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Less but better targeted state aid – a report on the state aid action plan

PR\585614EN.doc PE 364.780v01-00
2004 «
« « «
« 2009
Committee on Economic and Monetary Affairs
on State aid reform 2005-2009
Committee on Economic and Monetary Affairs
Rapporteur: Gunnar Hökmark
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EXPLANATORY STATEMENT …………………………………………………………………………………..9
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on State aid reform 2005-2009
The European Parliament,
– having regard to the communication from the Commission – State Aid Action Plan – Less
and better targeted State aid: a roadmap for State aid reform 2005-2009 (COM(2005)0107)1,
– having regard to the communication from the Commission – Consultation document on State
aid for innovation (COM(2005)0436),
– having regard to the Commission draft decision on the application of Article 86 of the
Treaty to State aid in the form of public service compensation granted to certain
undertakings entrusted with the operation of services of general economic interest, of 18
February 2004, as forwarded to the European Parliament for an opinion on 8 September
– having regard to the Commission draft directive amending Directive 80/723/EEC on the
transparency of financial relations between Member States and public undertakings, of 18
February 2004, as forwarded to the European Parliament for an opinion on 8 September
– having regard to the Commission working paper on a Community framework for State aid in
the form of public service compensation, as forwarded to the European Parliament for an
opinion on 8 September 2004,
– having regard to the draft communication from the Commission – Guidelines on National
Regional Aid for 2007-2013,
– having regard to the objectives of the Lisbon Strategy,
– having regard to the Presidency conclusions of the Barcelona European Council of 15 and
16 March 2002 and the Gothenburg European Council of 15 and 16 June 2001, and in
particular the provisions under which the Member States agreed to reduce the level of State
aids in the European Union, limiting them to subjects of common interest,
– having regard to Articles 2, 5, 16, 73, 86, 87 and 88 of the EC Treaty,
– having regard to its previous resolutions on services of general interest, in particular to those
of 17 December 1997 on the Commission communication on services of general interest in
Europe”2, of 18 May 2000 on the draft directive amending Commission Directive
80/723/EEC on the transparency of financial relations between Member States and public
undertakings3, of 13 November 2001 on the Commission communication ’Services of
General Interest in Europe’4, of 14 January 2004 on the Green Paper on services of general
2 OJ C 14, 19.1.1998, p. 74.
3 OJ C 59, 23.2.2001, p. 238.
4 OJ C 140 E, 13.6.2002, p. 153.
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interest1 and of 22 February 2005 on State aid in the form of public service compensation 2,
– having regard to Commission Regulation (EC) No 69/2001 of 12 January 2001 on the
application of Articles 87 and 88 of the EC Treaty to de minimis aid3,
– having regard to Articles I-3, I-5, II-96, III-122, III-166, III-167 and III-238 of the Treaty
establishing a Constitution for Europe, as signed by Member States in Rome on 29 October
– having regard to the case law of the European Court of Justice relating to services of general
interest, and in particular to the Altmark judgment of 24 July 20034,
– having regard to Rule 45 of its Rules of Procedure,
– having regard to the report of the Committee on Economic and Monetary Affairs and the
opinions of the Committee on Employment and Social Affairs, the Committee on Industry,
Research and Energy, the Committee on the Internal Market and Consumer Protection, the
Committee on Transport and Tourism and the Committee on Regional Development
A. whereas State aid provisions should be simple, transparent and effective,
B. whereas the market economy is the most efficient way of allocating limited resources;
whereas State aid should therefore be an instrument ’of last resort’,
C. whereas State aid should always have clearly defined objectives, be proportionate and, in
particular, be of a temporary nature,
D. whereas the total amount of State aid granted each year in the European Union is the
equivalent of more than 50% of its annual budget even by the most conservative estimates;
whereas the amount of State aid differs substantially between Member States, ranging from
