TABLE OF CONTENTS

Introduction.................................................................................................................................. 5

State aid in the context of the economic crisis................................................................................. 5

Purpose, scope and content of the Scoreboard.............................................................................. 5

Scope and content of this Scoreboard........................................................................................... 6

Methodology................................................................................................................................ 6

Publication of the Scoreboard....................................................................................................... 7

1........... State aid in 2010............................................................................................................ 8

1.1........ Total state aid in absolute and relative terms.................................................................... 8

1.1.1..... Non-crisis aid................................................................................................................. 8

1.1.2..... Crisis aid granted to the financial sector........................................................................... 8

1.1.3..... Aid granted under the temporary framework................................................................... 8

1.2........ Broad sectoral distribution of non-crisis state aid............................................................. 9

2........... Trends and patterns of state aid expenditure on non-crisis aid in the member states........... 9

2.1........ Trends of levels of state aid to industry and services....................................................... 10

2.2........ State aid earmarked for the horizontal objectives of common interest............................. 12

2.2.1..... Horizontal versus sectoral aid........................................................................................ 12

2.2.2..... Aid to horizontal objectives........................................................................................... 13

2.2.2.1.. Block exempted aid...................................................................................................... 15

2.2.2.2.. Trend (2008-2010 compared with 2005-2007)............................................................ 18

2.2.3..... Research, development and innovation.......................................................................... 19

2.2.4..... Environmental protection............................................................................................... 21

2.2.5..... Regional development and cohesion.............................................................................. 23

2.3........ State aid earmarked for specific sectors........................................................................ 24

2.3.1..... Rescue and restructuring of firms in difficulty.................................................................. 24

2.3.2..... Shipbuilding.................................................................................................................. 24

2.3.3..... Steel industry................................................................................................................ 25

2.3.4..... Coal............................................................................................................................. 25

2.3.5..... Transport..................................................................................................................... 26

2.3.5.1.. Land............................................................................................................................ 26

2.3.5.2.. Maritime....................................................................................................................... 27

2.3.5.3.. Aviation........................................................................................................................ 27

2.3.6..... Agriculture.................................................................................................................... 28

2.3.7..... Fisheries and aquaculture.............................................................................................. 29

2.4........ Use of the state aid instruments..................................................................................... 30

3........... State aid in the context of the financial and economic crisis............................................. 31

3.1........ State aid measures for the financial sector...................................................................... 31

3.2........ Aid granted under the temporary framework................................................................. 48

3.2.1..... Context and purpose of the temporary framework......................................................... 48

3.2.2..... Update on measures approved under the temporary framework..................................... 49

3.2.3..... Aid granted in 2010...................................................................................................... 50

4........... Trends in non-crisis state aid expenditure by type of aid measures.................................. 52

5........... Enforcing the state aid rules........................................................................................... 53

5.1........ Unlawful aid................................................................................................................. 53

5.2........ Recovery of unlawful aid............................................................................................... 54

5.3........ Enforcement of state aid law: Cooperation with national courts....................................... 54

5.4........ Ex post monitoring........................................................................................................ 55

Notes on methodology................................................................................................................ 56

Scope of the Scoreboard............................................................................................................ 56

Methodology to calculate non crisis aid........................................................................................ 57

Methodology to calculate crisis aid granted to the financial sector................................................. 58

Specific provisions with respect to aid granted under the temporary framework............................ 59

Key figures on state aid expenditure in the EU and Member States............................................... 61

Figure 35: Total non-crisis aid to industry and services................................................................. 61

Figure 36: Aid to agriculture, fisheries and aquaculture and transport............................................ 62

Figure 37: Non-crisis state aid earmarked for horizontal objectives of common interest and sectoral aid as % of total non-crisis aid to industry and services................................................................................... 63

Figures 38: Financial Crisis Aid – Approved amount per year and instrument................................ 65

Figure 38 a: Guarantees: Approved budget.................................................................................. 65

Figure 38 b: Recapitalisation: Approved budget........................................................................... 66

Figure 38 c: Impaired Assets: Approved budget.......................................................................... 67

Figure 38 d: Liquidity measures: Approved budget....................................................................... 68

Figure 39: Overview of measures adopted under the Temporary Framework (until 1 October 2011) 69

Figures 40: Aid expenditure by Member State............................................................................. 74

Figure 41: Legislation and communications adopted in 2010....................................................... 101

Figures 42: Recovery................................................................................................................ 102

Figure 42 a: Trend in the number of recovery decisions (aid to industry and services).................. 102

Figure 42 b: Pending recovery decisions.................................................................................... 103

Figure 42 c: Pending recovery cases for which the Commission has decided to bring the case before the Court of Justice and for which the illegal and incompatible aid is not yet recovered (30 June 2011).............. 108

Summary of rules in the transport sector.................................................................................... 113

Situation on reporting by Member States................................................................................... 114

Introduction

State aid in the context of the economic crisis

The outbreak of the financial crisis in 2008 spelled an end in the EU to GDP growth, low levels of state aid expenditure and falling budget deficits. Economic activity in the EU started to contract by 1.4% in the second half of 2008 and continued to decline by a further 4% in 2009. Only later in that year did it begin to stabilise, mainly due to actions on the part of the Commission and the Member States to counter the financial crisis by means of exceptional stimulus packages. In 2010, GDP growth returned to positive territory, amounting in the EU as a whole to approximately 1.8%.[1] However, budget deficits increased substantially during the same period, which is not surprising given that many Member States have provided support to their economies in order to stabilise the financial sector.

Overall in 2010, state aid expenditure - in particular to the financial sector - continued to be high, but it did contribute to a further stablisation of the banking sector. Compared to previous years, the support in 2010 is generally concentrated in a small number of Member States. This circumstance underlines the fact, despite clear improvements at EU level, the need for State support differs from country to country and across segments of the banking sector.[2] In addition, support measures in the form of aid to the real economy have continued to contribute to sustainable growth, ensuring in the long run that enterprises are able to stay in business and to invest in new, possibly greener, technologies. Chapter 3 provides more detail with respect to crisis aid.

Purpose, scope and content of the Scoreboard

The Scoreboard Autumn update ("the Scoreboard") reports every year in an aggregated manner on state aid expenditure in the Member States in the previous year and highlights trends.[3] The Scoreboard is the European Commission’s benchmarking instrument for state aid. It was launched by the Commission in July 2001 to provide a transparent and publicly accessible source of information on the overall state aid situation in the Member States and on the Commission's state aid control activities. Furthermore, the data in the report are used for further statistical analysis and represent an important source of information to which reference is made in speeches, articles and other Commission publications on state aid. The Scoreboard data are also used by external bodies and the Member States. While the autumn edition provides a synopsis of the state aid expenditure of the previous year, and is the authoritative source with regard to the levels of aid, the spring edition which follows the autumn report provides a more quantitative and, wherever possible, qualitative analysis.

The Scoreboard is based on the annual reports provided by Member States. Article 6(1) of Regulation 794/2004 stipulates that each Member State shall submit its report on state aid expenditure carried out during the previous year no later than 30 June of the following year. Annex III of the Regulation sets out the format and content of the reports in greater detail.

Scope and content of this Scoreboard

State aid expenditure is expenditure which Member States have actually granted under a given aid measure which was authorised by the Commission pursuant to Article 107 TFEU.[4] All state aid data refer to the implementation of Commission decisions, but exclude cases which are still under examination. General measures that do not favour certain enterprises or sectors, and public subsidies that do not affect trade or distort competition, are not dealt with in the Scoreboard as they are not subject to the Commission’s investigative powers under the state aid rules.

This Autumn 2011 update reports on state aid expenditure for all existing aid measures under which Member States granted aid in 2010; this covers both measures that have not yet expired and measures that were newly introduced in 2010.[5] The Scoreboard consists of two parts. While the Report adopted by the College of Commissioners provides a summary of the facts, the accompanying Staff Working Document gives further details on the data and signals trends.

Apart from providing an update on expenditure by the Member States, this edition also updates the progress achieved in the Commission's state aid control activities, namely on the recovery of unlawful aid.

Methodology

In conceptual terms, since the Autumn 2009 update the Scoreboard has provided separate chapters for information on the state aid situation with respect to non-crisis aid on the one hand and crisis aid granted to the financial sector and aid granted under the Temporary Union Framework on the other hand ("the temporary framework").[6] In this regard it is noted that, in order to better represent the actual volume of the aid measures which Member States implemented in respect of financial institutions, this edition of the Scoreboard has further refined the methodology of how to measure some of these instruments (guarantees, other liquidities and impaired assets). This means that the figures provided in this report for these instruments will differ from the figures in previous Scoreboards. However, in order to make a comparison with the financial crisis aid provided to financial institutions since the start of the crisis, Member States have been asked to also recalculate the amounts used in 2008 and 2009 in accordance with the new methodology. Further details on the methodology to measure state aid to financial institutions is provided in chapter 3.1 and the methodological notes.

More detail on the methodology used in this Scoreboard is provided in the section 'Notes on methodology'.

The Scoreboard presents the state aid situation in five chapters. Chapter 1 provides information on total state aid expenditure in the Member States and indicates the broad sectoral distribution of the aid. Chapter 2 reports on the trend and patterns of aid to industry and services; it also provides more detail on horizontal aid and aid to certain sectors of the economy. Chapter 3.1 gives an update on state aid measures to the financial sector and chapter 3.2 supplies details of aid granted under the temporary framework. Chapter 4 shows the trend of state aid expenditure in terms of numbers and the amount of aid involved. Chapter 5 reports on ongoing efforts to enforce the state aid rules and to recover unlawful aid. Finally, the note on methodology is follwed by tables showing key figures on state aid expenditure in more detail by Member State, a follow-up of legislation and an overview of all aid authorised under the temporary framework.

Publication of the Scoreboard

The Directorate-General for Competition publishes this Scoreboard on its website[7], where previous editions can also be found. Also available on the website are a series of key indicators and in-depth statistics covering the EU as a whole as well as individual Member States.

The EFTA Surveillance Authority also publishes annually a scoreboard[8] showing the volume of state aid granted in Iceland, Liechtenstein and Norway.

