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Joaquín Almunia Vice President of the European Commission responsible for Competition Policy The State Aid Modernisation Initiative EStALI – European State Aid Law Institute 10th Experts' Forum on New Developments in European State Aid Law Brussels ,7 June 2012

European Commission - SPEECH/12/424   07/06/2012

Other available languages: none

European Commission

Joaquín Almunia

Vice President of the European Commission responsible for Competition Policy

The State Aid Modernisation Initiative

EStALI – European State Aid Law Institute

10th Experts' Forum on New Developments in European State Aid Law

Brussels ,7 June 2012

Ladies and Gentlemen,

For the third year in a row, I have the pleasure and the privilege to address this forum of European State aid law experts and I thank – once again – Andreas Bartosch for his kind invitation.

State aid control has been especially active in the last few years – in fact, it has been in the limelight of EU policies since the end of 2008.

When the financial crisis first hit the world’s markets, State aid control was identified as a powerful EU-wide instrument to protect the internal market from potential disintegration.

Thanks to the emergency State aid framework for financial entities that was swiftly introduced, the Commission made sure that the massive public bailout of banks would be carried out under the same conditions throughout the EU.

The proposal of a Resolution mechanism at EU level adopted yesterday by the College of Commissioners under the initiative of Michel Barnier intends to regulate what, until now, could only be tackled using the instruments of State aid control. The work done so far by DG Competition has been excellent, taking into account that those instruments were not designed to deal with serious turbulences in the financial markets.

The other recent developments in State aid policy are not as dramatic but they are just as important. These are last year’s reform of the rules for the Services of General Economic Interest and the broader overhaul of the State aid regime that I unveiled last month.

We discussed the SGEI reform when we met last year. We were still in the consultation stage at the time; the new regime was eventually approved last December and is now in full operation.

The first case analysed under the new regime – compensation for the UK Post Office – was approved on 28 March 2012.

State aid modernisation

The reform that I want to discuss with you this year is the modernisation of our State aid policy. The initiative builds on the experience we have gained with the SGEI reform and follows some of its principles; but it’s decidedly broader in scope.

It also has more ambitious aims; our reform package is designed to turn State aid policy into a simpler, stronger and smarter instrument to coordinate the efforts that governments across Europe are making to boost growth in times of extraordinary fiscal constraints.

This is why I considered appropriate to launch the initiative now. In the very difficult economic and social situation Europe is in, all our instruments – State aid policy included – should be geared to help EU countries tackle their current challenges.

The latest analysis of these challenges is contained in the recommendations released by the Commission last week, under the new governance rules of the so-called ‘European semester’. Despite the fact that most EU governments are clearly moving in the right direction, the overall picture is not rosy. Let me highlight three points:

  • First, the lack of growth and its consequences on unemployment – especially youth unemployment – is a huge concern;

  • Second, a lot more must be done to release our growth potential in the internal market, in particular in the services and energy sectors and the digital economy;

  • Third, the necessary measures that Member States are taking to consolidate their public finances risk to stifle growth unless we manage to complement them.

The twin needs to consolidate public budgets and relaunch a sluggish economy pose difficult and sometimes conflicting demands; but I’m convinced that stability and growth can be reconciled – and a new State aid policy can help a lot.

The regime that will emerge from the reform must help EU governments make the best use of taxpayers’ money and, at the same time, it can help them boost growth and create jobs.

The regime will also be more consistent and rational thanks to a few key principles that will be applied across the board as the reforms are introduced. Let us see what these principles are like before reviewing in detail the main procedural and policy changes we are planning.

The three pillars of the initiative

The first and most important pillar of the reform process rests on the need to encourage more focused and better quality aid.

In our social-market economy, public support to firms is fully justified – it is in fact needed – to give our people the goods and services that the market would not deliver in fair and equal terms or would not deliver at all.

Apart from targeting market failures, what I call ‘good aid’ is aid that:

  • has a real incentive effect and therefore fosters growth;

  • is designed in a way that avoids waste of public money and thus minimises the cost to the taxpayer;

  • has no better market alternative;

  • and strengthens the internal market by keeping the sectors open and competitive and avoiding imbalances between Member States.

This is the aid that really promotes research and development; makes access to finance easier for SMEs; gives the right incentives for the development of the digital economy; protects the environment; and attracts investment towards the weaker regions of Europe.

Conversely, our future policy will discourage the bad aid that crowds out private investment; keeps inefficient and non-viable companies on indefinite life support; and generally wastes taxpayer's money.

Governments and economic agents must understand that we can no longer afford this kind of public spending. As Ernest Rutherford, the father of nuclear physics, once said; "Gentlemen, we've run out of money. It's time to start thinking."

The second pillar of the reform package is simplification. Our system of guidelines and notices has grown in complexity through the years and now counts over 40 different texts.

The reforms will produce a leaner and clearer regime, which means that public administrations across Europe will find it easier to comply with the rules and that the Commission will be able to take faster decisions.