0.10% to 2.76% of national GDPs in 2003, thereby having the potential of causing
considerable market distortions,
E. whereas State aid is funded by taxpayers and must therefore be spent responsibly, providing
high value for money,
F. whereas the justification for granting State aid to undertakings should be reviewed at regular
and appropriate intervals,
G. whereas effective and stringent controls over the granting of State aid are required in order
to ensure fair competition and transparency and to avoid discrimination,
H. whereas, when applying the principles of subsidiarity and proportionality, the Commission
should focus on infringements with a significant impact on the internal market,
1 OJ C 92 E, 16.4.2004, p. 294.
2 Texts adopted, P6_TA(2005)0033.
3 OJ L 10, 13.1.2001, p. 30.
4 Case C-280/00, Altmark Trans and Madgeburg v Nahverkehrsgesellschaft Altmark [2003] ECR I-7747.
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1. Wholly supports the Commission in its stated aim of streamlining State aid policy, in
particular by increasing legal certainty, refining the economic approach, increasing
transparency by consulting stakeholders and enhancing the adjudication process;
2. Insists that, to remove legal uncertainty, the Commission’s decisions should always be
closely in line with relevant judgments of the Court of Justice;
3. Suggests that the Commission issue detailed guidelines clarifying its policy on the definition
of aid in line with the Court of Justice’s case law;
4. Stresses the need to draw the consequences of the unsuccessful granting of State aid in the
past; underlines that State aid should generally be reduced in the future;
5. Asks the Commission in this context to apply stringent reporting rules, covering the Member
State as well as the recipient; asks the Commission furthermore to develop the State Aid
Scoreboard with this in mind;
Stronger economic approach
6. Welcomes the Commission’s aim of refining its economic approach to State aid proceedings
and focusing its resources on tackling cases likely to create the most serious distortions to
competition and trade;
7. Urges the Commission to subject the two criteria for assessing illegal aid, as provided in
Article 87(1) of the Treaty (the distortion or threat of distortion of competition / effects on
trade between Member States) to economic analysis in all its decisions; asks the
Commission to confirm and specify its approach for both criteria in specific guidelines;
8. Suggests that the Commission provide a more detailed definition of the concept of ’market
failure’ including a concrete methodology; insists on a workable concept in order to allow
Member States and beneficiaries to apply and benefit from it in practice; insists that the new
concept must not lead to longer procedures; asks the Commission to clarify the interaction
between the market failure concept and other justifications of State aid, as set out in Article
9. Notes the initiative by Commissioner Siim Kallas to introduce more transparency in the
granting of subsidies in the field of agriculture, which would require the State to publish on
the internet all recipients as well as the amount granted, and would recommend this scheme
to be extended to all State subsidies; recommends that anobligation be placed on all
companies to publish details of subsidies received in order to enable shareholders to better
evaluate the real performance of the company, especially in case state subsidies might be
Innovation and R&D
10. Underlines the high importance of innovation and R&D for the future competitiveness of
Europe in a globalised economy;
11. Underlines that aid for R&D must not open the door to distortive aid, especially by
favouring established market players; stresses in this context the need to overcome
regulatory and fiscal barriers in Member States that hamper the development of young and
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innovative businesses;
12. Is very supportive of State aid flexibility concerning the creation and promotion of
innovative ideas in public sector research bodies and universities, as well as clear and simple
rules on how to transfer such ideas and expertise to businesses; in this regard, supports the
generation of further innovation through public-private collaboration and partnerships;
13. Stresses the principle that aid for R&D should not favour single undertakings; urges the
Commission to focus aid for R&D on ’innovation clusters’;
Risk capital
14. Considers that, due to regulatory insufficiencies and incentive-poor tax systems, in some
Member States the provision of risk capital in particular to small businesses is not optimal;
welcomes, therefore, the revision of the Commission communication on State aid and risk
15. Underlines the need to foster the development of start-ups and young, innovative SMEs;
16. Stresses the need for less burdensome, faster approval procedures; favours in this context
block exemptions for small-scale aid for SMEs;
Services of General Economic Interest
17. Welcomes the Commission’s clarifications as regards aid for services of general economic
interest, in particular the adoption of three Commission acts in this area;
18. Regrets, however, that much uncertainty remains as these decisions do not comprehensively
clarify how the Commission intends to interpret the Court of Justice’s ’Altmark’” ruling test
in practice; asks the Commission to clarify in what respect the compatibility criteria in the
abovementionned Framework Paper differ from those laid down in the Altmark ruling;
19. Considers the Altmark test as economically sound and therefore asks the Commission to
apply it integrally;
20. Notes the exemption of smaller public service companies from the application of the State
aid rules; wonders, however, whether the distinction between small and large companies in
the assessment of State aid rules is adequate; pleads, therefore, for an assessment based on
the effects of State aid measures on the relevant market rather than on the size of the public
service company involved;
Block exemptions
21. Supports the issuing of a general block exemption regulation by the Commission in order to
simplify and consolidate the existing block exemptions (training, SME and employment)
and to integrate a broader range of exemptions, notably as regards State aid to support SMEs
and R&D; agrees with the Commission’s aim of focusing its resources on tackling the most
distortive aids; considers that the notification procedures and delays inherent therein should
be proportionate to the risk of serious distortion of competition arising from the aid in
question; opines that one legal instrument could also facilitate future extensions of the block