1. State aid in 2010 1.1. Total state aid[9] in absolute and relative terms 1.1.1. Non-crisis aid

Figure 1: Total non-crisis aid[10]

|| In billion € || As % of GDP || Difference when compared to previous year (by % of GDP) || Trend 2008-2010 (in % of GDP) || Difference when compared to previous trend (2005-2007)

EU 27 || 73.7 || 0.6% || - 0.02% || 0.6% || - 0.02%

1.1.2. Crisis aid granted to the financial sector

Figure 2: Financial Crisis Aid: Amount used[11]

|| In billion € || As % of GDP

Guarantees and liquidity measures || 983.9 || 8%

Recapitalisation and Impaired Assets || 121.3 || 1%

1.1.3. Aid granted under the temporary framework

Figure 3: Aid granted under the temporary framework[12]

|| In billion € || As % of GDP || Difference when compared to previous year (by % of GDP) || Trend 2008-2010 (in % of GDP) || Difference when compared to previous trend (2005-2007)

Approved amount || 1.6 || 0.01% || -0.67% || Not applicable since temporary framework has not been in force over a period of three years.

Amount used || 11.8 || 0.09% || -0.08%

1.2. Broad sectoral distribution of non-crisis state aid

Figure 4: Broad sectoral distribution of non-crisis state aid[13]

Broad sectoral distribution of non-crisis state aid || || || || ||

In billion € || As % of GDP || Difference when compared to previous year (by % of GDP) || Trend 2008-2010 (in % of GDP) || Difference when compared to previous trend (2005-2007)

|| Aid to industry and services

EU 27 || 61.0[14] || 0.5% || + 0.01% || 0.49% || +0.06%

|| Aid to agriculture, fisheries and aquaculture and transport

EU 27 || 12.7 || 0.10% || -0.02% || 0.12% || - 0.07%

Agriculture (EU 27) || 10.2 || 0.08% || - 0.01% || 0.09% || - 0.01%

Fisheries and aquaculture (EU 27) || 0.13 || 0.001% || -0.0006% || 0.002% || - 0.0014%

Transport (EU 27) || 2.3 || 0.02% || - 0.001% || 0.02% || - 0.06%

2. Trends and patterns of state aid expenditure on non-crisis aid in the member states

While Chapter 1 above provides an overview of total state aid expenditure in 2010, Chapter 2 goes on to examine the trend and patterns of expenditure in non-crisis aid. By studying expenditure over a longer period, i.e. 2005 to 2010, it will show the extent to which individual Member States have (or have not) been able to reduce their aid levels.

2.1. Trends of levels of state aid to industry and services[15]

Figure 5: Total state aid to industry and services as of 1992[16]

In 2010, state aid granted to industry and services had increased, both when compared to 2009 and when observing the trend. However, it has remained at a low level overall, i.e. between 0.4% and 0.5% of EU GDP when looking at the period 2007 to 2010, and has also remained lower than during the years prior to 2006.[17]

Apart from the overall downward trend observed since 1992, the relatively small increase seen in 2010 might be explained by the fact that Member States responded to the crisis situation in the real economy while maintaining a strict discipline on expenditure. Moreover, it cannot be entirely ruled out that the tightening of Member States' budgets as a result of support for the financial crisis may have limited the scope for a further increase in aid to industry and services.

Figure 6: Trend in state aid to industry and services as % of GDP[18]

Eleven Member States were able to further reduce their aid expenditure to industry and services in the period 2008-2010 compared to 2005-2008. Some Member States, in particular Malta and Latvia, reduced their aid levels by more than 0.5% of their GDP. Many Member States posted smaller increases which represented less than 0.2% of their GDP. In most instances, more aid was granted under horizontal objectives of common interest. The most substantial increases were in Greece[19] and Hungary.[20]

2.2. State aid earmarked for the horizontal objectives of common interest

The concept of horizontal aid, which represents aid that is not granted to specific sectors of the economy, was derived from the Treaty. This leaves room for the Commission to make policy choices according to which state aid can be considered compatible with the internal market in order to provide effective support to common policy objectives. Most prominent is the aid earmarked for research, development and innovation, safeguarding the environment and fostering energy saving and promoting the use of renewable energies; this is, followed by regional development, aid to SMEs, creation of employment and promotion of training.

Following the calls from numerous European Councils, Member States have re-oriented their state aid efforts by gradually ending their support to individual sectors and by providing support earmarked for horizontal objectives of common interest instead.

In this light, some of the Europe 2020 strategy targets[21] generally fit into the concept of horizontal aid, inter alia to increase employment, to invest in research, development and innovation, to increase energy efficiency and to foster energy production from renewable energy sources.

2.2.1. Horizontal versus sectoral aid

Figure 7: Horizontal versus sectoral aid in the EU-27[22]

Horizontal versus sectoral aid in the EU-27 || In billion € || As % of total aid to industry and services || Difference when compared to previous year; by % of total aid to industry and services || Trend 2008-2010 (in % of total aid to industry and services) || Difference when compared to previous trend (2005-2007)

Total horizontal aid || 51.9 || 85% || + 1% || 84.4% || + 2.2%

Environmental aid[23] || 14.4 || 23.7% || - 0.8% || 23.8% || - 2.3%

Regional development || 14.8 || 24.3% || + 1.1% || 23.5% || + 4.0%

Research and development and innovation || 10.9 || 18.3% || + 0.5% || 15.5% || + 2.5%

SME || 2.6 || 4.2% || - 2.2% || 6.5% || -3.6%

Risk capital || 0.8 || 1.3% || +0.4% || 1.0% || + 0.2%

Training || 0.8 || 1.3% || - 0.3% || 1.4% || +0.1%

Employment || 2.8 || 4.6% || 0% || 4.8% || - 1.6%

Other || 5.9 || 9.7% || + 2.5% || 7.8% || + 2.3%

Total sectoral aid || 9.1 || 15% || - 0.6% || 15.6% || - 2.2%

The positive trend during the period 2008-2010, when Member States preserved with their efforts to earmark more aid under horizontal objectives of common interest, has also been seen in 2010. The main reason why sectoral aid has decreased is the smaller amounts of aid granted to the coal sector and the service industries in general.

In 2010, the main areas where Member States focused the greatest amount of horizontal aid were environmental protection and energy saving, research and development and innovation, and regional aid. The individual horizontal objectives are described in more detail in the following paragraphs.

2.2.2. Aid to horizontal objectives

While an average of 85% of the total aid to industry and services was earmarked for horizontal objectives at aggregate level in the EU in 2010[24], some disparities can be found when examining the individual Member States. The EU-27 average was exceeded in 19 Member States.[25] Only two Member States were found in which aid to horizontal objectives accounted for 50% or less of the total aid to industry and services.[26]

Greece, Italy, Romania and Slovakia stood out in terms of their efforts made to direct aid further towards those horizontal objectives for which a substantial increase in horizontal aid had been identified. On the other hand, only a few Member States showed a small or moderate decline in horizontal aid.[27]

There are large disparities between Member States in the share of aid allocated to the various horizontal objectives.

It is recalled that the horizontal aid objective, which is the so-called ‘primary objective’ of the aid, is established when the aid measure is approved by the Commission or, in the case of block exempted aid, when the Member State informs the Commission that the aid measure has been implemented.[28] Consequently, the horizontal aid is not measured as a function of the beneficiary, i.e. the sector of the economy in which it has its activity.

In 2010, by far the majority of horizontal aid was earmarked for regional development, with 24.3% of total aid on average going to industry and services, whereby Greece, Lithuania and Romania granted at least 50% or more when compared to their individual total expenditure on industry and services.

Aid earmarked for protecting the environment comes a close second, accounting for 23.7% of total aid to industry and services, whereas Latvia, the Netherlands and Sweden granted more than 50% of their aid to industry and services.

Aid earmarked for research, development and innovation, representing 17.9% of total aid to industry and services, comes in third place. While Luxembourg is the country that spent most (51%), spending in other Member States ranges between 25% and 50% (8 Member States[29]).

Together, these three horizontal objectives account for roughly two thirds of the total aid to industry and services in the EU-27, and they are identified as the most widely used objectives of common interest.

Furthermore, aid to SMEs, training and employment accounts for approximately 10% of total aid to industry and services, while the remainder of the horizontal aid[30] accounts for 9.7%.

2.2.2.1. Block exempted aid

Figure 8: Share of block exempted aid as % of total aid earmarked for the same horizontal objective[31]

Figure 9: Trend in the share of block exempted[32] aid as % of total aid earmarked for the same horizontal objective[33]

(Expenditure in € billion) || 2005 || 2006 || 2007 || 2008 || 2009 || 2010 ||

Block exempted aid to SMEs incl. Risk capital || 1.7 || 1.9 || 2.7 || 2.6 || 2.4 || 1.5 ||

Total aid to SMEs incl. Risk capital || 6.0 || 5.5 || 5.8 || 5.7 || 4.5 || 3.4 ||

Share of that aid as % of total expenditure to this objective || 28.7 || 33.6 || 46.2 || 46.0 || 53.3 || 43.5 ||

Block exempted aid to Employment || 0.5 || 0.7 || 0.8 || 1.5 || 1.3 || 1.4 ||

Total aid to Employment || 3.4 || 3.8 || 3.0 || 3.2 || 2.7 || 2.8 ||

Share of that aid as % of total expenditure to this objective || 13.8 || 18.2 || 27.7 || 47.7 || 46.6 || 50.8 ||

Block exempted aid to Training || 0.5 || 0.6 || 0.6 || 0.7 || 0.8 || 0.6 ||

Total aid to Training || 0.6 || 0.8 || 0.6 || 0.8 || 1.0 || 0.8 ||

Share of that aid as % of total expenditure to this objective || 84.4 || 77.0 || 86.7 || 92.8 || 87.8 || 75.9 ||

Block exempted aid to Regional development || 0.1 || 0.2 || 2.4 || 4.2 || 5.1 || 6.9 ||

Total aid to Regional development || 9.8 || 11.0 || 10.1 || 13.3 || 14.1 || 14.9 ||

