Symposium: State Aid in Times of Crisis (DEMO)

SYMPOSIUM

StateAid in Times of Crisis

Edited by: Lena Hornkohl and David Pérez de Lamo

State Aid in Times of Crises

Edited by Lena Hornkohl and David Pérez de Lamo

1. State Aid’s Stress Test

Alfonso Lamadrid de Pablo

2. From Persona Non Grata To De Facto EU Resolution Authority: e European Commission and State Aid to Banks during the Financial Crisis

Sven Frisch

3. State Aid Legal Bases and the Temporary Framework During the COVID-19 Crisis

Juan Jorge Piernas López and Michelle Cini

4. Should Member States Respond to Crises with Individual Aid Measures?

Phedon Nicolaides

5.What Kind of Competition Does EU State Aid Law Protect? A Tale of Two Crises

Antonios Bouchagiar

6.Public support during the pandemic: evaluation on the use of State aid control between the Temporary Framework and the Recovery and Resilience Facility

Irene Agnolucci

7. Bend it until it breaks: Flexibility of Temporary Crisis Framework in the context of the Russian Invasion of Ukraine

Dzhuliia Lypalo

8. Race to the very boom? – e EU response to Foreign Crisis Subsidies

Lena Hornkohl

9. e ‘Green Deal Industrial Plan’ as an interplay between crisis regulation and existing State aid rules

Christopher Montgomery Vollert

10. Sustainability, climate protection and the State aid practice in times of crisis: a chimera?

Maria Segura

State Aid in Times of Crises

Edited by Lena Hornkohl and David Pérez de Lamo

Crises used to happen every several decades; one at a time. Now they have become the ‘ new normal’ and an indenite state of affairs. Just as one crisis ends, another one begins, or even several co-exist, which has resultedina ‘permacrisis’.

ese crises pose fundamental challenges to the EU and its Member States, from a social and economic perspective,whichthemselvesraiseimportantpolicyandlegalquestions.

In this turbulent context, State nancial support has arguably emerged as one of the main policy instruments to combat crises Unlike other regions affected by crises, EU Member States are required to adhere to EU State aid rules when implementing such measures in order to maintain the level playing eld in the EU internal market. However, the EU State aid regime does not turn a blind eye to crisis support, quite to the contrary. State aid has been at the forefront of the Commission’s and the Member States’ efforts to combat the effects of: (i) the 2008 nancial crisis; (ii) the COVID-19 crisis; (iii) the Russian invasion of Ukraine and the ensuing energy crisis; (iv) the looming sustainability crisis; and (v) the geopolitical crisis arising from increasing international competition and its clash with the EU’s industrial and internal market policies. As a result, State aid law has been stretched to the limit and put to a ‘stress test’ that challenges its very raison d’être (seeA.Lamadrid,EULL2023,“ ”). StateAid’sStressTest

To begin with, these crises have evidenced an apparent tension in State aid between the pursuit of legitimate national public interests and the preservation of the EU internal market and the level playing eld. In this regard, some authors raise the question whether Member States should address crises with individual aid measures at all (see P. Nicolaides, EULL 2023, “Should Member States Respond to Crises with Individual Aid Measures?”), or should otherwise adopt wider-ranging aid measures based on the principle of nondiscrimination on grounds of nationality and a ‘balancing test’ that accounts for the effects of State aid on trade and competition within an EU context (see J. J. Piernas and M. Cini, EULL 2023, “State Aid Legal Bases and the Temporary Framework During the COVID-19 Crisis”). Other authors, however, counterargue that Member States retaindiscretion over the initiative to grant aid and, therefore, that the Commission is not in a position to require that Member States’ aid measures take a specic form (see A. Bouchagiar, EULL 2023, “ ”).

