Shaping the future: the role of State aid and competition rules for ensuring a sustainable green and digital recovery
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What is the definition of ‘good design’? Very often good design is design that you don’t notice. Think about your smartphone. If it does what it’s supposed to, you don’t think about the phone you are using. Instead, you think about the email you are reading, or the person you are chatting to, or the video you are streaming. But the moment you are forced to think about the design of the phone - ‘Why is this button here?’ or ‘how do I get it to switch screens?’- well, that means it’s badly designed.
That is true, whether you are talking about smartphones or competition policy. Effective competition policy is part of the design that makes our markets deliver quality and innovation, at a fair price. So, consumers are free to think about the products and services they want to use, instead of worrying about how well the market is working.
Good design can be very complicated to achieve, especially when things are changing fast. For example, when there is a need to add new features or update systems.
And right now, the world is changing fast. We are in a health crisis. And we do have to add new features and update systems: COVID has sped up our digital transition. Climate change becomes more pressing by the day. And we are at a crucial point in steering our recovery out of the current economic crisis.
So, we have a lot on our plate to ensure that competition policy works seamlessly to support a green and digital recovery.
When the crisis struck in spring, we had to react quickly to enable massive public support to businesses in need, in order to preserve jobs and value. By mid-March, our temporary framework for state aid was in place, enabling Member States to provide necessary support while protecting the integrity of the Single Market.
Hundreds of decisions have been taken; thousands of billions in aid approved. Our early feedback from your authorities shows that the framework has been doing its job – and that Member States should still have firepower left, when you compare aid approved and aid paid out.
However, the virus is dictating the pace of events, not us. Given the current situation with COVID, we took the decision to prolong the Temporary Framework until the middle of next year and until the end of September for recapitalisations. And we added a new measure to support uncovered fixed costs of businesses.
The idea here is to provide effective and proportionate support where it is needed most: for companies with significant turnover losses, Member States can cover 70% of the difference between a company’s revenues and its running costs. For smaller companies that have less ability to adjust, the support can even cover 90% of the gap. This support can reach up to 3 million euros per undertaking. And it can come on top of other support measures, provided it does not overcompensate for the same costs.
This was the right move because COVID has proven to be a stubborn adversary. And there is no doubt that we continue to face a serious disturbance to our economy.
In fact, in recent weeks, many Member States have had to take additional extraordinary measures. These governmental restrictions put a break on our social lives, in order to stop resurging infection numbers, and many businesses have had to close their shutters. In such situations, the Treaty enables Member States to compensate businesses for the damage directly suffered. That’s only fair – although unfortunately not everyone can afford it. And EU courts have been clear that such compensation is exceptional and needs to meet a high legal bar. So, this specific provision does not apply if activities across the economy can resume but with general social distancing.
Still, Member States and companies can make full use of the Temporary Framework and the many different possibilities it offers – from direct grants, liquidity guarantees and loans; to wage subsidies and tax deferrals; to recapitalisations and the new fixed cost support measure. We will continue to monitor the situation to make sure the Temporary Framework meets the needs of Member States and businesses, while preserving the level playing field.
After all, it may be quite some time before we go back to the life we had in 2019. So, we will also have to adjust. State aid is a painkiller that helps mask the symptoms but eventually will wear off – and we must be careful not to get addicted.
Instead, we need to be forward-looking. The recovery will come, but how complete and sustainable it is depends on policy choices that we can make now.
Last week was full of good news. News of amazing progress on vaccines. News of an agreement by European co-legislators on 1.8 trillion euros to build a greener, more digital and more resilient Europe. Just to name a few.
In addition, by introducing a common borrowing instrument called the Recovery and Resilience Facility, the European Recovery Plan allows the EU to borrow and deploy resources well beyond its multiannual budget. This is something the EU has never done before. It gives Europe an extra 670 billion euros, not only to accelerate the recovery, but to steer it towards achieving our environmental and digital goals.
It’s a bold and ambitious step, and it’s a necessary one. But like all good innovations, you never start from scratch. Rather, you build on solid principles, things you know work and work well.
For the Recovery Plan, that means building on the Single Market. We want to spur investment, but the fact is that investments go to the right places, when they follow the signals given to them by free and competitive markets. For competition policy enforcers, the main job remains the job of keeping markets competitive. The recovery will be strongest and most complete if we make full use of the recovery facility, while at the same time keeping our Single Market fair and competitive.