Share of that aid as % of total expenditure to this objective || 1.2 || 1.6 || 23.7 || 31.5 || 36.0 || 46.2 ||

Block exempted aid to Research and development incl. Innovation || 0.0 || 0.1 || 0.1 || 0.1 || 1.0 || 1.1 ||

Total aid to Research and development incl. Innovation || 6.2 || 7.2 || 7.7 || 8.8 || 10.6 || 10.9 ||

Share of that aid as % of total expenditure to this objective || 0.3 || 0.8 || 1.5 || 1.4 || 9.4 || 10.4 ||

Block exempted aid to Environmental protection incl. Energy saving || 0.0 || 0.0 || 0.0 || 0.0 || 0.7 || 0.7 ||

Total aid to Environmental protection incl. Energy saving || 13.8 || 15.0 || 12.5 || 13.5 || 14.9 || 14.5 ||

Share of that aid as % of total expenditure to this objective || 0.0 || 0.0 || 0.0 || 0.0 || 4.4 || 4.9 ||

Total horizontal aid || 42.2 || 45.4 || 42.6 || 48.5 || 51.3 || 51.9 ||

Share of above block exempted aid as % of total aid earmarked for the same horizontal objectives (in billion €) || 6.8 || 7.6 || 15.4 || 19.0 || 21.9 || 23.4 ||

Figure 10: Block exempted aid as % of total aid to industry and services (earmarked to the same horizontal objective)[34]

In total, block exempted aid earmarked for the same horizontal objective amounted to approximately € 12.6 billion in 2010, representing around 20.6% of total aid to industry and services.

2.2.2.2. Trend (2008-2010 compared with 2005-2007)

Figure 11: Trend in the share of horizontal objectives as % of total aid to industry and services[35]

The above diagram reflects the continuing efforts by Member States to earmark a large amount of aid to horizontal objectives of common interest, in particular regional development, research, development and innovation ("R&D&I") and environmental protection, while aid to SMEs, employment and training play only a fairly minor role. Furthermore, the graphs also demonstrate Member States' efforts to reduce the levels of aid granted to individual sectors of the economy, which also includes rescue and restructuring aid and aid to the coal sector.

Nevertheless, there are disparities among Member States with regard to the proportion of individual horizontal objectives in relation to the total aid to industry and services.[36]

2.2.3. Research, development and innovation

Figure 12: Aid earmarked for research, development and innovation[37]

R&D&I is a linchpin one of the key elements in the effort to strengthen the competitiveness of the EU economy and to ensure sustainable growth. Therefore, R&D&I has been placed at the heart of the Europe 2020 Strategy[38] as one of its flagship initiatives, with the target of spending 3 % of EU GDP on R&D by 2020.[39]

In its Communication on "Europe 2020 Flagship initiative Innovation Union"[40], the Commission describes what in its view needs to be done in order to boost innovation and to re-focus R&D&I policy on the challenges facing our society, such as climate change, energy and resource efficiency, health and demographic change.

In 2010, state aid represented only 4.7% of overall R&D expenditure[41], equal to € 10.9 billion or 0.09 % of EU GDP. Around 54 % of total R&D&I state aid in 2010 was granted by three Member States: Germany[42] (€ 2.8 billion), France[43] (€ 1.8 billion) and Spain[44] (€ 1.1 billion).

Block exempted aid reported as R&D&I aid amounted to around € 1.1 billion in 2010. This represented 10.4% of total horizontal aid granted to the same objective. Germany (€ 258.6 million)[45], Spain (€ 174.7 million), Italy (€ 152.2 million) and Belgium (€ 121.1 million) made the most use of this instrument.

The Community Framework for state aid for Research and Development and Innovation[46] and the General Block Exemption Regulation ("GBER")[47] form the legal basis for the assessment of R&D&I state aid measures. In 2011, the Commission has conducted a mid-term review[48] of the Framework, taking stock of recent case experience and reflecting on the contribution of the R&D&I state aid rules to the EU innovation goals in order to further promote private investment in R&D, smarter public investment and overall innovation.

2.2.4. Environmental protection

The Europe 2020 Strategy has highlighted "sustainable growth"[49] as one of the main priorities for the coming years. It includes the so-called '20/20/20' environmental protection targets of a 20% reduction in CO2 emissions, a 20% share for renewable energy in EU energy consumption and a 20% increase in energy efficiency. A long-term framework for actions is provided by the flagship initiative entitled "A resource-efficient Europe". State aid can contribute directly or indirectly to these objectives, in particular when it tackles market failures or complements insufficient incentives to ensure greater environmental protection (e.g. general regulatory measures).

In 2010, the largest grantors of total state aid for environmental purposes were Germany[50] (€ 5.5 billion), Sweden[51] (€ 2.3 billion), the United Kingdom (€ 1.4 billion), the Netherlands (€ 1.05 billion) and Austria (€ 1.02 billion). In relative terms, environmental aid accounted for 23.7 % of the total aid for industry and services, or 0.12 % of EU GDP.

Environmental aid covers a wide range of objectives, including support measures for renewable energy, energy-saving, waste management and remediation of contaminated sites and improvement of production processes. For these types of measures, aid granted by Member States pursues a direct benefit to the environment. State aid expenditure can therefore be taken as a proxy to indicate the intended environmental benefit. This represented 31.9% of environmental aid in 2010, equivalent to around € 4.6 billion. The largest contributors to this amount were: the Netherlands[52] (€ 1.04 billion), Austria[53] (€ 0.9 billion), Spain[54] (€ 0.7 billion) and France[55] (€ 0.4 billion).

A second category of state aid measures that are covered under the environmental aid guidelines is reductions in or exemptions from environmental taxes. Expenditure under this category of aid scheme indicates the amount of tax revenue foregone and therefore cannot be used as a proxy measure of the environmental benefit which the taxes themselves have brought. In 2010, 53.9% of environmental aid, equal to around € 7.8 billion, fell into this category. Within this total, Germany granted more than two thirds of the aid (around € 5 billion), followed by Sweden (€ 1.8 billion), the United Kingdom (€ 0.4 billion), Finland (€ 0.2 billion), the Netherlands (€ 0.1 billion), Slovakia (€ 0.08 billion) and Denmark (€ 0.003 billion).

Since the environmental aid guidelines introduced new criteria to the necessity and proportionality test for tax exemptions below EU minimum tax levels (harmonised taxes), the Commission has approved one such tax exemption case concerning Denmark (N 327/2008)[56]. Member States have to adopt appropriate measures to bring existing tax reductions into line with the environmental guidelines by 31 December 2012, including when taxes are below EU minimum levels.

Block exempted aid for environmental protection that can collectively be classified as having a direct benefit on the environment, amounted to € 0.7 billion in 2010, corresponding to around 4.9% of total aid for environmental objectives. This share is particularly low by comparison with the share for the other horizontal objectives, mainly because of a small number of tax exemption schemes approved in the past, which are so significant in terms of their monetary value that they continue to account for most of the state aid granted in this field. Almost 80 % of the block exempted aid granted in this field was granted by Germany, Belgium, Italy and Austria.

For the EU as a whole, the trend of aid for the environment decreased from 26.1% to 23.8% of total aid to industry and services between 2005-2007 and 2008-2010. Several reasons can justify the decrease. The first reason is the effect of the market-based incentives already implemented, through which operators internalise their environmental costs and no state aid is needed. Higher EU environmental standards are another aspect which contributes to the reduction of state aid: adaptation to EU standards is compulsory for operators and they are obliged to comply without any public support. Finally, budgetary constraints due to the crisis may also have had an impact on the public expenditure earmarked for environmental protection, at least in the second period identified above.

2.2.5. Regional development and cohesion

Figure 13: Aid to regional development[57]

|| In billion € || As % of total aid to industry and services || Difference when compared to previous year; in % of total aid to industry and services || Trend 2008-2010 (in % of total aid to industry and services) || Difference when compared to previous trend (2005-2007)

Aid earmarked for regional development || 14.8 || 24.3% || + 1.1% || 23.5% || + 4.0%

|| || As % of GDP || Difference when compared to previous year; in % of GDP || Trend 2008-2010 (in % of GDP) || Difference when compared to previous trend (2005-2007)

Aid pursuant to Article 107(3)(a) || 16.2 || 0.13% || + 0.01% || 0.013% || - 0.1%

Aid pursuant to Article 107(3)(c) || 2.7 || 0.02% || + 0.01% || 0.015% || + 0.007%

The Commission Guidelines on national regional aid for 2007-2013[58], applicable as of 1 January 2007, explain the general approach taken by the Commission in considering whether aid granted to promote the economic development of certain disadvantaged areas within the European Union is compatible with the internal market. The aim of regional aid is to develop the economic, social and territorial cohesion of a Member State and of the EU as a whole.

The Commission encourages Member States to grant regional aid on the basis of multi-sectoral schemes which form part of a national regional policy. These schemes should lay down the general conditions under which a Member State may grant regional aid, normally without needing to notify individual cases to the Commission. In October 2006, the Commission adopted a block exemption regulation concerning national regional investment aid[59] which remains applicable until the end of 2013, although Member States may also grant regional aid measures under GBER.

Aid for regional development can also be assessed directly under Article 107(3)(a) or Article 107(3)(c) TFEU. Article 107(3)(a) authorises aid that promotes the economic development of areas where the standard of living is abnormally low or where there is serious underemployment, the so-called category a' regions. The regional aid angle under Article 107(3)(c) relates to aid for facilitating the development of certain economic areas, where such aid does not adversely affect trading conditions to an extent that is contrary to the common interest - the so-called category 'c' regions.

Furthermore, it is worth recalling that aid earmarked for category 'a' or 'c' regions does not necessarily have regional development as the primary horizontal objective; it could alternatively be earmarked for other objectives. For this reason, the aggregate aid volumes of the category 'a' and category 'c' regions are different from those quoted under "aid earmarked for regional development".

