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With the COVID-19 crisis causing ravages in the economy of all Member States, state financial support is essential.

the European Commission seems to have learned some lessons from the 2008 crisis and is rapidly and directly addressing both, Member States’ requests for authorisation for the granting of State aids and guidance and regulatory needs of governments and companies.

In the last month, dozens of State aid proposals were authorized under the Temporary Framework for State aid measures in the context of the current COVID-19 outbreak, adopted in its initial version on March 19, and for which a new amendment has recently been published, which further extends its scope and allows Member States to provide companies in need with subordinated debt and recapitalization (although certain conditions are imposed, where beneficiaries cannot make dividend payments, repurchase shares or acquire stakes above 10% in competing companies, among other conditions). This temporary framework has made the rules on State aid more flexible and has permitted hundreds of billions of euros in State aid to be granted. This aids have been granted in the form of direct grants, wage subsidies, guarantee schemes and interest rates or capital subsidies, among other measures.

However, certain critics have questioned whether the prompt action and the measures taken so far are positive for individual Member States and for the common European project as a whole in the medium and long term.

Thus, while northern EU States such as Germany and Austria are advocating greater flexibility and even the suspension of state aid rules for as long as this situation lasts (although the EU commissioner for competition, Margrethe Vestager, has rejected this possibility) in order to provide greater freedom and enable governments to react faster without having to wait for authorization from Brussels, southern EU countries, which are generally more keen towards less regulatory harmonization at the European level, are now afraid that they may not have the same room for maneuver and resources as their neighbors to support their own businesses, and they advocate for measures at Union level.

Along these lines, the vice president of the Spanish government, Nadia Calviño, recently stated that “the fact that that some countries can support their economies more generously than others cannot be acceptable.”

According to European Commission data published by Bloomberg, Germany accounts for 51% of all aid approved so far, compared to France (17%) or Italy (15.5%), and followed far behind by the United Kingdom (4%), Belgium (3%) and Poland (2.5%).

The clear and significant contrast in the amount of aid granted due to differences in bailout capacity of each Member State threatens, in the words of European Commission president Ursula von der Leyen, the balance of the EU economy and risks the consolidation of existing national economic disparities by delaying recovery, as emphasized by Commissioner Vestager.Although some sectors such as air transport and tourism are suffering more directly the consequences of the crisis in all EU countries, which was made clear by Ryanair as we reported in this blog, not all companies are receiving state aid or not to the same extent.

This entails, in the words of Massimo Motta (professor of economics at Universitat Pompeu Fabra and the Barcelona Graduate School of Economics, and former chief economist of the European Commission) and Martin Peitz (professor of economics at the University of Mannheim), this means that a company which receives abundant financial support by its home country becomes “artificially more competitive,” to the detriment of other equally or more efficient rival companies in other Member States, which may end “relegated to niche markets, or even forced out of business” (their views on this situation can be found here). On the other hand, the elimination of companies that did not receive State support would not necessarily be in favour of more efficient companies..

For this reason, unless European funds can be used to cover the expense deficit, given the heterogeneity of the aid measures granted by each Member State, it seems difficult to avoid distorsions of competition in the internal market, which is, after all, the primary objective of State aid rules.

As a result, on April 23, EU leaders agreed to work towards establishing a recovery fund to manage the crisis, targeting the most affected sectors and geographical areas of Europe. However, national governments also disagree on the amount of aid and how it should be provided. On May 27, the European Commission put forward its proposal for a major recovery plan, which aims to “prepare for a better future for the next generation” with a budget of 750 billion euros. The proposal will certainly be the subject of intense debate.

Similarly, at a time when there is growing interest in using competition law as a mechanism to achieve social and environmental policy objectives, some Member States have taken advantage of the launching of aid packages to impose other types of conditions (such as the so-called “green conditions”) on companies receiving such aids. In this regard, the latest amendment to the Temporary Framework of the European Commission mentioned above, already includes a transparency provision whereby large companies are required to report on the use of the aid received and on the fulfilment of their responsibilities linked to the green and digital transformation.

For example, in return for the aid granted to Air France, the French government has required the company to halve its carbon dioxide emissions for domestic flights by 2024, renew its fleet with cleaner aircraft and reduce domestic flights with a duration of less than two and a half hours when there is a railway alternative.

However, the different conditions imposed by Member State governments may also may also create distortions in the internal market, if companies are forced to meet demanding environmental or other commitments, while their competitors in other countries are not, as was recently highlighted by the Minister of Energy of Luxembourg at a conference.

Yet, it seems clear that, as president Von der Leyen has argued, a collective and future-proof answer needs to be provided to ensure the integrity and cohesion of the internal market and the European project in the face of the coronavirus crisis. However, the large number of interests at stake in the EU, make it difficult to implement this common response and may jeopardize this objective.

Authors: Marta Simón and Alexandre Picón

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