1 OJ C 235, 21.8.2001, p. 3.
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exemption concept, such that the smallest cases of each type of aid no longer need to be
22. Stresses the need to ensure that the block exemption regulation leads to a true simplification
of procedures, with clear, detailed and ’loophole-free’ provisions which in no way
compromise the overriding aim of a general reduction in State aid;
23. Welcomes the proposal to raise the de minimis threshold; suggests that the increase should
be substantial, e.g. to EUR 1 million over three years; asks the Commission in this context to
address the problem of cumulation control;
Regional aid
24. Welcomes the proposal from the Commission to review Community Guidelines on national
regional aid; advocates that this be closely linked with the reform of the structural fund
regulations for the period 2007-2013;
25. Supports a more efficient approach to granting regional aid, with a focus on investments in
infrastructure and horizontal aid in disadvantaged or least developed regions of the
European Union;
Environmental aid
26. Considers that environmental State aid can play a crucial role in achieving the goal of
sustainable development in the European Union;
27. Considers that, as mentioned in the Commission’s own communication – Stimulating
Technologies for Sustainable Development: An Environmental Technologies Action Plan
for the European Union (COM(2004)0038), current Guidelines on State Aid for
Environmental Protection are ’not properly adapted to the increasing sophistication of
investments in environmental technologies, nor to new forms of public/private partnerships’;
28. Welcomes, therefore, the start of the stakeholder process with a view to revising these
guidelines, set to expire by the end of 2007;
Better governance
29. Considers that the current practices and procedures of State aid policy have certain
30. Welcomes, therefore, the introduction of best practice guidelines on State aid procedures for
more rapid and more efficient notification procedures; wonders, in this context, if a
regulation might not be more adequate to achieve procedural objectives than the issuing of
31. Supports strongly the idea of forming a closer network of Member State aid authorities
which could facilitate the objective of consistency in the application of State aid rules;
32. Expresses its scepticism regarding the possible decentralisation of competences to
independent authorities; considers that this approach might carry the risk of resulting in
inconsistent enforcement of State aid rules, especially given the varying structures and levels
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of experience and expertise of independent authorities; considers any involvement of
independent authorities only conceivable with a high degree of Commission supervision and
33. Urges the Commission to set clear time limits for State aid proceedings, including
34. Expresses its discontent that sanctions for non-notification are currently enforced against the
beneficiary and not the Member State and that, consequently, illegal aid is recovered from
the beneficiary rather than the Member State; considers this situation unsatisfactory in that it
fails to create a clear incentive on the part of the Member State to notify;
35. Supports the Commission, therefore, in exploring new deterrent mechanisms against
improper enforcement by Member States, such as recovery injunctions, and invites the
Commission to explore other measures like imposing financial penalties on Member States
for granting illegal aid and breaching notification procedures;
0 0
36. Instructs its President to forward this resolution to the Council and Commission.
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In the perspective of the Lisbon process the European Union’s competition policy is of crucial
importance. European companies must be able to merge, invest and develop in order to
strengthen and improve their competitiveness. It is essential that innovation and entrepreneurship
are preconditions for companies’ success.
It is also of utmost importance that new markets, new products and new services be developed in
the European economy. Investments of this kind require more than anything else a level-playing
field, where bigger companies aren’t unduly favoured at the expense of smaller ones, where
political decisions don’t favour any single company,.
In a dynamic a market economy, stable institutions foster equal conditions for newcomers as
well as for traditional businesses, for entrepreneurs with the new ideas as well as for established
companies launching traditional products. It is inherent to successful business innovations that
only very few companies manage to grasp and profit from real opportunities.
New innovations that have changed markets and sometimes the world, like Tetra Pak, the light
bulb, IKEA, Apple or Internet-services, had very rarely the backing of public institutions or
political majorities.
This is even more striking regarding the knowledge- and information society. We can see very
few examples where new inventions have had broad political support. More often the political
interest has been focussed on already existing industries. The ship-yards of the seventies, the
steel-industry and the airlines, not to mention the textile industry are some examples on how
huge amounts of money have been invested in industries of the past, damaging thereby future
growth and the emergence of new jobs.
State aid has a clear tendency to maintain uncompetitive industries with low wages. In this
respect State aid runs the risk of protecting old industries which will continuously need support.
