraine, the European Commission has swiftly relaxed its state aid rules so as to enable EU countries to keep companies afloat. In turn, this has reduced its capacity to supervise such support, according to a new report by the European Court of Auditors. While state aid has increased substantially since 2020, the Commission does not have enough information on the measures introduced by member states or on their impact on competition. In addition, rules that allow member states to grant aid to their industries vary; this can undermine the EU’s single market, as the countries have different financial means at their disposal.
In the EU, state aid for companies is generally prohibited because it can distort competition in the internal market. Under specific circumstances, however, state intervention can be desirable, and even necessary. In recent years, the Commission has introduced three temporary state aid frameworks to enable member states to support companies affected by crises: first, the COVID-19 pandemic in 2020, then the Russian invasion of Ukraine in 2022, and most recently in 2023 the need to facilitate support for the European Green Deal.
“The EU must keep state aid in check in order to protect our internal market and ensure free and fair competition – even in times of crisis,” said George Hyzler, the ECA Member in charge of the audit. “Citizens need to be reassured that state aid is actually essential, and that short-term solutions do not ultimately harm our internal market.”
By adopting the first two crisis frameworks, the Commission responded swiftly to the member states’ need to use state aid to address the economic distortions caused by the pandemic and by Russia’s invasion of Ukraine. As a result, state aid spending in the EU nearly tripled, from a pre-crisis level of around €120 billion per year to over €320 billion in both 2020 and 2021, and almost €230 billion in 2022. However, the conditions for targeting state aid in response to the pandemic were not always well defined or sufficiently focused on the companies that were most severely affected.
The Commission streamlined its procedures for reviewing the member states’ notifications of cases of state aid, the upshot being quicker assessments. However, decisions were sometimes taken in the absence of further information about the funding mechanisms that were eventually set up. During the crises, the Commission also reduced its monitoring of state aid. Moreover, as things stand, the Commission has not introduced a structured approach for detecting cases of unnotified aid.
State aid is also being increasingly used to support industrial policy goals such as enhancing the EU’s strategic independence and the transition towards a net-zero economy. However, the EU currently has a complex set of state aid rules that are not always consistent, or supported by sufficient economic analysis. This can also undermine the effective functioning of the EU’s internal market, as wealthier countries may simply outspend others and so distort the level playing field.
Lastly, the auditors observe that there is currently not enough transparency about who receives state aid. In particular, member states do not provide complete and reliable data on the actual aid granted by member states. This hampers the Commission’s monitoring of such aid.
Background information
Under the Treaty on the Functioning of the EU, member states must notify the Commission of any plans to grant state aid, unless specific exemptions apply. The Commission then assesses whether the aid is compatible with the internal market, and decides whether to approve or prohibit it. It is also required to monitor state aid in the member states, and identify cases of potentially unlawful aid.
The auditors’ findings support the call in Enrico Letta’s report for a more European approach to the EU’s industrial policy, while at the same time ensuring that the level playing field is not jeopardised by harmful subsidies. Their findings are also relevant in the light of the report by Mario Draghi on the EU’s competitiveness, as European firms compete in global markets against state-supported firms from other countries, notably China, Japan and the US.
Read the ECA report
EU Commission replies
Related links
Source – ECA