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Joaquín Almunia

Vice President of the European Commission responsible for competition policy

State aid rules can help Europe exit crisis

Figures and graphics available in PDF and WORD PROCESSED

European State Aid Law Institute

Brussels, 10 June 2010

Ladies and Gentlemen,

First of all, I would like to thank Mr. Bartosch for his kind invitation.

It is a real pleasure for me to open your conference which has grown over the past few years to become one of the most important fora of discussion for State aid issues.

I have looked with great interests at the topics you will debate today and tomorrow and I cannot think of a better setting for the issues and views I would like to share with you, in particular with regard to the key priorities for State aid control during my mandate.

In particular, I would like to talk about the following points:

  • First, how to best manage the effects and consequences of the financial and economic crisis that is still engulfing Europe and the world;

  • Second, how to find a way out from the application of exceptional State aid rules helping the recovery of the European economy; and – in this context –

  • I will also touch upon the role of public services.

State aid and the crisis

As announced at the hearing in front of the Parliament last January, my first priority on taking office has been managing the effects and consequences of the financial and economic crisis under State aid rules.

The challenge was not new to me. In my previous capacity as Commissioner for Economic and Financial Affairs I was heavily involved in the Commission's response to the crisis.

Competition policy – and State aid policy in particular – has been absolutely crucial to shape government responses to the financial and economic crisis and to manage its effects on our economies and societies.

The European Commission has been quick to respond to the challenge.

I am thinking of the special crisis regime set up for the assessment of State aid to the financial sector and of the measures designed to facilitate access to credit.

As you remember well, preventing a financial meltdown was the most urgent task at the outset of the crisis.

EU State aid rules responded to that threat by providing mechanisms for the coordination of Member States’ responses and for the bail out of financial institutions.

The key term here is ‘coordination’, because we have not only avoided national authorities from entering into a subsidy race, but we have also reduced distortions of competition and incentives for excessive risk taking.

I proudly believe that we are the only jurisdiction in the world that has explicitly tackled the moral-hazard issue. For instance, we have attached conditions to bank recapitalisations since the earliest measures.

This is a crucial indication of our resolve – apparent since the very beginning of the crisis – to never lose sight of the medium-term perspective.

We have always been acutely aware that a bail out – no matter how urgent and necessary – will always result in a distortion to competition.

And let us not forget that not all banks turned to the taxpayers for assistance.

Following the initial rescue stage, State aid rules have also encouraged the restructuring of the banking sector, and have helped to put certain financial institutions back on track.

The Commission was quick to react at the beginning of the crisis, and showed it could take tough decisions afterwards.

Almost two years later, we have many more tough decisions to take. There are still around 40 bank restructuring cases in the pipeline.

Ladies and Gentlemen:

I believe it is fair to say that the European Commission has responded well to an unprecedented juncture and its State aid policy has been at the forefront of this response.

Looking ahead to the next few months, it is crucial that banks do not stay dependent on State support for longer than needed. It is particularly crucial for the economic recovery that they finance themselves in the market.

Most banks have started to do this already. Others will have to be encouraged to do without State support.

And this is why we have adjusted our rules on State guarantees to the banking sector.

As of July 2010, those few banks that use guaranteed funding will face an increase in the fees charged for State guarantees based on their creditworthiness.

Banks that continue to rely heavily on government guarantees will also have to submit a viability review.

There have been signs that the sector is moving towards viability. The Spring State aid scoreboard suggests that government guarantees for financial institutions are being used less and less.

Guarantees accounted for a monthly average of 30 per cent of banks' total funding in the first quarter of 2009, but that level had fallen to 4 per cent by the end of last year.

Looking at the real economy, the Commission introduced a Temporary Framework in December 2008 enabling Member States to ease access to finance - the largest challenge for businesses in Europe during the crisis.

By allowing Member States to step in, the Temporary Framework certainly prevented many otherwise healthy businesses from going bankrupt.

But as the name clearly indicates, this was designed as a provisional measure, currently due to expire at the end of the year.

I believe it is too early to say whether this need for liquidity is still present or not. This assessment will have to be done most likely in the autumn.

In the meantime, however, we have been consulting Member States and other stakeholders on the use and effectiveness of the Temporary Framework – and we are now in the process of assessing the answers.

There are different views on the table. It goes without saying that the sovereign-debt crisis that we are now experiencing gives us more food for thought.

