State Aid in the Lending Sector

This paper reviews a considerable number of cases concerning the application of State aid rules to the EU banking sector. The relevance of the financial crisis which hit the lending industry in the ?90s determined the Commission to a significant number of State aid reviews of national measures in support of the sector. Following the deep restructuring of the lending industry in the EU and the complete liberalisation of the financial services market, State aid to support the banking sector has become less frequent. However, State intervention has not disappeared but takes more complex forms. The Commission tackles now State intervention both in the form of capital injections and guarantees granted to restructure individual banks or an entire banking sector. The Commission also investigates fiscal advantages, guarantees and tax preferences conferred on a limited number of banks for distributing savings products. EU Member States appear engaged in a new regulatory race to the bottom in the form of preferential tax regimes for financial holdings compared to more "traditional" and direct forms of State aid to national banks and financial intermediaries involving rescue and restructuring assistance to ailing national champions, or granting of State guarantees to the national banks. We expect that in the near future the Commission will increasingly monitor the existing preferential tax regimes to eliminate possible competition distortions resulting from State aid and will also ensure that capital injections and other forms of public support to public financial institutions are immune from State intervention.

EU State Aid and National Taxation: Moving Towards Harmonization

The European Commission has embarked on a reform of State aid rules. One of the objectives of this reform is better application of State aid rules in the Member States. This article examines how the problem of incorrect application of State aid rules can be solved. If their application can be improved, the Commission is willing to expand the scope of the General Block Exemption Regulation so that fewer measures are notified for approval. This would result in considerable savings in administrative costs. The article proposes a system of institutional certification similar to those that exist in other policy areas such as the common agricultural policy and structural funds. A fundamental component of such certification is the establishment of transparent institutional procedures to cover all types of funding, not only those that may contain State aid. It will then be easier for competitors to identify and challenge non-notified aid or aid that is incorrectly applied.

The relationship between international investment law (IIL) and EU law is not without problems as evidenced by the Achmea ruling. These tensions have become more evident in the Micula case in which the commission resorted to the state aid rules in order to attack arbitration awards arising from intra-EU Bilateral investment treaties (BITs) (deeming its enforcement as state aid). Despite its two rulings relating to the Micula saga, the Court of Justice of the European Union (CJEU) has not yet validated (or not) the application of state aid rules to the enforcement of intra-EU awards. Hopefully, the upcoming general court’s judgment shall rule on the merits of the Micula case thereby dispelling doubts. Nevertheless, it is foreseeable that further clarifying judgments will be required concerning the recognition and enforcement of intra-EU awards in non-EU jurisdictions. This article reviews the current situation to show that, while state aid rules could adequately prevent the enforcement of an intra-EU award within EU borders, they lack effectiveness for blocking enforcement beyond its borders. Arbitration award, intra-EU BIT, State aid, Tax benefit repeal, Damages, Award recognition, Award enforcement, Public policy, Micula, Achmea, ICSID Convention, New York Convention.

This article examines how EU State aid conditionality shapes the application of resolution tools foreseen in the Bank Recovery and Resolution Directive (BRRD) and explores its implications for accession countries in the context of approximating State aid control and transposing the BRRD. To elucidate the interconnection and mutual conditionality between the bank recovery and resolution regime and State aid control as a form of competition protection, the paper first clarifies the taxonomy of instruments introduced by the BRRD. It outlines their operation within the EU’s soft law on State aid to banks, highlighting both the strengths and deficiencies. These inconsistencies between the two regimes pose particular challenges for EU candidate countries, especially in defining pre-accession conditionalities. The challenges extend beyond the formal transposition of provisions to issues of implementation and effective enforcement. Serbia and Montenegro are examined as case studies: Serbia illustrates partial alignment with the acquis, whereas Montenegro’s approach relies on a general legislative reference to EU law and defers the application of State aid rules in the resolution framework until accession to the EU.

