State aid rule-breakers ‘should be penalised’

By Aoife White

Date: 02/06/05

Companies which fail to tell the European Commission about government subsidies should not be treated in the same way as firms which follow the proper state aid notification procedure, a senior Commission official has said.

At the moment, EU policy makes no distinction between illegal state aid it uncovers after an investigation and notified subsidies which don't meet the proper criteria.

"This should change," Competition Director Marc van Hoof told the European State Aid Law Institute's conference on 26 May.

Van Hoof said firms which did not notify aid received a competitive advantage over more honest rivals. The Commission's large state aid workload means it rarely has the resources to chase after state aid that is not formally notified.

In 2004, the Commission had just under 700 state aid cases to deal with. Some 570 were notified by national governments and 87 were non-notified cases opened by the Commission. EU regulators approved 93% of the decisions it took last year.

The Commission wants to cut down on the number of applications it is required to authorise. It suggests extending the block exemption for small amounts of state aid which need EU approval from €100,000 to €150,000.

A wide-ranging debate on reform of state aid rules is to kick off on 7 June with the publication of a reform roadmap from 2004-09. The Commission says it wants governments to spend less on state aid and target support to boost economic growth. Competition Commissioner Neelie Kroes has highlighted funding for start-up businesses and market-orientated research but officials also want to re-examine aid guidelines for energy and transport utilities, national subsidies for public services, environmental support and aid for cinema and broadcasting.

A large number of the Commission's existing regulations and guidelines are due for renewal during 2005 and 2006, including the state aid exemption regulations, the regional aid guidelines, the framework for R&D aid and the risk capital communication. Environmental aid guidelines also expire at the end of 2007.

But Kroes will face an uphill battle to stop governments helping out national industry. Van Hoof said recent state aid statistics indicated that the downward trend in state support might have reached its limit. The then 15 member states spent €53 billion in 2003, with more than half of the funding going towards manufacturing and services.

Three countries prove a major challenge for state aid control: Germany, France and Italy. Germany is Europe's biggest state aid spender with €16bn in 2004. France comes second with €9bn while Italy weighs in with €7bn.

The Commission said that the three countries plus Spain account for more than 90% of the cases where it is demanding that subsidies be paid back.

Regional aid has already proved a headache, with high-level pressure from Germany, France, the UK and Austria saying EU plans to stop wealthy countries subsidising large firms in poor regions would cause job losses and force companies to relocate. The four wrote to Kroes in the Spring, attacking a total ban on regional aid for large companies in poor regions.

Article reports on plans of the European Commission to distinguish between companies which comply with the proper state aid notification procedure and are subsequently found to receive unjustified support and those which are found to receive illegal aids in a Commission investigation. Article also looks at the prospects of reforms of the EU's state aids rules.