European State Aid Policy in Search of a Standard - What is the Role of Economic Analysis?

Abstract

In the early years of enforcement of antitrust and of State aid in Europe, given the integration objectives that the European Treaty pursues, fairness seemed the most natural standard to choose. In antitrust it took more than forty years to convince the Commission and the Courts of the soundness of the effect based approach. By enhancing the role of economic analysis, the objective of the 2005 State Aid Action Plan was to modernize State aid policy. Unfortunately the Commission did not go as far as suggesting that distortions of competition be noticeable before a State measure is declared incompatible. As a result, EU policy continues to be over extensive addressing cases where the distortions of competition are minimal. This is particularly the case for restructuring aid, where the effects of the aid on competition are hardly analyzed in the Commission decisions. In these cases the restoration of the healthiness of the firm is the final objective of the aid. However the Commission, while often authorizing the aid, tries to overcome moral hazard by attaching a number of very intrusive conditions to its authorization decisions (prohibition of reducing prices before a competitor does, introduction of capacity or sales caps, etc). These conditions reduce, not increase, the possibility of these companies to successfully restructure. Moral hazard can only be eliminated by not allowing the aid, not by constraining the company from competing. Finally when the anticompetitive effect of the aid is only indirect, restitution of the aid requires a very difficult calculation of the added value of the aid on the market equilibrium. A very complex calculation to be performed and hardly capable of being established by a Court. A new and different criterion should be devised for sanctioning indirect aid.