The combination of public goals and fiscal interests collides with the need to harmonise and liberalise the gambling market. Although the trend of market liberalisation is omnipresent, liberalisation is not an imperative. Member States are, in principle, free to regulate these issues, provided that they comply with the principles of EU law, especially competition and State aid rules. The focus of this paper is on the possible application of State aid rules in the field of gambling. Though the debate on State aid in the area of gambling has gained momentum, it has not been followed by a proliferation of corresponding case law. So far, the Commission has adopted only a few decisions, some of which have been challenged before the General Court. These will be analysed in this article. Special attention is given to the controversal OPAP decision, which has been subject to a lot of discussion.

The application of State aid rules to tax measures has become highly controversial, particularly in the last decade; a number of theoretical difficulties and a fierce criticism surround this topic today. The conceptual framework currently deployed by the State aid legal doctrine is insufficient to address the phenomenon of fiscal aid in its entirety. This has resulted in a case-by-case approach by the courts that has generated inconsistencies and legal uncertainty. The author shares his views on how the current legal standards should be revised, also in terms of law policy, e.g. by taking the underlying objectives of the Treaty into full account. The goal being to foster the development of a new approach to assess fiscal aid, built on the distinction between truly macroeconomic measures and measures that (also or mainly) pursue more specific goals. To this end, some broad categories of fiscal measures are discussed. Drafted in a deliberately concise manner, this opinion article does not provide an exhaustive account of the European Union (EU) case law or the decision-making practice of the Commission. Rather, also considering the number of appeals currently pending against Commission decisions and the General Court’s judgments on these issues, reference to specific cases is limited to what is necessary to provide examples of the broad categories of fiscal measures under discussion.

The relationship between EU Competition policy and EU Cohesion policy is at best one of ambiguity and at worst one of direct conflict. While EU Cohesion policy explicitly intervenes to alter economic outcomes, EU Competition policy aims to ensure that State intervention does not interfere with the smooth functioning of the internal market or distort competition to an extent contrary to the common interest. EU Competition policy predates EU Cohesion policy by several decades. EU Cohesion policy in its current form dates back to the end of the 1980s, which saw the radical restructuring and upgrading of a policy that had until then largely been an adjunct to national regional policies. By contrast, EU Competition policy was enshrined in the Treaty from the outset. It is clear that, back in the 1950s, the authors of the Treaty perceived the risks to the common market that lay in allowing Member States unfettered use of subsidies. Moreover, although the original provisions have been subject to extensive interpretation, the fundamental principle has remained unchanged since the outset: State aid which distorts or threatens to distort competition in the EU is prohibited, subject to certain exceptions. Given this context, EU-sponsored intervention in the form of the Structural Funds arguably sits uneasily with the precepts of State aid control, and there remain significant conceptual and practical difficulties in reconciling EU Cohesion and Competition policies, especially given that the Structural Funds Regulations impose specific requirements on the Member States which make State aid compliance issues of particular relevance to Structural Fund Managing Authorities. The aim of this article is to explore those issues and examine how they have been addressed in practice. It draws on a mix of desk research and interviews with staff working on the implementation of Structural Funds programmes and in State aid compliance. The article starts with an examination of definitional issues associated with State aid and briefly reviews the scope of admissible aid. It then covers the institutional and procedural arrangements for ensuring compliance with the State aid rules, and concludes by highlighting some key areas of difficulty where tensions remain unresolved.

As an independent country, Estonia can decide on how to promote its economy through state intervention, at least in theory. At the same time, Estonia has been a WTO member since 1999 and an EU Member State since 2004 and must adhere to these rules. Both regimes limit a Member State’s ability to interfere in the economy, setting forth rules on when a state can interfere with consequences if the rules are not met. But these rules differ, and the same situation can have a different result depending on the rules applied. Also, both sets of rules limit the competence of a member country to interfere in economy differently, for example, the WTO applies a rather lenient ex post control while in the EU a strict ex ante control by the Commission is used. Also the consequences for failing to adhere are different. Although one of the smallest EU Member States and represented by the Commission in WTO roundtables, it is still relevant for Estonia to have a position on globally applied state interference measures, and present and protect its views, if needed. To successfully promote its economy nationally and in the EU, Estonian policymakers, like those of any other country in the same position, must know not only the applicable state interference rules but also the underlying principles thereof. The article will provide a historical overview of the framework of the supranational state aid regimes of the WTO and the EU, as well as the domestic rules of Estonia. It is aimed at reflecting the principles behind the state aid rules that the domestic policymakers must consider when designing national state interference measures. The author applies classical research methods, namely, reading and interpretation of texts, but also comparing the WTO, EU and Estonian laws on state subsidies.