WhatKindofCompetitionDoesEUStateAidLawProtect?ATaleofTwoCrises

1. Lena Hornkohl is a Tenure Track Professor for European law at the University of Vienna and a postdoctoral researcher (Habilitandin) at Heidelberg University

2. David Pérez de Lamo is an Associate at an international law rm in Brussels He holds an LL M. in EU Law and Economic Analysis from the College ofEurope(Bruges)andhaspublishedaseriesofcontributionsinEUcompetition andconstitutionallaw

Be that as it may, at least there seems to be an emerging consensus in support of devising EU-wide measures to ensure a harmonious and efficient response to future crises, and to minimise their negative effects on the internal market and the level playing eld, particularly those arising from the disparity in scal capacity between Member States and the fragmentary character of State aid. Building on this consensus and on previous calls for unied policy action (see e.g., A. Lamadrid and J. L. Buendía, Chillin’ Competition 2020, “A Moment of Truth for the EU: A Proposal for a State Aid Solidarity Fund”), the Commission now reportedly plans to set up a ‘collective European Fund’ intending to help EU businesses in a ‘fair and equal way’ (see I. Agnolucci, EULL 2023, “Public Support during the Pandemic: Evaluation on the Use of State Aid Control Between the Temporary Framework and the Recovery and Resilience Facility”). Tracesof this renewed ‘ proEuropean rationale’ can also be glimpsed in the current Next Generation EU package and the Recovery and ResilienceFacilityRegulation(seeI.Agnoluccisupra).

ese crises have also tested the Commission’s institutional limits and raised further questions as to what its role should be when addressing crises, as well as the degree of stringency of its compatibility review of State aid measures. Following the fallout of the 2008 nancial crisis, and absent a comprehensive EU bank supervision and resolution framework, the Commission applied State aid rules, in a pragmatic and exible way, to further nancial stability goals and gradually became the de facto resolution authority (see S. Frisch, EULL 2023, “From Persona Non Grata To De Facto EU Resolution Authority: e European Commission and State Aid to Banks during the Financial Crisis”). Moreover, while the Commission’s compatibility review, during the nancial crisis, became stricter as time went on, during the COVID-19 crisis, the Commission’s approach became ever more exible (see S. Frisch supra; see also J. Piernas and M. Cini supra). e Commission appears to follow the same increasingly exible approach in its Temporary Crisis Framework concerning the Russian invasion of Ukraine, and took it even further by repurposing the Framework as a dual objectivetoolinordertoachievelonger-termgreentransitiongoalsandbyprovidingadditionalincentivesto respond to the international subsidy race propelled by the US Ination Reduction Act (see D Lypalo, EULL 2023, “Bend it until it breaks: Flexibility of Temporary Crisis Framework in the context of the Russian Invasion of Ukraine”). While some authors argue that the difference of stringency in the Commission’s compatibility review may be justied due to underlying policy reasons and the different degree of ‘fault’ of the sectors concerned in provoking or fuelling the respective crises (see A. Bouchagiar supra), the majority of authors appear to advocate for a more consistent and stringent approach that minimises the negative effects ontheinternalmarketandcompetition,whichhasbeenevidencedbyavarietyofemergingdata

Protecting the level playing eld in the EU was also one of the main concerns voiced by authors when it comes to the EU response to foreign crises measures (see L. Hornkohl, EULL 2023, “Race to the very boom? – e EU response to Foreign Crisis Subsidies”). In a globalised world, crises rarely stick to the EU alone. Similar to the EU Member States, third countries also resort to nancial aid to overcome crises. Yet, companies that receive foreign crises subsidies active on the internal market can hold a comparative advantage and distort competition in the internal market. e new EU Foreign Subsidies Regulation aims to prevent and mitigate distortions caused by non-EU Member State subsidies, while foreseeing an exception forforeigncrisisaidspecically,whichraisesanumberofintricatelegalquestions