2.3. State aid earmarked for specific sectors 2.3.1. Rescue and restructuring of firms in difficulty

Figure 14: Rescue and restructuring aid[60]

|| In billion € || As % of total aid to industry and services || Difference when compared to previous year; in % of total aid to industry and services || Trend 2008-2010 (in % of total aid to industry and services) || Difference when compared to previous trend (2005-2007)

Rescue and restructuring aid || 0.48 || 0.8% || + 0.08% || 0.8% || - 1.3%

During the trend period 2008-2010, Member States continued their efforts to reduce aid levels for rescue and restructuring. While Czech Republic, Italy, Poland and the United Kingdom accounted for roughly 89% of all rescue and restructuring aid, expenditures by other Member States were rather low and 14 Member States granted no such aid.[61]

2.3.2. Shipbuilding

Figure 15: Aid to the shipbuilding sector[62]

|| In billion € || As % of total aid to industry and services || Difference when compared to previous year; in % of total aid to industry and services || Trend 2008-2010 (in % of total aid to industry and services) || Difference when compared to previous trend (2005-2007)

Aid to the ship building sector || 0.15 || 0.26% || - 0.22% || 0.5% || -0.16%

2.3.3. Steel industry

Figure 16: Aid to the steel industry[63]

|| In billion € || As % of total aid to industry and services || Difference when compared to previous year; in % of total aid to industry and services || Trend 2008-2010 (in % of total aid to industry and services) || Difference when compared to previous trend (2005-2007)

Aid to the steel industry || 0.015 || 0.03% || - 0.16% || 0.17% || - 0.33%

Since the European Coal and Steel Community (ECSC) Treaty expired on 23 July 2002, general state aid rules have been applied to the steel sector, with the exception that no investment or restructuring aid may be granted to steel production unless it is closure aid.[64]

In 2010, aid to the steel sector decreased significantly. When looking at trends, the decrease in aid to the steel sector continued during the period 2008-2010 in comparison to the previous trend period (2005-2007). In 2010, only the United Kingdom granted an essential amount of aid to this sector, while other Member States phased out such aid during the period 2008‑2010.

2.3.4. Coal

Figure 17: Aid to the coal sector[65]

|| In billion € || As % of total aid to industry and services || Difference when compared to previous year; in % of total aid to industry and services || Trend 2008-2010 (in % of total aid to industry and services) || Difference when compared to previous trend (2005-2007)

Aid to the coal sector || 2.8 || 4.7% || 0.18% || 4.8% || - 2.7%

State aid to the coal industry was governed until 31 December 2010 by a specific legal framework, the Coal Regulation 1407/2002.[66] Regulation 1407/2002[67] expired on 31 December 2010 and is replaced by Council Decision 2010/787/EU of 10 December 2010 on state aid to facilitate the closure of uncompetitive coal mines.[68]

The Decision adopted by the Council provides for aid for uncompetitive mines within a closure plan. It provides for only two categories of aid: (i) operating aid for the closure of mines (Article 3) and (ii) aid for exceptional costs (Article 4). The uncompetitive mines must be closed by 31 December 2018 and the coal production progressively reduced over the period. Aid for exceptional costs includes redundancy payments, re-training costs, and site cleaning-up or safety costs.

2.3.5. Transport

Figure 18: Aid to the transport sector[69]

|| In billion € || As % of GDP || Difference when compared to previous year; in % of GDP || Trend 2008-2010 (in % of GDP) || Difference when compared to previous trend (2005-2007)

Total aid to the transport sector || 2.3 || 0.019% || - 0.007% || 0.022% || - 0.062%

Road and combined transport || 0.4 || 0.003% || - 0.001% || 0.005% || - 0.063%

Maritime transport || 1.8 || 0.015% || - 0.001% || 0.015% || + 0.001

Inland water transport || 0.009 || 0.0001% || 0% || 0.0001% || 0%

Air transport || 0.1 || 0.001% || - 0.005% || 0.0029% || 0%

State aid to the transport sector is governed by specific rules in the Treaty, as well as secondary legislation and rules of soft law.

Member States spend considerable resources for the provision of Services of General Economic Interest (SGEI) in the transport sector and for the construction, management and maintenance of infrastructure. EU law foresees indeed a number of mechanisms allowing for and encouraging the provision of such services. Member States must, however, ensure that the public financing complies with the applicable rules and in particular that it avoids overcompensation and undue distortion of competition.

2.3.5.1. Land

In February 2010 the Commission adopted its first decision applying the new regulation on public passenger transport services (in force since 3 December 2009). The Commission thus concluded the formal investigation procedure initiated in 2008 regarding the public-service contracts of the Danish railway company, Danske Statsbaner (DSB). It found that the compensation paid by the Danish government every year to DSB for the costs incurred in meeting its public-service obligations was limited to what was strictly necessary to cover those costs.

Also in February 2010 the Commission opened the proceedings against the loan granted to Železničná spoločnosť Slovakia Cargo. In May 2010 the Commission authorised on the basis of the specific provisions of the Railway Guidelines the plan of Société nationale des chemins de fer belges (SNCB) to restructure its freight activities; in December 2010 it authorised a rescue aid of around € 128 million for BDZ EAD, the State-owned Bulgarian railway operating on both freight and passenger railway markets.

During 2010, as in previous years, the Commission approved several schemes to support intermodality and combined transport (France, Belgium, Italy, Germany and Hungary).

2.3.5.2. Maritime

By comparison with 2007-2009, the annual average of aid for 2008-2010 remains constant, at € 1.8 billion.

Most cases in this sector concern social aid to seafarers and special taxation rules for shipping companies ("tonnage tax" schemes). In this regard the Commission approved the introduction of the Cypriot tonnage tax scheme, as well as amendments to the Slovenian tonnage tax scheme. It also authorised the extension of the Dutch tonnage tax scheme to cable layers, pipeline layers, research vessels and crane vessels.

There were also a few cases where Member States notified public financing of port infrastructure. In the same year the Commission partially authorised a Greek port infrastructure development project.

Lastly, the Commission also approved rescue aid to the French maritime company SeaFrance in August 2010, but subsequently opened proceedings with regard to the restructuring aid to the company. The Commission closed this proceeding by decision.[70]

In 2010 the Commission decided to launch a study in order to obtain a more accurate knowledge of the functioning of European ports and their financing. This study will assist the Commission to identify a reliable approach for moving forward in the enforcement of state aid rules.

2.3.5.3. Aviation

The reported figures over 2008-2010 show a decrease of 23% in the aid amount granted by Member States for the air transport sector compared to the previous triennial period.

In 2010 the Commission approved 7 cases concerning projects for financing airport infrastructure (Finland, Germany, Latvia, Spain, Italy and the United Kingdom). Three start-up aids for establishing new lines and increasing existing frequencies were approved in 2010 (Belgium, Italy and France). One case of rescue aid for an airline was approved (Malta) and one social aid scheme concerning the French overseas departments. In these cases, the Commission considered that the planned investments had a positive impact on the accessibility of the region, which outweighed the negative impact on competition. On the basis of the criteria, set out respectively in paragraphs 61 and 79 of the guidelines of 2005 on financing of airports and start-up aid to airlines departing from regional airports, the Commission concluded that these forms of public support were compatible with the internal market.

In 2010 the Commission continued with its substantial workload resulting from the examination of a large number of complaints concerning investment aid and aid to airlines. In some of these cases, a formal investigation procedure is still ongoing. Nevertheless, one of the formal investigation procedures was concluded and a final decision was taken in 2010, where the Commission found that the agreement between Bratislava airport (Slovakia) and Ryanair had been concluded in accordance with the behaviour of a market economy operator. In other cases, where the formal investigation procedure was opened or continued in 2010, there is a need to examine whether the public investment constitutes state aid, and whether this state aid could still be declared compatible if the relevant conditions, laid down in the 2005 guidelines, are met.

2.3.6. Agriculture

Figure 19: Aid to the agricultural sector[71]

|| New notifications in 2010 || Decisions in 2010 || New block exempted measures in 2010

Number of aid measures || 146 || 150 || 258

|| In billion € || As % of GDP || Difference when compared to previous year; in % of GDP

Aid granted to the agricultural sector || 10.2 || 0.08% || - 0.01%

Of which is block exempted aid || 1.7 || 0.013% || - 0.002%

The highest expenditures were reported by France (€ 2.4 billion) and Finland (€ 1.2 billion).

When comparing 2010 with the previous year, the majority of Member States (22) reduced their state aid expenditure, while Czech Republic, France, Italy, Luxembourg, the Netherlands, Poland and Slovenia granted more aid to the agricultural sector.

Block exempted aid in agriculture

The trend in the number of measures (258) implemented in 2010 under the Block Exemption Regulation was at a similar level to the previous year (267), but considerably lower in comparison with 2007 (496) and 2008 (433).

Until now, only Luxembourg, Portugal and Malta have not notified under this Regulation.

It should be noted that, since 2009 all block exempted aid schemes have been submitted by Member States under Commission Regulation (EC) No 1857/2006. This is due to the fact that, since the entry into force of the GBER, under which Member States communicate directly to DG Competition, agricultural measures in the fields of research and development, aid in the form of risk capital, training aid, environmental aid and aid for disadvantaged and disabled workers (to the extent that these categories of aid are not covered by Regulation (EC) No 1857/2006). Measures published under Regulation (EC) No 70/2001 are only recorded until August 2008.

Block exempted aid accounted for 14.9% of the total state aid expenditure in agriculture for 2010, whereas in 2009 it was 13.9%. Analysing the results per country, it appears that Italy, Cyprus and The Netherlands spend more than 30% of their state aid under a block exemption.

2.3.7. Fisheries and aquaculture

Figure 20: Aid to the fisheries and aquaculture sector[72]

|| New notifications in 2010 || Decisions in 2010 || New block exempted measures in 2010

Number of aid measures || 20 || 14 || 43

|| In billion € || As % of GDP || Difference when compared to previous year; in % of GDP

Aid granted to the fisheries sector || 0.130 || 0.01% || - 0.0006%

Of which is block exempted aid || 0.019 || 0.002% || 0.001%

France reported the highest overall state aid expenditure (€ 72.5 million), followed by the Czech Republic (€ 21.3 million), Spain (€ 13.5 million), the Netherlands (€ 5.4 million) and Portugal (€ 3.6 million). 65% of the total block-exemption aid was granted by Spain (€ 12.4 million).

