11 January 2013

VP Almunia: Doing more with less – State aid reform in times of austerity: Supporting growth amid fiscal constraints

More recently, the challenges we must tackle have evolved quite dramatically. The business environment has been transformed by technology and the integration of world markets. In addition, with the progressive integration of new countries to the Union, the system has expanded horizontally to integrate new national authorities. It has also grown in complexity since the various levels of government – and hence of State aid granting authorities – are organised in a different way in each Member State. And last but not least, since 2008 companies and governments have had to cope with the impact of this long and very deep crisis.

The reform we are carrying out today takes into account these elements and follows this tradition of adaptation and resilience. Let me explain how the very institutional role of State aid policy needs to change to respond to today’s conditions. This is a difficult time for governments to take spending decisions. The opportunity cost of inefficient spending has rarely been larger. Battered by the recession, more and more Europeans turn to their national and EU authorities for support. They want to see credible plans for growth and jobs. They need better prospects for their future and that of their children.

But these demands come at a time when almost all governments need to reduce debt levels and consolidate their finances. How can public budgets withstand the pressure? The best answer is growth. And public policies have an important role in this regard. Government expenditures and tax policies must be targeted to create the best conditions for a sustained – and sustainable – period of expansion.

Of course, a credible growth strategy will have to include other elements as well. We also need structural reforms and more competition in the Single Market – which in fact is a structural reform that would cost us nothing and produce quick results. But public spending and tax systems remain crucial. Smart investments to increase our physical and human capital are needed to re-start the engines of growth in Europe. In sum, in times of shrinking budgets EU countries have to do more with less. This is why State aid policy needs to change tack and become more strategic.

This is the main goal of our reform of State aid rules: we want to help national governments make more efficient use of scarce resources. Public spending and the tax structure can be better targeted to boost growth. The new framework can help Member States reconcile the twin needs to consolidate their budgets and achieve the objectives laid out in the EU strategy for growth and jobs. To help Europe’s governments improve the quality of their public finances, I want State aid control and – more generally – competition concerns to be a regular feature of the EU fiscal surveillance and economic policy recommendations.

The reform will promote what I call ‘good aid’; that is, well-designed and targeted aid that limits competition distortions in the internal market; fixes market failures; and pursues common European objectives. Examples of this kind of aid include support that promotes innovation, green technologies, and the development of human capital. To be specific, in the new Risk Capital Guidelines aid levels will be adjusted to the stage of development of the beneficiaries, because a very young start-up and a more established firm do not need the same amount of aid.

The reform will also promote the incentive effect of public aid. Good aid should complement private spending, not replace it. We all know schemes where the aid has not had a practical impact on companies’ decisions. Aid that pays for activities that the beneficiary would have undertaken anyway is a waste of public resources that we can no longer afford. The regime that will emerge from the reform will discourage another form of wasteful aid. This is the aid that keeps unviable companies on indefinite life support. The new rescue and restructuring guidelines that we are preparing will help EU governments steer their resources away from this form of inefficient aid.

And let me recall that to take the road of sustainable growth, Europe’s countries need to leverage the potential of the internal market to the full. As a consequence, State aid control is more essential than ever to ensure even conditions in the Single Market. To do this, our control will also respond to the growing disparities in the fiscal capacities of different EU countries – we can call them the ‘deep-pockets distortions’. We know from experience that these disparities can be a challenge to the level playing field and that State aid control is a good instrument to tackle it.

Finally, I am convinced that transparency must be an ingredient in all responsible policy-making. Let us not forget that State aid policy is about the use of taxpayers’ money. This means that the people are entitled to know who is receiving aid, how much and why. We have an opportunity with this reform to help information technology keep its promise for more democratic control and participation. We can help our fellow citizens hold companies and public authorities accountable.

Full speech

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