State Aid Policy and Industrial Policy of the European Union

Abstract

State aid is one of the most willingly-used traditional industrial policy tools. This is due to the fact that it is simple, clear and understood by politicians, society, and companies, and its effects are often very quick. On the other hand however, every financial intervention on the market should be performed only for the purpose of tackling a defined market failure and should be limited, due to the fact that such interventions have a negative impact on competition. Nonetheless many politicians opt for an active industrial policy with a strong state aid component. The European Union, when creating first the common area for economic activities and later the internal market—without any physical, technical and fiscal barriers—had to introduce special rules reducing governmental interventions into the market. However, even though a market approach dominated in the EU policies and legal actions, many Member States have conducted their own industrial policies, often with large state aid components. This situation derives from the lack of strong treaty provisions concerning the common goals and tools of EU industrial policy, as well as a desire to assist national companies. The first Treaty establishing the EEC, as well as all its amendments, including the most recent Treaty on the Functioning of the European Union, includes special provisions concerning a ban on granting state aid; however it contains some noteworthy exemptions. Nowadays, following the crisis period, many EU politicians argue that state aid rules are too strict and should either be relaxed or their implementation should take into consideration the competitiveness of national companies versus competitors from third countries in order to improve EU industrial competitiveness.