With respect to the number of aid measures, Spain reported the most schemes in numbers (27), followed by Denmark (18), the Netherlands (16) and the United Kingdom (11).

No legislation has been adopted in 2010 as regards state aid in the sector of fisheries and aquaculture. In the context of the ongoing reform of the Common Fisheries Policy (CFP) state aid issues may be taken into account. A proposal for a new financial Regulation will be presented in November 2011. The Commission will submit a proposal for a new financial instrument covering Maritime affairs and Fisheries at the end of 2011.

2.4. Use of the state aid instruments

Figure 21: Expenditure as per aid instrument[73]

Expenditure as per aid instrument; year 2010 || In billion € || % of total aid to industry and services || Difference when compared to previous year; by % of total aid to industry and services || Trend 2008-2010 (in % of total aid to industry and services) || Difference when compared to previous trend (2005-2007)

Grants || 33.5 || 54.9% || + 3.8% || 52.0% || - 1.4%

Soft loans || 1.6[74] || 2.7% || - 0.8% || 3.2% || + 0.5%

Guarantees || 1.5[75] || 2.5% || + 0.5% || 2.1% || + 0.8%

Equity participation || 0.6 || 1.0% || - 0.8% || 1.1% || + 0.7%

Tax exemptions (incl. tax deferrals) || 23.7 || 39.0% || - 2.7% || 41.6% || - 0.5%

Tax exemptions are the instrument used for the most part in connection with aid measures earmarked for environmental protection (approximately € 10 billion), followed by regional development (around € 6.5 billion), sectoral development (approximately € 3.9 billion) and R&D&I (about € 1 billion). Venture capital aid (around € 0.5 billion), together with aid to SMEs (approximately € 0.7 billion) accounts for a further major share. Moreover, 6 Member States granted more than 50% of their aid volume through tax exemption.[76]

With respect to direct grants, 9 Member States contributed more than 80% of their aid in the form of grants.[77]

3. State aid in the context of the financial and economic crisis 3.1. State aid measures for the financial sector

3.1.1. General background

Before the financial and economic crisis hit Europe in the autumn of 2008, the EU had been experiencing steady economic growth. Budget deficits were down to an average of 0.8% of GDP in 2007 – the best result in thirty years.[78] Unemployment during this period fell and stayed at a long-time low of 7% EU-wide in 2008. In parallel, the level of state aid to industry and services in the EU decreased annually by 2% on average since 2002, and stood at € 65 billion, i.e. less than 0.5% of GDP, in 2007.

The crisis brought the steady GDP growth, low levels of state aid and decreasing budget deficits to an abrupt end. Member States pumped unprecedented amounts of state aid into the financial sector in order to restore financial stability and the normal functioning of the financial markets, including continued access to finance by EU companies. When inter-bank lending dried up in September 2008, Member States started to inject large amounts of aid into the banking sector to ensure that lending to the economy could continue. Guided by the temporary framework, Member States also began taking steps from the end of 2009 to ease business's financing constraints. This led to a sharp increase – of more than 10% of GDP - in the level of state aid, and this increase continued in 2010, as a result of crisis aid to the financial sector in particular.

The European Commission's state aid control policy was one of the key factors which ensured that this – generally successful – rescue process was achieved in a coordinated manner. It allowed the swift implementation of unprecedented support measures and ensured at the same time that the Internal Market was kept intact.[79]

While economic growth returned to positive levels again in 2010 for the EU as a whole, after having dropped to -5% of GDP in 2009, there were signs of big differences in economic performance between Member States. Although Member States which were severely hit by the financial turmoil and the subsequent sovereign debt crisis are still facing distress, in other Member States, particularly those with sound economic fundamentals or small open export countries, the recovery seems to be on track. However, the sovereign debt crisis and high levels of unemployment in some Member States and the overall world-wide economic situation give rise to uncertainty and adversely affect growth prospects. The Commission's forecast expects 2011 GDP to grow at +1.7 % in the EU, fuelled by Germany's GDP growth (+ 2.9% of GDP), whereas growth estimates in other large European economies are weaker (FR 1.6%, UK 1.1, IT 0.7, ES 0.8). However, there are signs that the recovery is becoming self-sustained. Growth in economic activities is shifting slightly from exclusive reliance on export-led demand to a higher contribution from internal sources of growth, such as investment, and - to a lesser extent -private consumption. However the overall outlook is not immune from downside risks related to the interplay between vulnerabilities on sovereign debts and the financial sector. Whether or not these risks actually materialize, they could potentially trigger negative spill-over on the real side of the economy.

3.1.2. State aid granted to the financial sector

In the period between 1 October 2008 and 1 October 2011,[80] the Commission took a total of around 290 decisions in the financial services sector based on Article 107(3)(b) TFEU, aimed at remedying a serious disturbance in Member States’ economies. These decisions authorised, amended or prolonged 41 schemes and addressed the situation in more than 55 financial institutions.. The Commission has so far taken only one prohibition decision. Financial crisis measures were taken in all Member States, except Bulgaria, the Czech Republic, Estonia, Malta and Romania.

Given the uncertainty characterizing the financial sector and the EU economy as a whole, there is no sign of a general pattern of exit from State support measures. However, by looking at the evolution over time of the measures pledged in the period 2008-2011, and the measures used in the period 2008-2010, we can highlight some positive trends.

In the period between 1 October 2008 and 1 October 2011[81] the Commission approved aid to the financial sector for an overall amount of € 4506.5 billion (36.7% of EU GDP). The bulk of the aid was authorised in 2008 when € 3457 billion (27.7% of EU GDP) were approved, mainly in the form of guarantees on bank's bonds and deposits.[82] After 2008, the aid approved focused more on recapitalisation of banks and impaired asset relief rather than on guarantees.

The overall amount of aid used in the period 2008-2010[83] stands at € 1608 billion (13.1% of EU GDP). Guarantees and liquidity measures account for € 1199 billion or roughly 9.8 % of EU GDP. The remainder of the aid used refers to recapitalisation and impaired assets measures which amount to € 409 billion (3.3% of EU GDP). Slightly over 72 % of the aid used has been granted through schemes while the remainder was provided on ad hoc basis.

Box 1: The different instruments of state aid to financial institutions and how to measure them

Two different concepts are used in this Report to describe the volumes of state aid to financial institutions: the committed amount of aid and the used amount of aid.[84]

The pledged volume of aid (aid approved) represents the overall maximum amount of state aid measures (such as guarantees, capital injections and other) provided by Member States and approved by the Commission. This figure corresponds to the upper limits of support which Member States are allowed to grant to the financial institutions. However, it expresses neither the amounts actually implemented nor the benefit which individual financial institutions obtained.

The used amount (aid used or aid granted) of the aid expresses the actual volume of the aid measure which Member States implemented:

– For recapitalisation: the used amount of aid is equal to the nominal value of the recapitalisation. [85].

– For impaired asset relief: the used amount of aid is the difference between the transfer value paid to the beneficiary and the market value of the asset.

– For guarantee: the used amount of aid is the outstanding volume of the liability covered by the State in a given year, calculated as the average of end of quarter (31 March; 30 June; 30 September; 30 December) outstanding amounts. [86]

– For liquidity support: the used amount of aid is the outstanding volume of liquidity measures (e.g. value of the loan) in a given year, calculated as the average of end of quarter (31 March; 30 June; 30 September; 30 December) outstanding amounts.

Asset support measures (recapitalisation and impaired asset relief) are recorded at the time of their issuance. For liability support (liquidity and guarantee), aid is recorded as long as the liability matures.

More details on the data coverage of the Scoreboard are provided in the Methodology Notes at page 56.

The tables below show, for each Member State and for the whole of the EU, the overall amount of financial crisis aid to financial institutions approved, as well as the overall amount of aid used for the different instruments.[87]

Figure 22: Approved amounts of aid to financial institutions in the years 2008-2011

Figure 22a: Approved amounts of aid to financial institutions in the years 2008-2010

Figure 23: Used amounts of aid to financial institutions in the years 2008-2010

In 2010, the amount of aid pledged decreased substantially compared to the two previous years. Even though most of the measures approved in previous years are still operational the reduced reliance on new measures suggests that the measures approved in the past have succeeded in providing general relief for the banking system. However despite clear improvements at EU level, the need for State support differs considerably across countries and segments of the banking sector[88]. This circumstance is reflected by the level of concentration in terms of the number of countries which approved further aid support in 2010. Three countries (IE, EL and ES) account for roughly 82%[89] of the overall volume of aid approved in 2010. In 2010, the Commission authorised aid for an overall amount of € 383.8 billion, representing roughly 3.1% of EU GDP. The new aid approved is concentrated in a few countries and involves recapitalisation of € 183.9 billion, guarantees for € 55.4 billion, impaired assets relief for € 77.9 billion and liquidity measures for € 66.7 billion.

The overall volume of aid used in 2010 for recapitalisation and impaired assets stood at € 121.3 billion (1% of EU GDP). New capital injections accounted for € 87.8 billion (0.7% of EU GDP) while impaired asset relief measures accounted for € 33.6 billion (0.3% of EU GDP). With regards to guarantees and liquidity measures the average outstanding amount for the year 2010 stood at € 983.9 billion (8% of GDP) of which € 922.03 billion (7.5% of EU GDP) relates to guarantees while € 61.9 billion (0.5% of EU GDP) relates to liquidity measures.

The same conclusions regarding the concentration of the new aid implemented in 2010 in a small number of countries can be drawn with regard to the amount used. For instance in the case of recapitalisation[90] roughly 88 % of the new capital injections were implemented by three countries (IE, UK and ES) out of a total of just 7 countries which also used this instrument in 2010.

