An Economic Assessment of State Aid for Restructuring Firms in Difficulty: Theoretical Considerations, Empirical Analysis and Proposals for Reform

Abstract

State aid for rescue and restructuring (R&R) of companies in difficulty causes a significant distortion of competition, since it prevents the market from eliminating inefficient companies. Because of this, the European Commission has to be especially strict when it assesses R&R aid. This article examines recent cases of corporate restructuring partly funded with public money. It explains the main aspects of the current guidelines which are applicable to R&R state aid and establishes a theoretical framework for the economic assessment of R&R aid. It then analyses decisions adopted by the European Commission concerning R&R state aid during the period 2000-2013. It finds that there has been little economic rationale in the granting of R&R aid over the period. The article concludes by applying the lessons drawn from the empirical analysis to the anticipated revision of the R&R guidelines in the context of the State Aid Modernization process.