The EU State Aid regulation is based on the premise that the market and the entities within it must operate independently without additional unnecessary intervention by the state. In other words, state intervention must be kept to a minimum. Unjustified aid to one or another entity may distort the situation in the market and lead to a number of undesirable consequences, including market advantage acquired by the aided entity. The willingness of the state and its institutions to help those who face difficulties may be understandable, but not always justified. However, the prohibition on a state and its institutions to grant aid is not unconditional and, in some cases, may cause serious undesired consequences. The coronavirus disease (COVID-19), which hit EU member states in the first half of 2020, led to a re-thinking of the rules in force and a broadening of the scope for state aid exemptions. However, there are a number of questions about the nature of the EU State Aid regulation and its correlation with COVID-19 outbreak-conditioned decisions. The article analyses the state aid granting practices across the EU (including the UK) related to COVID-19. It covers approximately two- year period—from the start of the pandemic in Europe to March 2022.

State intervention in market processes has always been controversial within the European Union and its Member States. Since the beginning, industrial policy in Germany and the EU has been a mixture of vertical and horizontal instruments with a focus on horizontal approaches. State aid control has led to a more rule-based use of this instrument. Subsidies related to industrial policy have been significantly reduced in the last 20 years and play only a minor role for European countries. However, transformative developments with potential disruptive effects may now require a more active approach to industrial policy, where State aid can play a greater role. Climate change and the necessity to finance low-carbon production capacities that are not competitive on international markets can justify financial assistance. At the same time, trade conflicts with China are at least partly caused by uncontrolled State aid in the State-capitalist Chinese economic system. An international agreement on State aid rules would be a better solution than continuous trade distortions or countermeasures in form of additional European subsidies. Finally, the Covid-19 crisis has triggered additional public funds for private companies. While short-term rescue measures and medium-term investment programmes are important, a return to lower pre-crisis level of State aid and government intervention into market processes cannot be taken for granted. Keywords: industrial policy; transformation; economic crisis; Germany; China

This chapter assesses the legal framework of the multi-level system of State aid and subsidies control not only on the level of the EU but also on the international level—the World Trade Organization (WTO)—and the national level by EU Member States. The control of subsidies and State aids as a multi-level phenomenon has been a laboratory of design solutions for procedural law provisions, enforcement techniques, and the development of general principles of law. It is one of the fields of law which has been most influential for the development of modern public law as a multi-level legal system with several constitutionalized levels. Not only by the sheer force of numbers and issues raised, State aid and subsidies cases have had a great influence on the development of procedural rights such as defence rights. It also added to the clarification of notions of discretion, the protection of legitimate interests, and principles of equality.

Recent Developments in the Application of State Aid Rules

A Legal Assessment of the Exemption of Electricity Producers from Transport Tariffs Under EU Law

The concept of State intervention in economic processes does not imply the replacement of the market mechanism with an alternative State mechanism; rather, it entails the limitation of market failures, which are defined as inefficient market allocation of resources. The State should assume responsibility for those tasks and functions that the market either does not perform at all or performs inefficiently. State aid is therefore considered to be one of the instruments of state interventionism in the economy. The objective of this article is to present the evolution of economic thought on the admissibility of State aid as an instrument of intervention in the market mechanism. The author conducts a review of economic theory from the perspective of the achievements of the classical school of economics and criticism of its accomplishments. In addition, the development of views on state interventionism in the 20th century is examined, as well as the implementation of principles of interference in free market mechanisms in the European Commission's State aid policy.