3.1.3. State aid per instrument

3.1.3.1 Guarantees on bank debt

Guarantees were the first category of instruments used by Member States to respond to the turmoil in the financial sector. The bulk of guarantees schemes were approved at the onset of the crisis, between autumn 2008 and mid 2009. Overall, roughly 90 % of the guarantees were granted through schemes, since they were directed at the whole financial system rather than the weaknesses of specific banks. Guarantees, in particular, have proved to be effective in tackling the liquidity constraints arising from the systemic loss of confidence which paralysed the interbank market and prompted a sudden increase in the cost of wholesale funding. These developments even affected banks with strong fundamentals and good solvency perspectives. Against this background, State intervention facilitated banks' access to funding by issuing State guaranteed bonds. Their attractiveness in comparison to non-guaranteed instruments helped overcome the lack of confidence in the market and enabled banks to roll-over their maturing debt.

Banks' dependency on guaranteed bonds has decreased substantially in the past year. The gradual improvement in financial market conditions led to a stabilisation of the funding cost for many banks, in particular for those which had seen their credit risk outlook improve. The amount of State-guaranteed bonds issued by banks was down in 2010, while the overall amount of bonds issued in the same year did not decrease with respect to 2009, adding weight to the assumption that most banks have regained access to markets without the need to use State guarantees. Moreover, from mid 2009, most State guaranteed bonds were issued by banks already in the process of restructuring. This suggested that the scope for State guarantees to address contingent liquidity constraints had somehow been exhausted and justified a change in the conditions for the approval of guarantees as from 1 July 2010. The Commission's Staff Working paper on the application of state aid rules to government guarantee schemes covering bank debt to be issued after 30 June 2010[91] laid the foundation to start the process of phasing out guarantees by a) an increase in the guarantee fee paid by the issuer and b) the submission of a restructuring plan for those institutions using new guarantees and exceeding a certain threshold of total outstanding liabilities[92]. The aim of these conditions is to reduce distortions of competition by increasing the cost of guaranteed-bonds relative to non-guaranteed bonds. In addition, the current design of the state aid regulation allows banks to benefit from State guarantees to the extent that they will undertake practical measures to remove their structural vulnerabilities.

Despite the steps taken to stimulate the phasing out of government guarantees, the current market situation suggests that a gradual process of moving away from support measures should be maintained. As mentioned above, the volatility of funding costs, sovereign risk and relevant re-financing needs prevent markets from achieving lasting stability. In particular by the end of 2011 and the beginning of 2012, a considerable amount of State-guaranteed bonds reach maturity. In the course of 2010, banks have started to roll-over guaranteed bonds and to replace them by ordinary bond issues. However, the underlying risks to which the financial sector is exposed suggest that particular care should be taken in stepping up the exit process. Against this background, the Commission has kept the current state aid rules for government guarantees schemes until 31 December 2011.[93] Eight out of 20 countries have prolonged the validity of their scheme after 2010.

Figure 24: Breakdown of state guaranteed bonds issued by maturity

Source: Commission services and Bloomberg

Concerning the amount approved in the period between 1 October 2008 and 1 October 2011, guarantees worth 3289.5 billion (26.8% of EU GDP) were approved by the Commission in a large number of countries.

In terms of the amount actually used in the years 2008-2010 in the entire EU a maximum[94] of € 1111.84 billion (9% of EU GDP) billion were actually granted. The countries which have made the most use of guarantees are Ireland € 360 billion and UK € 158.4 billion followed by Denmark € 145 billion (the largest part expired) and Germany € 135.04 billion. As a percentage of GDP, Ireland is still the largest user (233.9%) followed by Denmark (61.9%) and Belgium (12.5%).

In 2010, € 55.4 billion of new guarantees were approved by the Commission of which € 40.9 billion was covered by schemes. These are spread across 6 countries: a further € 40 billion have been approved for Greece (17.4% of its GDP), € 10 billion have been approved for Ireland (6.5% of Ireland GDP) and smaller amounts have been approved for Spain, Latvia, Lithuania and United Kingdom.

With respect to the aid actually used in 2010, the average outstanding volume of guarantees amounts to € 922.2 billion (7.5% of EU GDP). The difference between the maximum outstanding amount (€ 1111.8 billion) and the amount outstanding in 2010 represents the volume of guarantees expired. It should be noticed that, with the exception of Denmark, where the sizeable volume of guarantees granted in 2008 was replaced by further schemes for a lower amount, most of the guarantees are still outstanding in the remaining countries.

The country which has shown the largest increase in the volume of outstanding guarantees in 2010 is Ireland which reported an additional outstanding amount of € 55 billion (roughly 42% of IE GDP).

Figure 25: Outstanding guarantees (used amount) per country by year

Figure 26: Schemes expired/in place by country

3.1.3.2. Recapitalisation measures

As follows from figure 27 the total volume of recapitalisation measures approved in the period between 1 October 2008 and 1 October 2011 is € 598.05 billion (4.9% of EU GDP). Three countries (Germany, Spain and United Kingdom), out of a total of 21 countries using this instrument, account for almost 55 % of the overall amount approved. However looking at the figures in terms of national GDP, Ireland emerges as the country with the largest approved budget (58.5% of Ireland's GDP), whereas most of the other countries show figures in line with the EU average. The bulk of the overall volume of aid aimed at recapitalising Irish banks was approved in 2010 (€ 52 billion – 33.8% of Ireland's GDP) and in 2011 (€ 25.5 billion – 16.6 % of GDP). Other appreciable amounts of aid approved in 2010 are reported for Spain (€ 101.1 billion – 9.5% of Spain's GDP) and Greece (€ 10 billion – 4.3% of Greece's GDP). In the case of Spain the budget approved in 2010 represents the entire budget allocated for the recapitalisation of Spanish banks.

Concerning the amount used in 2008-2010 15 countries are relying on recapitalisation measures. The countries which have injected more capital into their banking system are United Kingdom (€ 82.9 billion), Germany (€ 56.6 billion) and Ireland (€ 46.2 billion), whereas in terms of GDP - in line with what is observed for the amount approved - the capital injections provided by Ireland are larger than in other countries since they represents 30 % of Ireland's GDP. Most of the Irish recapitalisation (€ 35.2 billion) took place in 2010. In relative terms other noticeable volumes of recapitalisation over the whole period have been observed in Luxemburg (6.2% of Luxemburg's GDP), Belgium (5.8% of Belgium's GDP) and UK (4.9% of UK's GDP). Apart from Ireland's capital injections the remainder of the aid used in 2010 is divided between the following countries (United Kingdom, Spain, Netherlands, Germany, Denmark and Austria).

Figure 27: Recapitalisation: Used amount per country by year

Slightly over half of the amount used was injected into financial institutions on an ad hoc basis. Six countries (AT, DE, DK, ES, FR and UK) used both ad hoc measures and schemes. All the other countries except IT, PT and HU relied on ad hoc measures.

By looking at the concentration of aid among beneficiaries, it is noticeable that three banks account for more than one third of the total amount used. Two of them are UK banks: The Royal Bank of Scotland and Lloyds Bank received approximately € 50 billion and € 25 billion respectively. The second largest recipient is the Anglo Irish Bank, which raised around € 29 billion of capital from the Irish Government in 2010.

Almost 85% of the recapitalisation has been directed either to banks under restructuring or to banks where the restructuring plan has either not yet been submitted or has not yet been approved by the Commission. In the case of ad hoc measures, this percentage is as high as 99%, whereas for schemes it stood at roughly 63%. One of the reasons to explain this difference is that some Member States (ES, FR, IT, DK and SE) required that the banks applying for the aid under schemes had to be in a sound financial condition. Moreover, at the beginning of the crisis, the Commission introduced a distinction between sound banks and distressed banks, in order to distinguish between institutions with structural solvency problems and institutions experiencing temporary liquidity constraints. The assessment of banks’ specific situation was also aimed at ascertaining whether a restructuring plan was required in order to ensure the long-term viability of the business and to minimise distortions in competition. Therefore, those banks which were not facing serious structural difficulties were allowed to benefit from capital injections without undertaking restructuring actions.[95]

Since January 2011, every bank applying for capital injections has had to submit a restructuring plan, irrespective of the amount of aid and of whether the aid is provided in the form of schemes or ad hoc measures.

Figure 28: Schemes expired/in place by country

More than 51 % (€ 160 billion) of recapitalisation aid are represented by Core Tier 1 instruments, most of which are common equity. According to the European Bank Authority, without additional Government capital injections 18 banks would have had their Core Tier 1 capital under the 5% risk threshold at the end of 2010 compared with the three banks actually in this situation under the baseline scenario.[96]

Exit from recapitalisation aid can also take the form of repayments from private banks to governments in order to return the capital received. The total repayments which were made during the whole period considered (2008-2010) amount to € 17.7 billion.[97] Most of the repayments were made by French banks; they amount to € 15 billion. This value accounts for almost 70% of the total capital injected in the French banking system (€ 22 billion). In the case of Hungary, the only bank which received capital injections (FHB) has returned them to the government in their entirety. In the other case (NL, DE and UK), the amount repaid still accounts for a small share of the total amount of capital injected by the State. In the course of 2011 further repayments were made by the French BPCE, the Italian Banco popolare and the Dutch Aegon. These banks repayments accounting in all cases for 100 per cent of the capital injected, amounts in total to € 9.5 billion. Further repayment amounting respectively to €11.8 billion and € 7 billion has been made in 2011 by the German Commerzbank and the Dutch ING; they accounts respectively for 65% and 70% of the capital received from the State. The total amount of repayments up to October 2011 stands at € 46 billion. The main strategy used, in particular by French and UK banks, to repay the capital received was to replace it with capital raised in the market. This strategy has been complemented by retaining earnings, selling business units and deleveraging.

3.1.3.3. Impaired asset relief

The threat of impaired assets, namely the uncertainty about the realisable value effectively achievable on risky assets held by banks, is still relevant, in particular in some segments of the European financial sector. However in 2010, the number of write-downs recorded in Europe has been lower than in previous years and in many cases new injections of capital, raised directly on the market, have compensated for the losses arising from the difference between the revised market value of the assets and the book value.