Some argue that this is a good reason for putting an end to the Temporary Framework – given the budgetary situation of many Member States.

They also add that the special regime is used by richer countries to promote national champions to the detriment of the industry in other parts of the EU where States have smaller resources.

Others say that we are not out of the woods yet. And that in an abnormal situation like this we cannot expect credit flows to operate as normal – so they argue that the scheme should be extended.

The debate is still open and I expect interesting insights will come from your conference. But two things are already crystal clear to me.

First, we’ll have to be extremely careful in how we approach the phasing out of the exceptional crisis regime for State aid.

Aid will have to be phased out gradually, taking account of market conditions and the requirements of financial stability.

Second, we want to return to normal market functioning as soon as possible; which implies leading all market players out of state support.

Our European economies are not going to recover their competitive edge, their economic dynamism, by relying excessively on State support.

Exiting the financial and economic crisis

This brings me to the second priority for my mandate: how can we help Europe emerge from the financial and economic crisis stronger and more competitive?

Once we phase out the exceptional State aid regime I’ve spoken about earlier, as we must, I anticipate that normal State aid rules will help the European economy emerge from the crisis.

State aid policy contributes to job creation and cohesion in many ways.

EU State aid rules provide Member States with a range of options to encourage employment-related measures; for instance those linked to investment projects by SMEs, or by companies established in disadvantaged regions.

The goal of increasing cohesion within the EU underpins our rules on aid to firms in disadvantaged regions.

EU State aid policy can also help us move towards a greener Europe. We have recently adopted a number of decisions authorising aid to companies to subsidise environmental projects in the steel and car sectors and in the energy sector.

In other words, "bad" State aid measures – those that sustain inefficient and uncompetitive companies – are a burden on the public purse and may hinder growth in Europe for generations.

In contrast, "good" State aid measures may support general public policy objectives, such as research and innovation, and fix specific market failures. These measures help Europe’s industry become more competitive and can encourage the recovery.

Ultimately, State aid rules are an essential tool in keeping the single European market open, integrated and competitive.

They help maintain a level playing field for business and avoid Member States engaging in subsidy races – to the detriment of all.

I know I am preaching to the choir today, but I must express again my view that a fully functioning single market is Europe’s largest asset.

Let us never forget this simple fact as we look for the shortest way out of the recession and as we lay the foundations for a smart, sustainable and inclusive economy for our future.

Services of General Economic Interest

Let me now turn to the third domain: public services.

I notice that this broad issue figures prominently among the themes of your conference and – as I said earlier – it is also one of the priorities of my mandate.

In the European tradition, public services are widely seen as promoters of social stability and territorial cohesion.

This is particularly clear when Europe needs to make extra efforts to recover its growth potential, and the current juncture is a case in point.

People look to public services with renewed interest when Member States and the EU as a whole face severe budgetary constraints and, at the same time, need to stimulate growth and social cohesion.

The debate about public services is something of a tradition in our circles, and just as well, because it draws the intellectual field of application of State aid control and the policies devised to implement it.

This debate is however often polluted by two dogmatic approaches.

  • The first pitches those who advocate State intervention against those who plead for complete market freedom.

  • The second opposes EU competence and the autonomy of Member States.

I believe that both approaches are too reductive to account for the complex social, economic, and legal reality of today’s Europe.

The Treaty itself – and, let me add, not just the Lisbon Treaty but its predecessors as well – recognises and protects the fundamental role played by public services in our model of society.

Public services are key to the success of our strategies:

  • They are crucial to develop an economy based on knowledge and innovation through support to education and training;

  • They can ensure an efficient allocation of resources in key industries such as telecoms, energy, and transport and thus encourage more resource-efficient and competitive economies; and

  • High quality and effective public services directly generate jobs and deliver social and territorial cohesion.

The second line of argument, which opposes EU and national responsibilities, is equally misleading because there is no such opposition really.

Having measures taken at EU and national level is in fact the hallmark of the European model.

Public services are not uniform across the EU. On the contrary, they reflect the rich diversity of our national traditions.

The Treaty recognises this feature and leaves Member States a wide margin of discretion in establishing which services are to be considered as public services.

The only limit lies in the existence of certain sectors where European rules harmonise public service objectives, such as electronic communications, energy, transport and postal services.

Apart from that, it is clearly up to the public authorities and governments at national, regional and local level to define which public services should be delivered and how.

