State Aid Action Plan

The State Aid Action Plan presented by the Commission launches a comprehensive reform of state aid policy that will cover a five-year period (2005-2009). The objective is to guarantee the Member States a clear and predictable framework, which enables them to grant state aid, targeted towards achieving the Lisbon Strategy objectives.

ACT

State Aid Action Plan - Less and better targeted state aid: a roadmap for state aid reform 2005 - 2009 [Consultation document - not published in the Official Journal].

SUMMARY

The State Aid Action Plan submitted by the Commission is a roadmap for the reform of state aid policy that will cover a five-year period (2005-2009).

The aim of the reform is to encourage Member States to help achieve the Lisbon Strategy objectives. The new policy on state aid will thus help them to target state aid towards improving the competitiveness of European industry and creating sustainable jobs.

The reform will also rationalise and simplify procedures to guarantee Member States a clear and predictable framework in the area of state aid.

Rationale for Community state aid policy

State aid control, as an integral part of competition policy, helps to maintain competitive markets. The EC Treaty prohibits any aid that distorts or threatens to distort competition in the common market (Article 87(1)). State aid may lead to distortion of competition by favouring certain firms or the production of certain goods. Controlling state aid therefore guarantees a level playing field for all firms operating within the internal market.

However, the Treaty allows some exceptions where the proposed aid may have a beneficial impact in overall Union terms. State aid measures can sometimes be effective tools for achieving objectives of common interest (services of general economic interest, social and regional cohesion, employment, research and development, sustainable development, promotion of cultural diversity, etc.) and for correcting "market failures". For various reasons (externalities, market power, coordination problems between market operators), market sometimes do not function efficiently from an economic point of view. Member States may then intervene by granting state aid. By doing so, they improve the efficiency of the market and promote growth.

State aid may therefore be compatible with the Treaty provided that it fulfils clearly defined objectives of common interest and does not distort competition to an extent contrary to the common interest. Control of state aid is fundamentally about balancing the negative effects of aid on competition with its positive effects in terms of common interest, although the presumed advantages for the common interest must outweigh the negative effect of the distortion of competition. This task is entrusted to the European Commission by the Treaty.

Increasingly numerous and complex rules on state aid, enlargement of the European Union to include ten new Member States in 2004 and the need for renewed impetus for the Lisbon Strategy have underscored a need to streamline state aid policy and clarify its fundamental principles.

Action plan guidelines

The reform of state aid policy must be a consistent and comprehensive. The action plan sets out guidelines for this reform that will be common to the various instruments involved.

• Less state aid more efficiently applied: The objective is to target state aid towards activities to which the financial markets are reluctant to loan money or which contribute to growth, competitiveness or the creation of sustainable jobs. However, achieving this objective depends partly on a more refined economic approach.
• A more refined economic approach: This involves finding out why, without public intervention, the market does not achieve an optimum result, whether it is because there is a "market failure" or because it produces social or regional inequalities which must be corrected. It is therefore necessary to better evaluate whether state aid is justified, whether it represents the most appropriate solution and how it can be implemented without distorting competition to an extent contrary to the common interest. This approach would facilitate and speed up authorisation of the aid which least distorts competition and, at the same time, would focus attention on the aid likely to have the most serious distortive effect on competition.
• More effective procedures, better enforcement, higher predictability and enhanced transparency: Improving the rules on state aid will require more effective and more transparent procedures, extension of the scope of block exemptions, a reduction in the number of aid measures to be notified, faster decision-making and procedural rules adapted to the enlarged European Union. This will result in greater legal certainty and will facilitate administrative tasks for the Commission and the Member States. Moreover, as a result of enhanced transparency, firms, competition specialists, consumers and the public will find it easier to take action against unlawful aid, particularly before the national courts.
• Shared responsibility between the Commission and Member States: However, the rules and procedures on state aid cannot be improved without the active support of the Member States, which must undertake to notify all planned aid and to respect the rules on state aid.

State aid targeted towards the Lisbon Strategy priorities

The action plan also encourages Member States to target state aid towards achieving the objectives of the Lisbon Strategy. State aid policy should therefore enable market failures to be targeted in such a way as to promote these objectives. Eight priority areas have been identified:

• Innovation and research and development (R&D): The rules on state aid should encourage industry to invest in R&D and to take into account the increasing importance of public-private partnerships.
• Creating a better business climate and stimulating entrepreneurship: the rules on state aid should facilitate the rapid start-up of new businesses and stimulate investment in the form of risk capital.
• Investing in human capital
• Services of General Economic Interest (SGEI): State aid measures will fulfil their public service aims by providing effective high-quality SGEI.
• Better prioritization through simplification and consolidation: This means implementing the principle that state aid policy should focus on the most distortive types of aid.
• A focused regional aid policy: State aid policy will help to reduce disparities between the regions of Europe and will therefore be a factor for cohesion and stability.
• Encouraging an environmentally sustainable future
• Setting up modern transport, energy, and information and communication technology infrastructures: the rules on state aid should take into account the increasing importance of public-private partnerships.

Next steps

Between 2005 until 2009 the Commission will present proposals detailing the reform outlined in the action plan for each area relating to state aid. It will re-examine all the instruments involving state aid to ensure that the same principles are applied in a consistent and comprehensive manner. Some sectors that are subject to specific rules (agriculture, fisheries, coal and transport) will, however, not be concerned by the reform initiated by the action plan.

See also

For further information please consult the web page dedicated to the action plan at the Commission's Directorate for Competition website.

Last updated: 30.09.2005