Well-designed State aid rules have a critical role to play in making this a reality. They ensure the aid complements the work of the private sector; instead of duplicating it or taking away incentives to innovate.
How do we do this in practice? Well, when I think about what makes a good smartphone interface, one word comes to mind: Simplicity. The phone display should make it easy for me to see where all the features are – emails, settings, text messages, apps; I don’t want to have to guess at anything.
This is the same principle we are using to design State aid guidance in support of the Recovery and Resilience Facility. We are working on a set of templates, which we will publish in the coming weeks. They will help Member States invest in key priorities, our flagship areas. For example, investments to build networks of charging stations for electric cars, or investments in digital skills and rural broadband.
We want to provide a map for a range of investments that we expect to see in national plans. As the templates will make clear, we anticipate that in many instances State aid rules won’t apply. If they do, the templates will provide guidance on how to design the investments so as to avoid notification; or, whenever a notification is needed, on how the measures can be swiftly approved under our rules.
The clearer we make things upfront, the easier things will be down the line. And the templates go hand-in-hand with simplifying the General Block Exemption Regulation, something we had already identified as a necessary update. This includes making it easier to invest in better insulating buildings and increasing their energy efficiency, without needing State aid approvals.
In fact, a large part of our State aid rulebook was ready for a scheduled review, even before COVID struck. With existing rules approaching expiry, and with new political and strategic priorities for Europe, there was a need to go through the rulebook and make sure things were fit-for-purpose. This ‘fitness check’ covered a wide range of instruments, everything from the broad rules like the General Block Exemption and de minimis regulations, to the rules on regional state aid, on risk finance and for specific sectors. I would like to thank you for your valuable contributions.
We concluded the exercise late last month, and it shows that, by and large, our framework is working. That said, we have identified a few areas where things can be streamlined and made more simple. And last week, we launched a public consultation on our State aid rules for energy and environmental protection to seek your input on how they can best support the Green Deal.
Which brings me to the next big challenge: ensuring competition policy fully supports our strategic goal of delivering on the twin transitions to green and digital.
Our State aid rules are already green – in recent years, over half of all State aid was spent to support environmental protection and energy savings. And by making sure investment is done in the most effective and affordable way, State aid policy helps ensure limited public funds are being spent well. You see this with the requirement for competitive tendering for aid to big renewables plants, where the cost has come down very fast.
But given the scale of the challenge, we want to go further. There are many ideas of what could be done in State aid policy, such as granting a ‘green bonus’ to the proportion of a project that can be financed with public money, if it meets certain environmental criteria. Or perhaps stricter conditions on granting certain types of aid.
Last month we launched a call for contributions around the key question of how competition policy can best support the goals of the Green Deal, and the deadline for contributions is the end of this week. So if you haven’t sent us your contributions yet, now is the time! The results will feed into a conference, to take place early next year.
The digital transition is another reason for us to look at the current rules. Change is coming at us fast, and keeping Europe on the frontier of technology will mean a lot of investment, whether that is in research, development and innovation; or for physical infrastructure like broadband or the deployment of 5G. A large part of this physical infrastructure will be financed from the private sector, and this means an important role for State aid policy to ensure public money doesn’t crowd out private investment.
Another thing about being a good designer is that you see the bigger picture. We can make our State aid rules the best they can be, but if foreign governments can trump those by giving subsidies to their companies active in Europe, our Single Market will get distorted anyway.
In June, we published a White Paper on Foreign Subsidies, which casts a light on this issue. The paper sets out the areas where subsidies can play a harmful role in the Single Market – through general market operations; through the acquisition of an EU company by a foreign interest; or through subsidies that distort public procurement procedures within the EU.
We were pleased to see a lot of support for us to act. The consultation also confirmed that the goal is to act in a fair and proportionate manner, without losing the benefits of foreign direct investment and without increasing administrative burden for companies. The principle is that yes, our Single Market remains open for business, but that everyone has to play by fair rules.
The next step now is to prepare the ground for a legislative proposal in the coming year.
So in the midst of this crisis and uncertainty, we must seize the window of opportunity. This is a moment to make big, positive changes that will affect the world for a long time to come.
Competition policy is an important part of making that change happen. If we succeed, our State aid rules probably won’t get the credit they deserve. Only a few keen observers will ever appreciate how important our rules are for taking these big steps forward.
That’s not something to be disappointed about. On the contrary, it would be a mark of great success.
After all, the essence of good design is that it goes unnoticed. Thank you.