A development like that would be contrary to the aims of the Lisbon process. In the end we
would maintain low-competitive industries with low wages instead of fostering emerging new
ones. There is no prosperity and social security in a Europe supporting its non-competitive
sectors while underinvesting in its true competitiveness.
The following rules are important in this respective:
· competitive industries do not need State aid,
· it is difficult for any public institution to define future business opportunities better than
entrepreneurs continuously testing their products and services on the market itself,
· State aid tends to change the behaviour and management of subsidised companies, as
they are more dependent on State aid than on the market which erodes their
· State aid tends to create a demand for new claims for support,
· State aid finally has more often delayed change than supported it.
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The companies and the jobs of the future do rarely have advocates and interest groups supporting
them and are never a political issue during election campaigns. The future business life has no
trade unions, no employers’ federations and no political interest groups that are standing up for
them today but they should have the freedom of establishment, dynamic capital markets, and fair
legislation on competition and State aid.
The European experience of State aid is not one that calls for more of it. It has contributed to low
competitiveness, low wages, slow innovation and slow growth more than the opposite. It tends to
change the balance between, not only companies, but also between different markets and
Member States.
Markets that are supported for political reasons have an advantage over other markets, regardless
of whether the economy’s future lies with ship-yards or computers. Products and services that
have this special treatment tend to defend their markets at the expense of other products and
Member States that are distributing State aid to their companies tend to give them an advantage
at the cost of companies from other countries operating in the same market. The competitiveness
of the European economy as a whole is the main looser with this approach.
State aid also does have the effect of hiding the real cost for consumers, and even increases costs.
State aid is financed by taxpayers, which means that other public spending is reduced or tax
reductions in favour of jobs and companies are made impossible.
It is from this perspective that your rapporteur welcomes the Commissions road map for less but
better targeted State aid. It is important to state that the overriding goal is to reduce the total
amount of State aid in the Union. It is also important to put the question of State aid in the
perspective of other political measures, which can fulfil political ambitions better. It is important
to achieve uniformity in the Member States bringing State aid to more or less the same level in
all countries. It is crucial to compare State aid with the risk of State aid failure and government
failure and not only with the so-called market failures.
State aid is normally motivated by the ambition to correct market failures, in order to improve
the functioning of markets and thereby enhance European competitiveness. State aid has also
been motivated by the aim of influencing income- and wealth distribution within the EU (for
example social and regional cohesion), even if such ambitions, in many cases, are in conflict
with aspects like efficiency and competitiveness.
In economic theory, when markets are allowed to function freely, market failures of various
kinds may exist, which may in turn produce socially inefficient economic outcomes,. The origin
of market failures can be of various kinds:
Externalities imply that market agents can have negative or positive effects on other actors in the
market that is not reflected in the pricing system. It is not obvious whether such externalities
should best be solved by a subsidy or a tax. Sometimes a negative externality, like pollution can
be more efficiently solved by allowing emission trading rights. Positive externalities, like
education, generally lead to underinvestment in the activity. A subsidy can in this case correct
the problem, but care must be taken to avoid wasteful subsidies.
Imperfect information is another market failure that might call for intervention if the
imperfection needs to be removed. Such market failures may exist in financial markets or in the
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area of R and D. There may be underinvestment in the market, from the social point of view, if
market actors have less information than is socially desirable. In some cases this may call for
subsidies, but in other cases a first-best solution would be to act against the malfunctioning
banking system.
Public goods is another market failure where a good or service can be beneficial to society, but
the market cannot provide the service since it is impossible to exclude anyone from using the
good and making them pay for it.
Against this background the following principles can be laid out for the use of State aid:
· The EU should be very restrictive when using State aid. It can in many cases be a fact
that a subsidy is not the first best solution when curing a market failure .A subsidy is in
many cases a second best solution when a market failure cannot be solved at its origin.
Subsidies may have negative secondary effects when influencing market behaviour of
various agents, besides the ones originally targeted.
· Since subsidies in many cases make the recipient of State aid dependent of the specific
measure it should be made clear from the start that the subsidy is of a temporary
character, limited in time. A new decision has to be taken if it should be prolonged
(similar to a ”sun-set clause”).
· A subsidy should not be larger than the underlying market failure it is supposed to
correct. All enterprises in the same sector should be permitted support, on equal terms.
