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Joaquín Almunia

Vice President of the European Commission responsible for Competition Policy

Modernising State aid control

European Economic and Social Committee – plenary meeting

Brussels, 23 February 2012

Mr President,

Members of the Committee,

Ladies and Gentlemen:

I would like to thank President Nilsson and the Committee for this kind invitation, which came at an opportune moment.

A few days ago, the euro area reached an agreement on Greece; this morning Olli Rehn is presenting our new forecasts exercise showing how difficult it is to return to a sustained path of growth and job creation; in a few days the European Council will meet again and will discuss the next steps in the fight against the crisis…

Every day we are facing challenges that will shape the future of the EU and of our 500 million fellow citizens.

Our debate today gives me the occasion to discuss with you the main features and objectives of a reform I announced earlier this month; the modernisation of the rules that the European Commission uses to control State aid.

But before I touch upon the issue, I would like to remind the rationale behind State Aid control, and put it in the context of the challenges we all have in front of us.

The European Commission is the exclusive responsible for the control of the public aid given by Member States to commercial activities.

Articles 107 and 108 of the Treaty give us the task to prevent that this aid erects barriers to trade and partitions the internal market. Only the Court of Justice can overrule our decisions.

The European Commission has been fulfilling this task since 1957 and I would say that it has done an excellent job of it.

Our action has effectively kept governments from giving selective advantages to firms; and together with the other instruments of the competition policy it has prevented the erection of entry barriers; and has avoided that certain companies are given too much market power.

It is worth recalling here that we don’t control all public spending. For instance, when a public authority invests in a company at market terms, they do not give the recipients any advantage and the expense does not qualify as State aid.

If they act according with the so-called market-economy investor principle, public authorities take part in economic activities without distorting competition.

Nor do we control government spending when it pays for services that are not economic in nature and are not provided by the market, such as defence or security.

Similarly, we do not look into the support that Member States provide to all economic actors – as opposed to selected companies – such as lower tax rates across the board.

However, if a State gives an economic advantage to a company which is in competition with others in the internal market, then the support is State aid and we have the duty to assess it.

Of course, this does not mean that State aid is forbidden; quite the contrary. In our social-market economy, government intervention is justified – in fact, it is necessary in some cases – to complement market forces when they fail to produce the desired outcomes.

In these cases, State aid can target market failures and fix them; for example by giving creditworthy SMEs access to capital, protecting the environment, encouraging the use of renewable energies, investing in research and innovation or attracting investors towards the weaker parts of our territory.

In areas like these, private investors may find the risk-reward balance too low and public aid is authorised by the Commission.

But the support should go only to activities that the market would not finance up to the socially optimal level and it should complement private spending; not replace it.

In this respect, State aid control is an instrument of economic integration that underpins the good functioning of the single market, which is Europe’s best asset in the global economy.

Indeed, the spending decisions taken by governments have broader economic and social implications. This has always been the case and all the more so in these difficult times, when the opportunity cost of inefficient public spending is higher.

The economic forecasts released today show that growth is virtually at a standstill in the EU and unfortunately will remain low for some time.

They also show the need of ambitious fiscal consolidation strategies in many countries and alarming unemployment rates, especially for young Europeans – which should be by far our main worry.

The organisations that you represent know well that this situation is causing growing social tensions. More and more citizens are experiencing a drop in their standards of living and higher uncertainties regarding their future. The prospects for some of Europe’s companies are not rosy either.

Many people are turning to their governments for services and support. Moreover, to come back to a sustainable growth path is not an easy task and new kinds of public actions are warranted. But these demands come at a time when governments almost everywhere in Europe need to reduce debt levels and consolidate their budgets.

Here is where the reform of State Aid will intervene.

How can these competing demands on public finances be reconciled?

The best way out of this dilemma is growth. Only growth can give governments enough resources to meet the needs of the people.

A growth strategy is not only about public money. Structural reforms and the introduction of more competition can be achieved without tapping the budgets.

But it is clear that a number of public policies can contribute to increase our growth potential by better focusing public expenditures, creating good framework conditions for a sustained – and sustainable – period of expansion.

Public spending must be efficient, effective and targeted at growth-promoting policies; in particular, in the situation we are facing nowadays.

How can we do this?

