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

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.