State Aid’s Stress Test

By: Pablo Ibañez Colomo (Chilling Competition)

The European Union (EU) was founded in response to the post-war reconstruction of Europe and to prevent future conflicts. Since then, the EU has faced and overcome numerous crises, including the financial and Eurozone debt crisis, migration crisis, Brexit, the Covid-19 health and economic crisis, and the crisis sparked by the Russian invasion of Ukraine. However, the EU’s response to these crises has also exposed its weaknesses, tensions, and limitations. One area that has been particularly vulnerable to tensions is that of State aid, which sets limits on Member State sovereignty and expenditure to ensure a level playing field in the internal market.

The very nature of State aid law makes it a field ripe for tensions between Member States, between law and politics, and between conflicting public policy objectives. These tensions are further exacerbated in times of crisis. In March 2020, an op-ed by José Luis Buendía and another author warned about the risk that “full flexibility” would distort competition between Member States, favoring those with deeper pockets. To mitigate this risk, they proposed the creation of a “Solidarity Fund,” to which Member States would contribute a percentage of the public resources involved in their own measures.

Almost three years later, the risk of distorting competition between Member States has proved very real. The EU’s response to the Covid-19 pandemic has highlighted the need for a coordinated and solidarity-based approach to State aid, as some Member States have been better equipped than others to provide financial support to their economies. The proposed Solidarity Fund could help alleviate these disparities and ensure a level playing field for all Member States.

The EU has been built through crises, and the solutions to those crises have strengthened its foundations. However, each crisis has also exposed the EU’s weaknesses and limitations. The State aid discipline is one area that has been particularly vulnerable to tensions, and the proposed Solidarity Fund could help mitigate those tensions and ensure a level playing field for all Member States. As global warming and geopolitical tensions continue to loom on the horizon, the need for a coordinated and solidarity-based approach to State aid will become increasingly pressing…

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