We must ignite the engines of growth by promoting investments in physical, human and knowledge capital.

We must focus public spending on education and training, innovation, renewable energies, the interconnections across the internal market, and the development of the digital economy.

And State aid control has a strategic role in this context because it helps Member States to improve the quality of their public finances.

State aid control must help them make a more efficient use of scarce public resources and design public support so that it can deliver the growth policy objectives while keeping the internal market open and the level playing field for everybody.

In these uncertain times we can no longer afford to waste public resources and weaken the internal market.

Therefore, helping public authorities make a better use of taxpayers’ money is one of the main benefits that I expect from our planned reform of State aid rules.

Government support should go where it can make a difference for EU competitiveness. Well-designed support can help efficient companies grow stronger, inefficient ones be replaced, and innovative businesses come to life.

We are not starting from the scratch, though. Let me give you an example. Last year, the Commission approved a Swedish aid granted to develop the demonstration plant of an innovative wave-energy technology.

The project was too risky for private investors and it would not have taken off without the public support.

In addition, the authorities asked the company to pay back part of the aid in case of commercial use of the plant. This limited the potential cost to the State and undue advantages to the beneficiary.

Public policies like these can build an environment that promotes growth and brings Europe’s recovery closer. Some EU countries are well advanced along this path and I want to encourage the others to follow their lead.

On the other hand, in our enforcement practice we also have to deal with aid that has a negative impact on the internal market. In this case, we want to be stricter in our control.

One sensitive area is the support that governments grant to incumbents in recently liberalised sectors; this kind of aid can deprive us of the positive impact on innovation and growth we were looking for when we decided to go down this road.

Here my example is very recent; only last month the Commission ordered Germany and Belgium to recover part of the aid granted to their postal operators over the years.

Deutsche Post and the Belgian Post had received an amount of aid that exceeded the level of compensation required for the provision of the Service of General Interest that public authorities had entrusted them with. Therefore, we decided that the extra aid was incompatible since it put the companies in a better position than their competitors in commercial activities beyond their public service mandate.

In sum, the reform of State aid I am presenting to you today is designed to boost growth, raise the quality of public finance, and improve the fiscal position of Member States.

In this respect, the initiative can be seen as part of the broader drive to engage in a more comprehensive coordination of national economic policies under the common objective of a sustained, inclusive and sustainable growth pattern.

Shifting the focus of our control where it matters most is another important objective of the reform.

Under the new rules, we will reserve a lighter treatment to the aid with little effect on competition in the internal market.

At the same time, we will look more thoroughly into the cases with a potentially large impact and we will launch ex-officio investigations more often.

Finally, we will use the reform to cut down on red tape and make our rules simpler and more consistent.

In time, our State aid regime has become too complex; just think that we have as many as 37 different guidelines.

As we have done last year with the reform of the Services of General Economic Interest, we can do everybody a favour by better explaining and arranging our rules.

In practical terms, the next step in the reform will come in the spring, when I intend to submit to my fellow Commissioners a Communication that sets out the main objectives and guiding principles of the reform.

Let me give you a broad indication of the elements that are likely to change.

We are revising the guidelines related to the Europe 2020 objectives; namely the Regional, Environmental, and Risk Capital guidelines, and the guidelines for Research, Development and Innovation.

We are also looking at ways to simplify and speed-up the treatment of the cases with limited impact on the internal market through the revision of the General Block Exemption Regulation, Enabling Regulation, and the de minimis Regulation.

Finally, we will probably have to update the Procedural Regulation; especially as regards our handling of complaints. The basic notion of aid will have to be clarified as well for a better understanding of the scope of our control.

If everything goes according to plan, the main elements of this package will be in place before the end of next year.

Ladies and Gentlemen:

In closing, I would like to repeat that this reform will help Europe’s public authorities make a more efficient use of taxpayers’ money and encourage them to spend it on public policies that can boost growth and create jobs.

We all share this responsibility, regardless of our different roles in politics, industry, and the labour movement, or in the civil-society organisations steeped in our communities.

I am confident that our dialogue, through a broad consultation process, will help us find the best answers to the needs and to the requests of our fellow Europeans.

Of course, I am available for further discussions with the Committee on this reform during the next steps of the process.

Thank you.

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