The task of the Commission is limited to ensuring that there is no manifest abuse regarding the definition of public services.

This twin approach – recognising the importance of public services to the EU as a whole, while acknowledging their diversity – is duly reflected in the Lisbon Treaty.

I will not expand on the reformulated Article 14 before an audience of experts. Let me just recall the new legal basis this Article sets for the European Parliament and the Council to establish principles and conditions for the operation of services of general interest.

In light of this provision, some sectors have asked for a cross-cutting directive or regulation in the field of services of general interest.

President Barroso himself explicitly called for a boost to the development of the social and health services’ sector in his political guidelines for the new Commission.

We are planning to launch a broad debate on this important issue; but in the meantime some important voices have been heard.

For instance, Professor Monti has discussed the place of public services in his recent report on the single market.

With regard to Article 14, he concludes that a proposal for a framework regulation would have limited added value – at best – and that its chances of being adopted would be very small.

Instead, Professor Monti suggests that the Commission should consider regulations ensuring access to basic services, for instance in network industries which experience gaps in the universal service provision. For instance, he talks of extending universal service in electronic communications to the provision of broadband access.

As I said, the Commission will soon examine this policy area in depth. But one thing is already clear: Article 14 calls for a continued role for competition policy in the shaping of SGIs.

And this is perhaps the crux of most debates.

We cannot ignore the fact that competition policy – and State aid control in particular – have generally been perceived as limitations to the use of public services.

To put it bluntly, they have been perceived as undue interference into Member States’ policies. Now, let me explain where I stand on this point.

Competition policy does not apply to all public services, but only to those that are ‘economic’ in nature.

This is what the phrase ‘services of general economic interest’ mean. Non-economic activities are excluded.

Let me give you some examples. Economic public services include postal services, energy, broadcasting and broadband services, and the management of transport infrastructure.

In contrast, things such as air control and the management of employers’ liability insurance are not regarded as economic services but as activities linked to the exercise of State prerogatives.

By the same token, national systems of compulsory education or systems of compulsory health care might not be regarded as economic activities in the future.

This is in accordance with the law established by EU Courts, which describes as ‘economic’ activities which supply goods and services on a given market.

One of my main objectives in this field is to reflect further on this important point and so to bring predictability and legal certainty both to the Member States and to the providers of these services.

Our action with regard to public services is also shaped by another legal point.

Article 106 of Treaty specifies that EU competition rules apply to the providers of services of general economic interest – including rules on State aid, anticompetitive agreements, and abuse of dominance.

But if certain conditions are met, government funding of services of general economic interest is not regarded as State aid.

These conditions were laid down in the Altmark ruling of 2003 and it was precisely following this judgment that the Commission, two years later, adopted the SGEIs package, laying down rules on how to assess the compatibility of public service compensation that is indeed state aid.

Over the years, the application of the package has brought increased clarity and legal certainty to the field. In the postal sector, for instance the application of the SGEI Framework has brought, gradually, a certain level of transparency through the separation of costs and their ensuing correct allocation.

But there is still a lot of work to do.

Some have advocated increased legal certainty about compensation paid to small local SGEI providers or a revision of the thresholds or sectors that define the applicability of the Decision.

Others have asked for a reflection on the benchmarks that could be used to establish what costs should be taken into account as those of a well-run undertaking adequately equipped with the means to provide the public service under the 4th Altmark condition.

My next step will be therefore assessing how the package works in practice five years after its adoption.

We have already received reports from all the Member States and we are launching today a broad public consultation on their basis.

I warmly invite you to participate to the consultation; just go to our site where you will find a questionnaire and all the reports of the Member States.

I hope we will receive solid feedback from all the people involved in this policy field:

  • public service providers,

  • the national and local authorities, and above all

  • ordinary citizens.


Ladies and Gentlemen:

Today I have spoken about how State aid can help Europe exit from this crisis, and I have shown that competition policies sit right at the heart of Europe’s social market economy.

Why are we so keen to update and improve our rules and their application? Because we want to allow the provision of good quality public services; ensure a level playing-field for all operators; and minimise the burden on the public purse at a time of severe budget constraints.

But above all we want everyone to enjoy accessible, affordable and efficient public services.

All the fine legal and economic arguments that we bring to the table should never lose sight of this simple fact.

Our responsibility and our commitment is towards the interest of our fellow Europeans – none excluded.

Thank you.

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