State aid in the form of impaired asset relief measures was granted in Europe in a second phase of the crisis when the problem of toxic assets had acquired more prominence. Lessons from the past crises highlight the importance of cleaning the banks' balance sheet, and the difficulties in pricing toxic assets correctly. The overall amount of impaired asset relief approved in the period between 1 October 2008 and 1 October 2011 was € 421.13 billion. Impaired asset measures are concentrated in a few Member States. Indeed, this kind of state aid has been approved in only 11 out of 27 countries. By far the majority of the amount approved in absolute value (€ 248 billion) relates to the United Kingdom's intervention. Other countries which approved considerable impaired asset relief measures are Ireland, Germany, Belgium and the Netherlands. In GDP term the largest volume of aid was approved for Ireland (35.1% of Ireland's GDP) followed by the United Kingdom (14.6% of the United Kingdom's GDP).

In 2010 the bulk of the aid was approved for Ireland (€ 54 billion -35.1% of Ireland's GDP) and Germany (€ 20 billion – 0.8% of Germany's GDP).

Figure 29: Impaired assets: Used amount per country by year

The overall amount of aid actually used for impaired assets stood at € 121.2 billion in the period 2008-2010. The intervention was concentrated mainly in two countries (Germany and the United Kingdom) which used € 56.1 billion and € 40.4 billion respectively. These figures accounts for roughly 80% of the overall impaired assets intervention in Europe. In GDP terms Ireland ends up in being the country which relied more on this type of instruments (4.5% of GDP); the whole amount was used in 2010.

In 2010, besides the amount approved under the new Irish scheme, other impaired asset measures have been put in place for banks. Two Spanish cajas (Caja Castilla-la Mancha and Caja Sur) received aid amounting respectively to € 2.5 billion and to € 0.4 billion. The German Landesbank West LB benefitted from € 3.3 billion of state aid in 2010, in addition to a total of € 8.3 billion granted between 2008 and 2009, while Hypo Real Estates received support amounting to € 20 billion in the form of asset relief.

In Germany the measures are distributed among five beneficiaries, mostly commercial banks and Landesbanken. In the UK, asset relief is concentrated on a single beneficiary (Royal Banks of Scotland). However, several banks have experienced considerable write downs on their assets, largely compensated by additional capital raised through the State and directly on the market. This may suggest that the impaired assets troubles in the UK have been mostly resolved by capital injections.

More than 90% of asset relief measures have been approved by means of ad hoc interventions. Owing to the difficulties concerning the correct assessment of the valuation of the assets, combined with the need to ensure burden-sharing for the beneficiary, many States have preferred to tailor the intervention on the basis of the specific individual circumstances of the institution, rather than using general schemes. The only country which has an operating scheme for asset relief is Ireland, where a general plan for asset relief (NAMA) was approved in 2010. Other countries designed either specific schemes (Germany) or schemes incorporated into a more general programme to deal with the effects of the financial crisis (Hungary, Austria and Lithuania). Both in Germany and in Hungary, the schemes have expired without being used. In Germany as well as in Austria, despite the existence of schemes, asset relief intervention has taken place on an ad hoc basis, whereas in the case of Lithuania no specific amount was allocated for this kind of aid.

A large proportion (80%) of asset relief interventions benefitted banks that were undergoing a restructuring process. The remaining banks which benefitted from impaired asset relief have either already submitted a restructuring plan which is under evaluation by the Commission or will be required to submit a restructuring plan to the Commission for approval.

As in the case of recapitalisation, since January 2011, state aid rules have required every bank applying for impaired asset measures to present a restructuring plan.

3.1.3.4. Liquidity interventions other than guarantees

In the period between 1 October 2008 and 1 October 2011 the total volume of aid approved in the form of liquidity intervention other than guarantees amounts to € 197.7 billion 1.6% of GDP). Four countries - the Netherlands (€ 52.9 billion), the United Kingdom (€ 51.9 billion), Ireland (€ 40 billion) and Spain (€ 31.8 billion) - account for roughly 89% of the whole aid approved whereas in terms of GDP the largest budget was allocated by Ireland (26% of Ireland's GDP) Luxemburg (12.6% of Luxembourg's GDP) followed by the Netherlands (8.9% of the Netherlands' GDP).

As regards the aid used the overall volume of liquidity measures implemented in the period 2008-2010 amounts to € 87.15 billion (0.7 % of EU GDP). In absolute terms the Netherlands (€ 30.4 billion), the UK (€ 19.8 billion)) and Spain (€ 19.3 billion) have been the countries relying the most on this instrument. In relative terms the support granted by Latvia (5.4% of Latvia's GDP) is followed by the amount granted by the Dutch government (5.1% of the Netherlands' GDP) and by Greece (3.3% of Greece's GDP). Two-thirds of the overall liquidity provided has been granted on the basis of ad hoc measures. The remainder consists of schemes implemented by three countries: Greece, Hungary and Spain. The latter Member States' scheme involves a fund aimed at providing liquidity for the acquisition of financial assets.

In 2010 the average volume of outstanding liquidity amounted to € 61.9 billion. The decrease in the outstanding amount of liquidity is mainly due to the fact that the bulk of the liquidity accounted for by the facility provided by the Dutch government to Fortis-ABM has expired. The countries recording the largest amount of average outstanding liquidity in 2010 are United Kingdom (€ 19.8 billion) and Spain (€ 19 billion) while Latvia shows the largest outstanding amount in GDP terms (5%).

Figure 30: Liquidity measures: Used amount per country by year

3.1.4. Restructuring

While the temporary state aid rules applicable to the financial sector have proved to be an important instrument for containing the crisis, there is a need to make a gradual exit from the exceptional State support. In the previous sections, the importance of restructuring has been emphasized, in order to ensure a return to normal market conditions and to phase out State intervention measures. Since January 2011 every bank which receives state aid support in whatever form has to submit a restructuring plan to the Commission for approval. The broad features of this plan are illustrated in the Commission's "Restructuring Communication".[98]

The main aim of the assessment undertaken by the Commission prior to the approval of the plan is to ensure that, at the end of the restructuring period, the restructured institutions will return to viability without having to rely on additional state aid. For this reason, when it is deemed that viability cannot be restored and the bank is unable to remain on the market without State support, aid for its resolution is usually provided. Resolution can take different forms (liquidation, sale, and downsizing) depending on numerous factors, such as the specific context in which the bank operates, its reference market and its activities. The restructuring plan also has to comply with other requirements aimed at minimising distortions of competition, limiting moral hazard and ensuring that the aid was kept to the minimum.

As end of September 2011 the Commission had adopted 37 restructuring decisions: 25 approving a restructuring plan to restore viability of financial institutions, 11 approving liquidation plans and one negative decision which led to recovery of the aid which had been granted (Banco Privado Portugues).

In order to restore viability, various measures have been put in place in cooperation with the Commission and the Member States to remedy the structural weaknesses of the banks. Most of them are aimed at limiting the range of bank activities in order to reduce overall risk and ensure the viability of the core business. Divestments of subsidiaries or assets are part of many restructuring plans (e.g. WestLB, ING). In some cases the bank was required to abandon the activities that do not fit into the bank's corporate strategy, as has been the case for the investment banking activities of Germany’s Commerzbank. Other remedies falling within the broad category of divestments involve reductions in balance sheets, personnel and branches. When bank solvency has been endangered by the excessive risk-taking that has been a feature of past bank investment strategy, changes in risk management have also been considered, as in the case of LBBW.

In the 11 cases where viability was deemed impracticable by means of a restructuring plan, the Commission adopted a decision leading to the banks’ liquidation. Danish banks Roskilde and Fionia, as well as the Swedish investment bank Carnegie, went through an ordinary liquidation, whereas Fortis BE and Caja Castilla La Mancha were sold and incorporated in another group. In the case of Northern Rock, liquidation was undertaken for the vast majority of the bank's assets, significantly reducing the size of the bank to a very small entity (a downsizing of 80%). All cases include a general ban on dividend and coupon payments.

Liquidation can be regarded as the most onerous form of burden-sharing, due to the costs borne by shareholders and creditors. Burden-sharing is an essential component of the restructuring plan. A common method of ensuring burden-sharing is the private shareholding dilution involved in the purchase of public shares. In the cases where banks were nationalised (Northern Rock, Fortis) with the purchase of shares for near-zero prices, the shareholders completely lost control of the bank and incurred losses from the forced sale of their shares.

Lastly, the Commission has to ensure that the restructuring plan includes adequate measures to limit the distortions of competition by ensuring that the bank uses the aid exclusively to restore its viability or to liquidate its assets in an orderly fashion. Many of the standard measures of the restructuring plan (dividend/coupon bans, acquisition bans, reduction of balance sheet and market share, and divestment of profit-making entities) are also designed to limit distortions of competition.

Box 2: The Commission’s assessment of rescue and restructuring aid granted to financial institutions during the crisis

Financial rescue and restructuring cases dealt with by the Commission during the crisis were dealt with by means of a one or two-step process, according to the criteria regarding the aid received and the aid beneficiary.

First of all, rescue aid is notified by the Member State pursuant to Article 108(3) TFEU in all cases. According to different criteria laid down in the crisis communications, especially the Restructuring Communication and the Impaired Asset Communication, the aid beneficiary needs to undertake an in-depth restructuring or a simple viability review. These criteria are:

(i) the capital adequacy of the aid beneficiary as reported by the national supervisory authority (a poor capital adequacy outlook generally indicates the need to restructure the beneficiary);

(ii) the size of the aid received in the form of recapitalisation or impaired asset relief (until 1 January 2011, recapitalisations and/or impaired asset measures amounting to more than 2% of the beneficiary's risk weighted assets were generally been considered by the Commission as sizeable aid measures that reveal structural difficulties encountered by the beneficiary and therefore necessitate a restructuring of the latter; after 1 January 2011, all recapitalisations and/or impaired asset measures trigger the restructuring of the beneficiary);

(iii) the current CDS spread of the beneficiary (a CDS spread that is higher than the sector average denotes a higher risk profile and a possible need for restructuring);

(iv) the current rating of the beneficiary and its outlook (a rating below A with a stable or positive outlook has been regarded by the Commission as an indicator of a lower risk profile).