With the aim of creating an aractive business atmosphere and stopping EU companies from migrating to third countries providing more crisis-mitigating subsidies, the EU has recently taken further countervailing measures. While the past State aid practice (see M. Segura, EULL 2023, “Sustainability, climate protection and the State aid practice in times of crisis: a chimera?”) only slowly progressed to address the nancing

needs to tackle and prevent climate and sustainability issues, the Commission has now presented the “Green Deal Industrial Plan for the Net-Zero Age” at plan includes an adaptation of State aid rules in the form of a “ ” designed to help the EU industry to achieve climate neutra- Temporary Crisis and Transition Framework lity and strengthen its position in the global market, especially vis-à-vis the US and its ambitious climate subsidy plan in the form of the Ination Reduction Act (see C. Vollert, EULL 2023, “e ‘Green Deal Industrial Plan’ as an interplay between crisis regulation and existing State aid rules”). Even though EVP Vestager has announced that the (not so) Temporary Crisis and Transition Framework will abide by State aid principles and not undermine the level playing eld in the internal market, there is a discernible risk that the exibility provided may propel deeper-pocketed Member States to become the frontrunners in key sectors inthetransitiontowardsanet-zeroeconomy.

What crises will we face in the future? What kind of State support do we want to allow in the EU to keep up with international competition, while protecting the internal market? What role should State aid law play to ensure that competition in the internal market is not undermined, while allowing Member States to combat crises and pursue public interest goals effectively? ese questions, among others, are of fundamental importance for the EU and its Member States, which the authors discussed in more detail throughout the Symposium,butneverthelessmeritfurtherresearchandpolicyaention.

State Aid’s Stress Test

Alfonso Lamadrid de Pablo1

Jean Monnet, one of the EU’s founding fathers, famously stated “that Europe would be built through crises, and that it would be the sum of their solutions” e EU was conceived at a time of crisis, to ensure the post-war reconstruction of Europe and prevent future conicts, and since then has stepped up to face multiple crises. In recent years, in particular, the EU has been central in devising and articulating the responseto the nancial and Eurozone debt crisis, the migration crisis, Brexit, the Covid-19 health and economic crisis, and the crisis provoked by the Russian invasion of Ukraine Other crises, linked to increasing global warming and geopoliticaltensions,loominthehorizon,leadingtoexpectationsofaglobal“permacrisis”.

Each of these have put the EU, Member States, and society to a “stress test”, exposing tensions, strengths and weaknesses, contradictions and limitations is has been true on many fronts, also in that of State aid Indeed, EU State aid law sets limits on Member State sovereignty, scal autonomy, and expenditure with a view to minimizing distortions to competition between Member States and ensuring a level-playing eld within the internal market. e very nature of the discipline makes it a eld ripe for tensions between Member States, between law and politics, and between conicting public policy objectives, but all those tensionsareexacerbatedintimesofcrisis

Almost three years ago, in March 2020, José Luis Buendía and I warning about the risk that wrote an op-ed “full exibility” would distort competition between Member States favoring those with deeper-pockets. To mitigate this risk, we proposed the creation of a “Solidarity Fund” (suggesting that it be notied to the Commission as an Important Project of Common European Interest), and a commitment that Member StatescontributetothisFundapercentageofthepublicresourcesinvolvedintheirownmeasures.

e risk we anticipated has proved very real. Over the past three years, the Commission has made an extremely exible interpretation of State aid rules to ensure that these would not get in the way of urgent damagemitigationmeasures.

e Commission has adopted, and subsequently widened on several occasions, Temporary Frameworks related to aid adopted in relation to the Covid-19 pandemic (Covid Temporary Framework) and the war in Ukraine (Temporary Crisis Framework). Under these frameworks, the Commission has very rapidly approved hundreds of measures (see and ) amounting to trillions of euros. e Commission has here here recently thatover50%ofthevolumeofaidapprovedsofarundertheTemporaryCrisisFramework disclosed and related Treaty provisions came from one Member State (Germany), and that over 80% came from three Member States (Germany, France, and Italy). e split is similar as regards Covid-19 related aid (see p 24 of the ). ese numbers should be added to the great volume of non-notied aid latest State aid Scoreboard

