Delivering for consumers
Government support for industry (state aid)
Sometimes government authorities spend public money supporting local industries or individual companies. This gives them an unfair advantage over similar sectors in other EU countries. In other words, it damages competition and distorts trade.
It is the Commission’s job to prevent this, allowing government support only if it is genuinely in the wider public interest – if it aims to benefit society or the economy as a whole.
For more on the Commission's role in applying EU rules on government support for business (state aid), see Article 108 of the Treaty on the functioning of the EU.
Deciding what support is allowed
First, the Commission has to answer these questions:
- Have state authorities given support – e.g. in the form of grants, interest and tax relief, guarantees, holdings in companies, goods and services provided on preferential terms, etc.?
- Is the support likely to affect trade between EU countries? (support for companies worth less than € 200 000 in a 3-year period is reckoned not to affect EU trade.)
- Is the support selective – does it confer an advantage on specific companies, parts of industries or on companies in specific regions? General tax measures and employment legislation, for instance, are not selective because they apply to everyone.
- Has competition been distorted or might it be in future?
If so, the Commission must disallow the support – unless it is shown to be compatible with the common market.
Allowed (in the common EU interest) – support that helps or promotes disadvantaged regions, small and medium-sized businesses, research and development, environmental protection, training, employment or culture.
Not allowed – general investment aid for large companies outside well-defined disadvantaged regions, export support and support to cover companies' running costs (operating aid).
Aid of up to € 200 000 given to companies over a three-year period is not considered to be State aid as it is not large enough to have an effect on trade between EU countries. This simplification also allows the Commission to focus on more important cases.
Monitoring government support
As a rule, EU governments must inform the European Commission about planned subsidies and other support before granting it.
Of all the support notified to it, the Commission approves around 85% after just a preliminary assessment.
When a formal investigation is required – in contentious cases – this is announced in the EU Official Journal and the Commission’s online register of state aid cases. Interested parties can comment, and the Commission considers all aspects before reaching a final decision.
The Commission also investigates support it has not been officially informed of ("unlawful aid") – but which has been brought to its attention through its own investigation, through complaints from companies or individuals, or through media reports. If the Commission finds this support incompatible with EU law and fair competition, it instructs the authorities to stop giving it, and to recover any support already provided.
The Commission’s state aid scoreboard gives statistics on the overall amount and type of support given by each EU country.
Its findings show that most support previously given to individual companies or industries has now been redirected to activities in the EU’s common interest. This should help make the European economy more competitive on the global market.
Financial crisis – what's the Commission doing?
The Commission strives to ensure national responses to the crisis do not hamper competition, but rather take the wider European picture into account.
The rules on government support are there to stop governments trying to outdo each other in a costly race to subsidise their own companies, and put healthy companies at an unfair disadvantage.
Temporary rules for subsidies to banks
However, the Commission recognises that governments may need to take action to sort out problems in the financial sector and has issued special temporary rules on support for banks.
These rules do not allow banks to accept public support without taking action themselves to remedy their problems.
Temporary rules for other companies
To give EU governments some extra leeway to tackle the effects of the credit squeeze, the Commission has adopted temporary rules, valid until the end of 2010, to allow measures including:
- limited amounts of support, up to € 500 000 per company
- state guarantees for loans at a reduced premium
- subsidised loans (particularly for eco-friendly products)
See also EU law on government support
More on EU government support rules