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30th Sep 2016

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EU commission to tighten rules on state aid to regions

  • Joaquin Almunia: "Aid can only be approved when it has the potential to change the behaviour of recipients" (Photo: European Commission)

Competition and regions have always been uncomfortable policy bedfellows, but scarce public money is making it harder to draw up guidelines on when and how state aid should be invested.

In the European Commission Johannes Hahn is responsible for regional aid, a dossier devoted to reducing the income disparities between Europe's richest and poorest people.

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His colleague Joaquin Alumina oversees competition and state aid. His job is to keep a lid on state aid, to stop it being handed out so freely that it distorts the internal market, giving some entreprises unfair advantage over others.

The two policies overlap when it comes to the delicate question of when giving public money to a business is illegal state aid and when it can be justified for the benefit it brings to a region in terms of jobs or economic growth.

The current austerity drive in Europe, which has seen multiple governments tighten their belts, is changing the rules for both policy areas which have to be conscious of a greater public interest in how limited resources are being spent as well as the need to boost growth.

"It is more important than ever that we coordinate our work with Commissioner Hahn ... to tackle our current challenges: the need to face a deep crisis, new risks for territorial cohesion, and serious limits to most public budgets – including our own," said Almunia on Thursday (11 October).

Regions are anxiously awaiting Almunia's review of guidelines on allowing state aid in regions, a draft of which is due out by the end of the year. They are then supposed to be finalised by spring 2013, to be fully in place for the next seven-year EU budget starting in 2014.

Speaking at the Open Days regional event, Almunia hinted at the guidelines' content.

He noted that the amount of state aid allowed would be reduced for all but the poorest regions but that aid for small companies will become much easier to process as the commission focusses on the "most distortive" subsidies.

Meanwhile, state aid for large companies in rich regions will likely no longer be possible.

"Regional investment aid to large companies should be allowed only in the least developed regions," said Almunia.

He also said that one of the factors when examining state aid requests will be whether the aid is a "decisive" factor in a company investing in a region and not just a nice added bonus for an enterprise.

Almunia noted that while the gap between richer and poorer regions narrowed between 2000 and 2007, state aid policy had to take into account the today's economic reality.

"If we are not strict, those who have money will use it more and more," said Almunia of richer states, meaning the income gap will once again diverge.

For his part, Hahn pointed out that new rules means regions have to sign up to the EU's end-of-the-decade goals on growth and innovation. "Regional policy has evolved to become the main investment instrument of Europe 2020."

Adding a specific plea, he asked that the rules take into account businesses in border regions which often have to contend with different state aid regimes either side of a border.

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