Commission faces uphill struggle to cut state aid

Date: 15/06/2000

By Peter Chapman

WITH the zeal of a professional economist, Competition Commissioner Mario Monti has set about obliterating state aid from the EU's political map.

Since his predecessor Karel van Miert left the job, rueing that he had not done more to curb national hand-outs which distort competition in the single market, his successor has enjoyed ruffling feathers in national capitals in pursuit of his zero-tolerance approach.

But beyond the existing borders of the Union, a potential state-aid time bomb is ticking away - and the job of defusing it has fallen to Enlargement Commissioner Günter Verheugen's team of negotiators.

They must make sure that candidates abide by the letter of the Europe Agreements in which they promised, in broad terms, to comply with the main provisions of EU competition rules. In the run up to accession, they must also ensure that the applicants gradually adapt their domestic rules to make them compatible with the Union's body of competition and state aid law, known as the acquis communitaire.

It may sound easy in theory to convince cash-strapped eastern European governments to stop bailing out lame-duck industries with hand-outs they cannot afford. But experts warn that this may be one of the toughest challenges of the enlargement process.

In reality, old habits - learned by the former Soviet bloc candidates during 40 years of Communism - die hard. Pulling the plug on old, run-down industries is also extremely difficult, both financially and politically.

Social security payments for thousands of redundant factory workers could cost more than the government subsidies they would replace, and nothing concentrates the minds of politicians more than thousands of irate workers marching on the capital.

Despite these difficulties, state aid experts say it would be churlish to knock the remarkable progress achieved so far. The six front-runners have made, or are in the process of making, fundamental changes to their rule books - and they are taking the provisions of their Europe Agreements seriously.

But the Commission stresses that having the rules in place is one thing; enforcing them, and ensuring aid is not shrouded by layers of bureaucracy, is another. "The most important problem today is the absence of transparency," said deputy competition director-general Jean Francois Pons in a recent speech. "Monitoring of state aid is moreover very inadequate, and in some cases non-existent. Monitoring authorities, and proper aid monitoring systems need urgently to be set up."

The Czech Republic has led the way by becoming the first candidate to enact 'implementing rules' on state aid. These should ensure that the country's competition authorities control subsidies granted within its borders.