Super Mario declares war on state aid

Date: 16/09/1999

By Peter Chapman

Mario Monti, the softly spoken economics professor turned European Commissioner, sipped a glass of water as he quietly declared war on all state aid schemes in the EU.

Speaking at his audition at the European Parliament last week, he promised a systematic attack on the complex systems used by many governments to pay subsidies to ailing industries, which his predecessor Karel van Miert estimated to be worth €12.4 billion between 1995 and 1997.

Monti said he wanted to work towards "zero tolerance" for state aid, although he admitted that this may require changes to the EU treaty to clamp down on some sectors, such as the coal industry, which have special rules. "In the meantime, I think we should have the objective of reducing aid and increasing transparency," he insisted, promising to launch a public register of state aid.

His supporters hope that this will achieve the same results as his single market scoreboard, which shamed many a member state into implementing the free movement in goods and services that they had agreed to but failed, in so many areas, to live up to.

From day one, Monti's in-tray will be bursting at the seams with cases in a raft of industrial and service sectors concerning state schemes which allegedly fall foul of the EU's complex state aid rule book by distorting or threatening to distort the Union's internal market.

These are likely to include a string of tough dossiers left over from predecessor Karel van Miert's rein which could bring Monti into conflict with governments.

Among these is the investigation into the activities of Germany's Deutsche Post, which has come under the spotlight for allegedly funding a shopping spree in liberalised parcel markets using the money it earns from its letters monopoly, and complaints that French electricity giant Electricité de France is similarly abusing state funds.

The incoming competition supremo has also promised to investigate the whole area of state guarantees which allow banks to offer funding on terms and conditions that the market would not provide, and to probe the Anstaltslast/Gewährträgerhaftung - the government support which gives public banks in Germany a better credit rating that the state itself.

Monti will also have to follow up on an endless string of new Commission complaints against virtually all member states over the "maps" which show how they plan to allocate regional aid designed to boost underdeveloped areas.

The new Commissioner's declaration that state aid's days are numbered has left the EU's proponents of free trade cheering from the rooftops and many of the Union's 15 member states and regional governments reaching for the boxing gloves.

"What Monti says is OK as long as it does not restrict the recovery momentum in the new Länder," said Reinhard Boest, director of East German Länder Mecklenburg-Upper Pomerania's EU mission.

It is that caveat which could bring Monti into conflict with poorer regions of the Union where state aid is still common. Whether he will emerge victorious or not remains to be seen.

Past history is not encouraging, with evenly the famously tough Van Miert admitting as he bowed out of office last week that he should have been tougher on state aids (see below).

But most believe Monti can make progress. "His public statements indicate that he has got his priorities right," said David Harrison, a partner with Allen and Overy's EU practice in Brussels. Others also believe the incoming competition chief will relish the task of chipping away at the market distortions which make his professional blood boil.

They say Monti's record as Commissioner in charge of the single market was excellent, although they concede that it was not without blemishes. Key among these was his failure to win over colleagues within the Commission to his calls for new EU legislation to stop the ownership of Europe's media being concentrated in too few hands.

But while few doubt Monti's determination, experts warn that his reform plans will run into innumerable obstacles.

Enemy number one, they say, will be those member states reluctant to see their carefully crafted schemes to protect domestic industry - and votes - shot in flames by an over-zealous Commissioner.

European employers' federation UNICE argues that Monti should counter this by unveiling new proposals to ensure member states do not put up legal obstacles to the repayment of aid which the Commission has declared illegal.

The organisation says some member states suspend repayments for years while state aid cases are challenged in local courts. "Over the last ten years, illegally paid aid has not been paid back in half of all the cases where the Commission required its repayment," says UNICE secretary-general Dirk Hudig.

However, Van Miert's efforts to tackle this issue foundered earlier this year amid opposition from governments.

If member states will be the enemy without, Monti's own colleagues could prove to be the enemy within - possibly by blocking his efforts to get the Commission to take tough decisions in high-profile cases. "It is not rocket science to see that most of the Commissioners come from left-of-centre political parties and are therefore less likely to oppose state aids," said one Brussels-based lawyer.

In the face of such obstacles, Monti will have done well if he gets half way towards achieving his goal by the end of his term of office, laying the groundwork for his successor to finish off the job.

Major feature.