State Aid Policy

State aid control is arguably the most unusual of the EU’s competition policies as it involves governments rather than firms. As a consequence it is extremely sensitive politically. By restricting the capacity of governments to intervene in their own economies, state aid policy sounds the death-knell of purely national industrial strategies. It does so by endowing the European Commission with the task of ensuring that subsidies granted in the EU are compatible with the single market. The logic of state aid control is that a firm gaining government support earns a potentially unfair advantage over its competitors (Commission 2007c). The argument that the Single European Market (SEM), and indeed European Monetary Union (EMU), are jeopardized by unchecked state aid is almost a truism. Even were all physical, regulatory and fiscal barriers to European trade to be removed, national subsidies would remain as one of the few protectionist and market-fragmenting instruments at the disposal of national and sub-national authorities. Yet there is no expectation that EU state aid policy will eliminate aid altogether — or even that this might be a desirable outcome. Rather, the policy’s purpose is to protect the integrity of the single market and prevent subsidy races developing across the member states. Since 2000 and the introduction of the Lisbon Strategy, and particularly since 2005 when the ten-year Lisbon Strategy was re-launched midterm, state aid control has been justified in terms of the contribution it can make to industrial competitiveness. This emphasis is not entirely new, as state aid control has always been considered both a negative (prohibitive) policy and a policy contributing to more positive EU objectives, as in the case of services of general interest (Scott 2000).