The third pillar is our determination to shift the focus of our control from a case-to-case to a more structured policy approach. At the end of April there were 760 pending cases, and quite a few of them would probably have only a limited impact on the internal market.

I believe that we have to handle fewer cases of this sort and focus instead on the aid that can really distort competition in the EU.

This shift in the focus of our control will also allow us to set out our own priorities, start more investigations ex-officio, and look more systematically into those sectors that our practice indicates could raise competition concerns.

Of course, one condition that will help us to make State aid control more rational and efficient will be a new level of commitment from national governments. The move towards a more structured policy approach also means that we can put our experience at the service of national authorities to help them design more effective aid measures.

I will come back to this important aspect towards the end of my presentation. For the moment, I want to make one point very clear: this does not mean in any way that the Commission will give up any part of its exclusive competences in the enforcement of State aid law.

Ladies and Gentlemen:

I will now move to a brief overview of the policies and procedures that will be affected by the modernisation initiative.

Streamlining State aid control

Let me start with the changes that will streamline our decision-making and refocus State aid control on the aid that really matters for the integrity of the internal market.

We are already at work to update the Procedural Regulation, which will allow us to handle the complaints that we receive – about 300 a year – in a way that is more consistent with our priorities.

We will also clarify the notion of aid and streamline the state aid framework to give more clarity and better guidance to public authorities. These changes will cut the red tape and produce fewer, clearer and more rational rules.

Rational rules also mean that we should take our decisions on the basis of a more accurate analysis of the economic implications of individual aid measures.

To this end, we are looking for the best tools that we can use to gather the necessary market information before we decide on individual cases. We are not yet in a position to present conclusions on how to do this, but in any case it is clear that we will continue to share all the market information available with the Member States at all times.

Secondly – similarly to what we did for SGEIs – we will strengthen our scrutiny of large and potentially distortive aid and – at the same time – simplify the analysis of cases with a limited effect on trade in the internal market.

This will be the effect of our review of the regime of exemptions, in particular the General Block Exemption Regulation, the Enabling Regulation and – if after careful assessment we conclude it is necessary – the de minimis Regulation.

Policy changes

As to the policy changes, the core reforms of the State aid modernisation initiative will be gradually introduced through the review of a number of sectoral guidelines to bring them in line with the objectives of the Europe 2020 strategy for growth and link them with the new Multilateral Financial Framework that will come into force in 2014.

Let me give you some examples of the guidelines that will be updated according to the principles of the State aid Modernisation initiative.

Regional

I will start with the new Guidelines on national regional aid, whose revision has just started and should be completed by the autumn of 2013.

The conditions on investment aid for large enterprises and for large investment projects will be tightened so as to favour investments that have a strong potential for contributing towards growth and job creation at regional level.

They will also make sure that the aid goes to regions that are most in need of public support to launch new activities and attract investment.

Finally, the rules for the types of aid that pose only limited competition concerns will be simplified as far as possible.

Broadband

My second example is from the telecommunications sector, which is intimately connected to the Digital Agenda and the Europe 2020 strategy.

As part of the modernisation initiative, we will review the Broadband Guidelines, which allow governments to use public funds to accelerate the deployment of competitive ultra-fast broadband networks.

These guidelines are a good illustration of how the modernisation initiative’s drive for growth will translate in practice. Let us see how:

  • First, the existence of market failure should be confirmed in all cases; the aid can be granted only if commercial operators have no similar investment plans.

  • Second, the aid must be granted through a competitive tender procedure that would ensure the incentive effect and guarantee the efficiency and effectiveness of the public funding.

  • Third, the benefits of the public intervention must be shared fairly among the consumers and translate into better and cheaper services.

Aviation

My next example is aviation; the rules that apply to airlines and the financing of airport infrastructure will be reviewed over the next 12 months.

The need to update the Aviation Guidelines is clear; in 2012 we have opened in-depth investigations on 15 regional airports in five different countries; the latest, on May 30 for the airport of Beauvais, in France.

In this context, the Aviation Guidelines will have to find a new balance; on the one hand, it is our responsibility to establish fairer conditions of competition in the industry; on the other, regional authorities must be allowed to meet the transport needs of the people.

It goes without saying that the review will also establish a level playing field for all the airlines that use these airports regardless of their business model – from flag carriers to low-cost airlines.

Cinema and other sectoral guidelines

The modernisation initiative will also involve the rules that apply to the public support for film productions, which – among other things – will be extended to cover the whole value chain of film-making.

What the new Communication will not do is tell which activities are cultural and which are not; this is for the national authorities to decide. However, there is no doubt that subsidised productions that have an impact on the internal market will be subject to State aid control.

Last but not least, other sectoral rules that will be reviewed and updated under the scope of the reform package include the Guidelines for Research, Development and Innovation, the Environmental Aid Guidelines, and the Risk Capital Guidelines, which together with the Regional Guidelines are especially relevant in terms of the amount of aid authorised every year, and very important to encourage growth in the internal market.