1. Alfonso Lamadrid de Pablo is a Partner at the EU & Competition Law department of an international rm in Brussels and Visiting Professor at the CollegeofEurope(Bruges).

granted under the General Block Exemption Regulation (covering over 90% of State aid measures), which is also very far from being evenly distributed among Member States (see the gures in GBER spending per Member State in Annex III to the latest Scoreboard). To those, one should also add all aid falling below the de minimis thresholds, as well as the billions or trillions of State support taking the form of general measures considered to fall outside the scope of EU State aid rules (unlike in other contexts, the Commission does not appeartohaveadoptedastrictinterpretationofthenotionof“generalmeasures”).

ere is now a widespread concern that this exibility has contributed to exacerbating differences between Member States. is concern is shared by , in some way or another by all contributors to the inuential media latest , and by the European Commission itself In a EU Law Live Symposium on “State aid in times of crisis” leer to Member States, EVP Vestager recently stated that “not all Member States have the same scal space for Stateaid.atisafact AndariskfortheintegrityofEurope”;theleerfeaturedthegraphbelow:

In the same leer, EVP Vestager announced yet additional exibility, the transformation of the Temporary Crisis Framework into a “Temporary Crisis and Transition Framework”, also aimed at supporting the green transition and to react to US subsidies, as well as the boosting of the REPowerEU plan and the creation of a collective European fund to support countries in a fair and equal way. A few days later President von der Leyen publicly a plan to step up EU funding “to avoid a fragmenting effect on the single market” announced viathecreation,inthemediumterm,ofa“EuropeanSovereigntyFund”.

It is evident that awareness about the exacerbation of asymmetries and distortions resulting from “full exibility” under State aid rules has been a driver for major, bold, and arguably historic political initiatives. ese include the SURE instrument (which raised close to €100 billion of common debt to support unemployment reinsurance schemes), the €750 billion Next Generation EU stimulus package (with its partial introduction of debt mutualization via the Recovery and Resilience Facility Regulation), and the recentlyannouncedSovereigntyFund.

But while these are unambiguously positive rst steps entailing an element of solidarity beneting States with less scal capacity, they pursue very specic goals (notably the green transition and digitisation), which are unrelated to the distortions caused by the aid measures adopted under a relaxed State aid regime. ose distortions affected, and will continue to affect, sectors and companies that may not benet from new funding opportunities While the existence of “earmarked” strategic funds may have a positive “macro” effect on Member States budgets, they do not address the harm that opening the State aid oodgates has on companiesandmarkets.

e objective of preventing the harm to competition and fragmentation of the internal market can arguably only be aained by a meaningful compatibility assessment of State aid measures, balancing their negative and positive effects, and having regard to, among others, the principles of proportionality, equal treatment, and the cumulative effect of aid measures. is is, of course, assuming that such an objective remains a real priority at a time when the EU is arguably, and perhaps legitimately, more concerned about geopolitical competition with third countries than about intra-EU competition between Member States and between companies

Compatibility under State aid law, in other words, is not to be measured only against the EU’s (external) strategic goals at any given point in time, legitimate as they may be If State aid law is to fulll its goal under the Treaty, the Commission must necessarily pay due aention to the negative effects of aid on competition in the internal market and require proportionate countervailing positive effects prior to giving it a pass. is is, of course, much harder, but also even more necessary, at a time of crisis, when both stakes and pressures are high.

e Commission has very recently that “[w]hatever we do, we must avoid a subsidy race If we compete argued individually as Member States, we lose as a whole is is why the proposed changes to the State aid rules, broad and far-reaching as they may be, will be temporary- they would apply until 31 December 2025” . But even if we assume that derogations will be temporary, their effects on the internal market will be long lasting. And if State aid control is regarded as inappropriate precisely when it is needed the most, then one may start wondering what isthepointofkeepingitinplaceateveryothertime