The Economic Approach to European State Aid Control: A Politico-Economic Analysis

Abstract

Since the mid-2000s, the European Commission has employed a so-called ‘more economic approach’ to European state aid control. Under this modified regime, the Commission checks not only whether a state aid has competition-distorting effects, but in addition, whether it enhances social welfare. This reform implies an extension of the Commission’s competences vis-a-vis the Member States as the Commission gets the power to prohibit national state aid regarded as socially wasteful. The Commission explains its reform with the necessity of giving state aid control a sound economic basis. This article, however, demonstrates that the more economic approach – somewhat paradoxically – is not based on a consistent economic view of public policy that would justify the aforementioned shift of competences to the supranational EU level. The economic-theoretical inconsistencies identified in this article may be used by policymakers to rethink some elements of current EU state aid policy.