Where these criteria have not been met, and the aid beneficiary is not considered to be in difficulty, the Commission has been able to follow a one-step process, by which it authorised the aid on the condition that the Member States submit, within six months after the rescue measure, a viability report in which the long-term viability of the beneficiary is demonstrated. This viability report should typically contain an assessment of the beneficiary's business model and its financial outlook. This assessment should demonstrate the long-term viability of the beneficiary and its ability to repay the aid received within a reasonable timeframe.[99]

Conversely, when some of the criteria mentioned above have been met and it has been acknowledged that the aid beneficiary is in difficulty, the Commission has followed a two-step process in which it first temporarily approved the aid, as long as a restructuring plan was submitted within six months after the rescue aid ("rescue decision").

Therefore, in a second stage, when a restructuring plan was submitted, the Commission had to assess it with reference to the Restructuring Communication. In particular, the plan should demonstrate the beneficiary's ability to restore its long-term viability within a reasonable timeframe (up to five years), it should appropriately share the burden of the restructuring between the State and the beneficiary shareholders and creditors, and it should include measures to limit the distortions of competition caused by the aid.

Where the Commission had serious doubts about the ability of the restructuring plan to meet these standards and, consequently, about the compatibility of the aid with the internal market, it has decided to open a formal procedure, in accordance with Article 108(2) TFEU. By means of this procedure, the third parties concerned were asked to provide their comments on the aid measures. After a careful assessment of the comments received and negotiations with the Member States concerned on the details of the aid and the content of the restructuring plan, the Commission was able to definitely authorise or reject the aid by closing the formal procedure ("final decision").

Figure 31: List of restructuring/liquidation decisions

3.2. Aid granted under the temporary framework 3.2.1. Context and purpose of the temporary framework

The global and financial crisis caused a serious downturn in the real economy, affecting households, businesses and jobs. In response, the Commission adopted its Communication "Temporary Community framework for state aid measures to support access to finance in the current financial and economic crisis" in December 2009, which allowed Member States, under certain conditions, to introduce additional aid measures aimed at facilitating companies' access to finance, while at the same time encouraging investments. The temporary framework was originally due to expire on 31 December 2010.

The temporary framework, by facilitating companies' access to finance, introduced the possibility of a direct grant of up to € 500 000 per company, to provide guarantees for loans at reduced premiums or subsidised interest rates for loans. In order to encourage companies' future investments, such as in new technology projects, Member States could grant aid in the form of subsidised interest rate loans for the production of green products, and higher ceilings for venture capital investments. Furthermore, the rules on export credit were simplified. Since the temporary framework was designed to provide for a possible horizontal effect in the economy, Member States were allowed to give support to any economic sector.

In order to be able to assess the effectiveness of the temporary framework rules and to decide whether they should be prolonged beyond 2010, the Commission asked Member States to submit a report by October 2009 and sent out two questionnaires.[100] Moreover, in October 2010, the Commission held a public consultation on the prolongation of the temporary framework.[101]

On the basis of the replies received from Member States and some third parties, and in the light of the highly volatile financial markets and the uncertainty about the economic outlook, the Commission decided to prolong certain measures set out in the temporary framework for one year, i.e. until 31 December 2011.[102]

While most instruments of the temporary framework were prolonged, the compatible limited amount of € 500 000 per company was phased out. Furthermore, the prolongation included a tightening of the conditions under which Member States can grant aid under the temporary framework.

3.2.2. Update on measures approved under the temporary framework[103]

In 2010, Member States continued to grant aid under the temporary framework. The Commission authorised six new schemes[104]:

· one scheme for aid of up to € 500 000 per company proposed by Bulgaria;

· one guarantee measure in Spain;

· one risk capital scheme in Spain;

· three export-credit schemes, in Latvia, Hungary and Slovenia.

The Commission furthermore prolonged 10 schemes:

· three schemes for aid of up to € 500 000 per company, in Germany, Italy and Hungary;

· two guarantee schemes, in Germany and Italy;

· two schemes for subsidised interest rate loans, in Germany and Italy;

· three export-credit schemes, in Denmark, Germany and Finland.

In 2010, under the heading of ad hoc aid measures, the Commission authorised one new guarantee scheme and prolonged another guarantee scheme, both of which were in Sweden and granted to car manufacturers. Ten new aid measures were granted to farmers. It is noted that, so far, Cyprus has not notified any aid measure under the temporary framework.

To provide an overview of the aid granted under the temporary framework and authorised by the Commission in 2011 (until 1 October 2011), a total of 17 aid measures were prolonged or amended.[105] During the same period, no new aid measures were authorised under the temporary framework. While most Member States felt that there was a clear need to use the instruments provided by the temporary framework during the first year, i.e. 2009, the few new measures authorised in 2010 and the absence of new measures in 2011 suggest that Member States have made effective use of the tool during 2009 and 2010 when public support to the real economy was mostly needed. However, it cannot be ruled out at this stage that Member States may request to prolong some of their existing measures further.

With respect to the approved aid volumes authorised under the temporary framework, see the figure in the next paragraph.

3.2.3. Aid granted in 2010

Figure 32: Aid granted under the temporary framework[106]

|| 2010 || 2009

(in € billion) || As % of EU GDP || (in € billion) || As % of EU GDP

Approved aid amount || 1.6 || 0.01% || 81.3 || 0.68%

Aid amount used || 11.7 || 0.09% || 21 || 0.17%

The small amount of the approved aid volume can be explained by the fact that only a few new aid measures were introduced by Member States under the temporary framework in 2010, while a large number of aid measures were introduced in 2009 and also allowed aid to be granted in 2010.

Nevertheless, Member States have been very cautious when drawing up the budget, given the uncertainties as to the depth and the duration of the crisis in the real economy. Still, there is still a large discrepancy between the total approved aid amount and the amount used, which can be explained by the fact that Member States have continued to exercise strict discipline when granting aid under the temporary framework. Moreover, the budgetary restrictions imposed in 2010 may have had contributed to this effect.

With respect to the preferred arrangements through which Member States provided aid under the temporary framework, the tool that was most used was the subsidised guarantee, followed by the subsidised interest rate loan and the maximum aid amount of € 500 000 per undertaking. This ranking is the result obtained from looking at the amount used. If one calculates the aid element for the corresponding amount used, the ranking shows that the maximum aid amount of € 500 000 per undertaking is used the most, followed by risk capital, the subsidised guarantee and subsidised interest rate loans.[107]

In the context of preparing the Commission's Staff Working Document on "The effects of temporary state aid rules in the context of the financial and economic crisis"[108], the Commission sent a questionnaire to Member States asking for more details on, inter alia, their aid measures granted under the temporary framework.

It can be concluded from the replies that SMEs benefited most from aid granted under the temporary framework. Some Member States granted aid almost exclusively to SMEs, while a few Member States also included large enterprises.[109] Furthermore, it was found that in many Member States the number of beneficiaries was rather high, in some instances more than 10,000 small companies. The replies from some Member States provided more detail in terms of the sectors which benefitted from the aid granted under the temporary framework. While the information provided in the replies is mostly presented in the form of an estimate, it can be concluded that the sectors which have benefitted the most are the manufacturing-related sectors, followed by services such as tourism and construction activities.

4. Trends in non-crisis state aid expenditure by type of aid measures

Figure 33[110]: Trend by type of aid measures (number of measures); EU-27

When looking at the number of measures, 2010 saw a fall in new aid measures, particularly in relation to schemes and more significantly in new block exempted aid, whereas the number of new individual aid measures remained stable. While the overall number of new aid measures authorised by the Commission or introduced by Member States (with respect to GBER aid measures) fell by almost half, it has to be noted that the proportion of aid granted through block exemptions, schemes and individual aid has not changed significantly. Nevertheless, a large percentage of new aid measures (approximately 66%) were introduced by Member States by means of a block exemption. The remaining aid scrutinised by the Commission represented 34% and even decreased slightly in 2010.

One main reason for the substantial drop in the number of new block exempted aid measures in 2010 is the fact that Member States introduced many new GBER measures in 2009 by phasing out aid measures implemented under the previous block exempted aid measures which fell under the Regulations covering aid for employment[111], to SMEs[112] and for training.[113] Furthermore, some new GBER measures also replaced previous block exempted aid measures falling under regional block exemption aid.[114]

A further reason is the fact that national budgets in the Member States were generally exercising strict budgetary control in 2010, which provided little potential to create new state aid measures.

However, it is too early to detect a trend in future numbers of GBER aid measures from the short period during which the GBER has actually been in force.

Figure 34[115]: Trend by type of aid measures (number of measures); EU-27

The year 2010 saw a further increase in the aid volume granted by Member States under the block exemption. It amounted to approximately € 12.6 billion, or 21% of all aid granted to industry and services. With respect to the notified aid schemes, the aid volume amounted to approximately € 40.4 billion, which is 67.5% of total aid to industry and services or 0.33% of EU GDP. Lastly, individual aid amounted to € 6.8 billion, which is equal to 11.5 % of total aid to industry and services or 0.06% of EU GDP.

Generally, the positive trend by which Member States grant more aid through block exemption also continued in 2010 and allowed the Commission to focus on the examination of individual applications within a scheme and ad-hoc measures; it is these cases which most often have the greatest potential to distort competition.

5. Enforcing the state aid rules 5.1. Unlawful aid

Article 108(3) TFEU requires Member States not only to notify state aid measures to the Commission before their implementation, but also to await the outcome of the Commission's investigation before implementing notified measures. If either of these obligations is not respected, the state aid measure is considered to be unlawful. When, following a formal investigation procedure, the state aid measure is considered incompatible with the internal market, the Commission shall decide that the Member State must take all necessary measures to recover the aid from the beneficiary in accordance with national procedures (negative decision with recovery).

In the period 2000 to 30 June 2011, the Commission took 980 decisions on unlawful aid.[116] In 22% of unlawful aid cases (217 cases) the Commission intervened by taking a negative decision on an incompatible aid measure. This negative decision normally requires the Member State concerned to recover the illegally awarded aid. In a further 2% of unlawful aid cases (31 cases), the Commission took a conditional decision.

In addition, there are 105 pending unlawful aid cases which are still under scrutiny by the Commission. These