· State aid must not give advantage to state-owned companies or public services operating
on the market
· State aid must be general in its character, not favouring any special company or market
· State aid shall be based on an analysis that it is the best way to go, and that the goals will
be achieved. The fact that so much of State aid has been counterproductive to its aims
underlines the need to analyze State aid with the experience of State aid projects as a
· The Commission should take the initiative of a follow-up procedure, summarizing the
effects of European State aid projects and present State aid activities.
· When State aid is applied there must be an added value that no other political measures
can achieve and which is to the benefit of a region, the research and development sector,
the environment or the economy as a whole.
· State aid should be given in a way that does not distort the market, hinders new
entrepreneurs or favours specific companies.
· The Commission has to make a follow-up, ensuring that Member States do not increase
State aid by using loopholes. Companies that receive State aid should present their
figures in annual reports consolidating their received State aid in the EU in total. Owners
have a fair reason to be informed about how much of turnover and profits are dependant
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on State aid rules.
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Total State Aid as percentage of GDP1
1992 1993199419951996 1997199819992000 200120022003
EU (15 countries) 1.09 1.18 1.10 1.00 0.95 1.15 0.74 0.63 0.60 0.59 0.61 0.57
Euro-zone 1.24 1.37 1.26 1.12 1.06 1.35 0.85 0.73 0.70 0.69 0.70 0.63
Euro-zone (12 countries) 1.26 1.37 1.27 1.13 1.07 1.36 0.84 0.73 0.70 0.69 0.70 0.63
Belgium 0.96 0.92 0.64 0.61 0.64 0.46 0.49 0.50 0.48 0.52 0.53 0.40
Czech Republic : : : : : : : : 2.60 1.82 3.87 2.76
Denmark 0.49 0.72 0.68 0.67 0.79 0.80 0.82 0.84 0.96 0.96 0.88 0.67
Germany 1.64 2.02 1.87 1.40 1.17 1.02 0.90 0.89 0.86 0.88 0.88 0.77
Estonia : : : : : : : : 0.07 0.12 0.13 0.12
Greece 2.23 1.34 1.31 1.58 1.36 1.41 0.73 0.59 0.70 0.60 0.41 0.40
Spain 0.68 0.76 0.85 1.07 0.89 0.84 0.83 0.65 0.80 0.76 0.69 0.54
France 0.82 0.96 0.96 0.82 1.03 2.76 0.82 0.65 0.60 0.56 0.60 0.57
Ireland 0.77 0.85 0.85 0.64 0.60 0.61 1.13 1.27 1.10 1.10 0.86 0.69
Italy 1.71 1.54 1.23 1.26 1.24 1.02 0.86 0.54 0.48 0.49 0.55 0.54
Cyprus : : : : : : : : 2.65 3.08 3.30 2.36
Latvia : : : : : : : : 0.54 0.31 0.12 0.10
Lithuania : : : : : : : : 0.33 0.11 0.39 0.13
Luxembourg 0.84 0.60 0.59 0.57 0.56 0.52 0.50 0.40 0.36 0.33 0.41 0.30
Hungary : : : : : : : : 1.15 1.07 1.09 0.86
Malta : : : : : : : : 3.29 4.01 4.28 :
Netherlands 0.41 0.38 0.37 0.38 0.44 0.67 0.47 0.57 0.51 0.41 0.45 0.33
Austria : : : 1.05 0.97 0.89 0.79 0.71 0.64 0.66 0.62 0.66
Poland : : : : : : : : 0.98 0.84 0.71 2.76
Portugal 0.83 0.89 1.44 0.95 1.41 2.07 1.23 1.22 0.89 1.17 1.15 1.24
Slovenia : : : : : : : : 0.83 0.86 0.49 0.58
Slovakia : : : : : : : : 0.64 0.59 0.36 0.46
Finland : : : 2.84 1.95 1.88 1.73 1.49 1.40 1.41 1.42 1.41
Sweden : : : 0.45 0.43 0.39 0.42 0.41 0.40 0.38 0.38 0.60
United Kingdom 0.28 0.21 0.31 0.39 0.40 0.33 0.32 0.19 0.19 0.18 0.26 0.26
Bulgaria : : : : : : : : 0.85 0.50 0.45 0.65
Croatia : : : : : : : : : : : :
Romania : : : : : : : : 2.93 5.03 1.78 :
Turkey : : : : : : : : : : : :
Iceland : : : : : : : : : : : :
Norway : : : : : : : : : : : :
United States : : : : : : : : : : : :
Japan : : : : : : : : : : : :
1 Source: Eurostat