Commission plans clamp-down on company rescue subsidies

Date: 01/04/1999

By Renée Cordes

EUROPEAN Commission officials are pressing ahead with work on fresh guidelines designed to clamp down on state aids to rescue ailing companies, despite the freeze on policy initiatives until a new team of Commissioners takes office.

Under the draft guidelines currently being drawn up by Acting Competition Commissioner Karel van Miert's staff, firms experiencing financial difficulties would find it much harder to get subsidies. Under the planned new rules, tough conditions would be imposed on governments seeking clearance to make rescue payments to companies undergoing restructuring.

" In many cases, the aid is just used to keep certain companies alive," said an official in the Commission's Directorate-General for competition (DGIV). "We need to get tougher on disbursement."

The move is part of a long-running Commission campaign to impose tougher controls on state aids, which show no sign of falling significantly despite Van Miert's strenuous efforts over the last three years to rein them in.

New figures released this week showed that subsidies to manufacturing industry in the EU between 1995 and 1997 amounted to an annual average of €57 billion.While this was less than the amount paid out in 1993-95, this was largely due to a sharp drop in subsidies to the east German Länder.

Under the guidelines on rescue aid now being drawn up, struggling or bankrupt companies which receive government support would have to prove that closure would cause serious social problems such as unemployment.

In addition, firms which were allowed to get a helping hand from taxpayers would generally be barred from asking for further aid for a certain period of time. However, early drafts of the rules would allow second or third aid payments to a particular company in case of "unforeseen events".

While industry welcomes the reforms as long overdue, many fear that the planned new guidelines will contain several loopholes which would allow some companies to circumvent the stricter requirements. "In general, we think that market distortions as a result of this aid should be resolved," said an official at the European employers' federation UNICE.

The organisation has expressed concern that early drafts of the guidelines allowed for exceptions to some of the proposed new rules.

It has called on the Commission to include provisions to assess the market position of a company receiving the aid, as well as the payment's potential impact in reducing competitors' willingness to invest.

Van Miert was originally due to unveil the planned new rules on rescue aid this month, to be followed by more general guidelines later this year. But the Commission's resignation two weeks ago has thrown this timetable into doubt. A spokesman for Van Miert said this week that he could not give a specific date by which the guidelines would be changed.