Rescue and Restructuring of non-financial firms

I will close this overview with a look at the Guidelines for the Rescue and Restructuring for firms in difficulty – excluding banks and financial firms – which are also under review.

There have been times when this kind of public support has been highly distortive and has led to the creation of zombie firms. In the worst cases, these subsidies can start a beggar-thy-neighbour game, because they ultimately transfer the burden of adjustment to other firms and countries.

In the context of the modernisation initiative, Member States will have a larger responsibility to identify and quantify the economic and social losses that the aid is designed to avoid and to select the cases that deserve the public support with greater care.

We will also transfer in these guidelines some of the lessons learned in the rescue and restructuring of banks and financial firms, such as the introduction of burden sharing.

As to the rescue and restructuring of banks and financial firms, we are preparing the rules that will replace the emergency State aid regime introduced with the crisis; however, under the present circumstances, it is wise to keep them in operation until the markets get back to normal conditions.

Timetable

So, these are the main changes that will modernise State aid policy. When will they be introduced in practice?

In the course of this year, I intend to hold a continous policy conversation with the Member States and our sister EU institutions.

I started this process a few days ago when I spoke at the Competitiveness Council; before the summer break, I will discuss the reform at the ECON Committee of the European Parliament and at the Ecofin Council.

I am also committed to discussing the initiative with the business community and the other main stakeholders, and our meeting today is part of this process.

In parallel, we will run the usual procedures to revise each of the different instruments that are part of the initiative.

Before the end of the year the Commission will present its proposals to the Council to change the Procedural and Enabling regulations and public consultations will take place in the course of 2013 before the adoption of every one of the guidelines that will be revised.

Thus, if everything goes according to plan, the main elements of the package should be in place if possible by the end of next year, and in any case before the end of the mandate of this Parliament and of this Commission.

Stepping up the game with national governments

Ladies and Gentlemen:

In the course of my presentation, I have made reference to the fact that the modernisation initiative will have a real impact on the ground only if national authorities step up to a higher level of cooperation and compliance. Let me say a few words on this before I close.

The Treaty gives to the Commission – and to the Commission alone – the responsibility to enforce State aid law in the internal market. The State aid modernisation initiative cannot and will not change this provision. What the initiative will try to do is to put more responsibility on the shoulders of EU countries.

At present, about 80% of the aid is granted through schemes and block-exempted measures, which means that Member States already have to work hard to ensure compliance with the rules set by the Commission.

But there is a clear room for improvement. A report on State aid released by the European Court of Auditors in December 2011 suggested that better national controls were needed.

Our own monitoring exercise is consistent with this finding. The study is revealing important compliance gaps, especially when it comes to block-exempted measures directly implemented at country level. Preliminary results show that over 40% of the cases we have monitored are potentially problematic.

The modernisation initiative is an opportunity for national authorities to take more responsibility for the competences they already have, as a pre-condition for the Commission to streamline its rules and decision-making to focus on the most serious cases.

On our side, we will reinforce ex-post control; but Member States will have to reinforce their control mechanisms at all levels of their administrations.

I will work hard, building on the first discussion with the Council last week, to find a way to improve cooperation with the Member States. What is possible in antitrust, as shown by the success of the European Competition Network, should be also possible in State Aid – taking into account the objective differences between these areas of enforcement.

In these times of dire straits, a cultural change is needed to encourage growth and avoid waste of public money.

Aid has to be conceived and designed to help firms produce goods and services that would otherwise not be provided in the internal market, and not to strengthen the particular interests of a region or sector to the detriment of the economy as a whole.

In practice, this may mean:

  • Stronger ex ante consultation with the Commission to better design the aid measures;

  • Better coordination to make sure that the rules are consistently applied inside each country;

  • Better compliance when it comes to measures implemented at national level; and

  • Proper follow-up systems with monitoring and recovery of illegal aid.

Conclusions

Ladies and Gentlemen:

The most important objective of the overhaul of the State aid regime is to help Europe’s governments spend more wisely in these difficult times to prepare the ground for the recovery, keep the right priorities in times of fiscal consolidation and, of course, mitigate the social effects of the crisis.

I am perfectly aware that Member States' governments are ultimately responsible for how public funds are spent and on what; the role of the Commission is to make sure that these expenses do not distort competition in the internal market.

But, in doing so, I have no doubt that we can encourage smart spending; tighten coordination at EU level; and make sure that good practices travel smoothly from one country to another. This is the rationale of my initiative.

Learning from each other’s success and increasing coordination are multipliers. The same levels of expenditure can have a larger impact; and this will bring benefits to the quality of public finances, to our economy, and to the people.

At the end of the day, this is what the Union is about; when we play as a team, the whole is always greater than the sum of its parts.

Thank you.


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