State Aid Scoreboard - Autumn 2003 update
Date: 2003-10-29
Institutions: European Commission
Subjects: EU statistics, State aid, aid for restructuring, aid to undertakings, competition law, control of State aid

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 29.10.2003
COM(2003) 636 final

State Aid Scoreboard

autumn 2003 update

(presented by the Commission)

Contents

Introduction ................................................................................................................................ 3

Part One: Follow-up to the Council conclusions on State aid .................................................. 4

Member States and Commission’s response to the Council conclusions .................................. 5

Reduction and reorientation of aid ............................................................................................. 5

State aid versus general measures .............................................................................................. 7

Ex ante and ex post evaluation exercises ................................................................................... 8

Conclusions and next steps ...................................................................................................... 11

Part Two: State aid for rescuing and restructuring firms in difficulty.................................... 12

Introduction .............................................................................................................................. 12

Brief summary of the current guidelines on rescue and restructuring ..................................... 13

Trends and patterns of rescue and restructuring aid per sector ................................................ 14

Conclusions .............................................................................................................................. 17

Revision of the Rescue and Restructuring Guidelines ............................................................. 17

Part Three: Modernising State aid control ............................................................................. 18

Services of General Economic Interest (SGEI)........................................................................ 19

State aid to the fisheries sector................................................................................................. 20

State aid to the agricultural sector ............................................................................................ 20

Recovery of aid ........................................................................................................................ 21

Preparing for Enlargement ....................................................................................................... 21

Online scoreboard .................................................................................................................... 22

Annex I: Council conclusions on State aid.............................................................................. 23

2

INTRODUCTION

As  part  of  the  drive  to  make  the  EU  the  most  competitive  and  dynamic  knowledge-based
economy in the world, the Lisbon Council in March 2000 requested the Council, Commission
and Member States to “further their efforts to … reduce the general level of State aids”. One
year  later  at  the  Stockholm  Council,  a  specific  indicator  and  target  date  concerning  the
reduction of aid were introduced. Member States were requested to “demonstrate a downward
trend  in  State  aid  in  relation  to  GDP  by  2003,  taking  into  account  the  need  to  redirect  aid
toward horizontal objectives of common interest, including cohesion objectives.”

Although  figures  for  2003  are  not  yet  available,  indications  are  that  the  majority  of  Member
States have taken steps to ensure that these commitments to reduce and redirect aid are being
met.  The  overall  volume  of  State  aid  in  the  fifteen  Member  States,  as  a  percentage  of  GDP
continues to decline: in 2001, the total amount of aid granted was €86 billion, or just slightly
below  1%  of  GDP,  compared  with  €102  billion  in  1997.  Outside  of  the  specific  areas  of
agriculture, fisheries and transport,  the  decline  in  aid  levels  has  been  even  more  notable:  the
overall level of aid declined from 0.66% of GDP in 1997 to 0.38% of GDP in 2001. Moreover
there has been a significant increase in the proportion of aid devoted to horizontal objectives,
such  as  research  and  development  aid,  aid  for  small  and  medium-sized  enterprises,  the
environment, employment and training, and a corresponding reduction in the amount of more
distortive  individual  aid.  Aid  to  assisted  regions  however  fell  dramatically  over  the  period
1993–2001 largely due to the phasing out of aid to the new German Bundesländer.

Since  the  commitments  undertaken  at  Stockholm,  the  Council  has  adopted  further  sets  of
conclusions  on  State  aid,  all  built  around  the  principles  of  reducing  and  redirecting  aid.  In
particular, Member States have been invited to “consider before granting State aid whether it is
targeted  on  clearly  identified  market  failures  or  directed  at  horizontal  objectives  of  common
interest, including economic and social cohesion objectives, and whether an intervention in the
form  of  State  aid  is  the  most  appropriate  and  effective  way  to  address  these  issues;”  and  to
continue to “develop the use of “ex-ante” and “ex-post” evaluations of individual State aid and
State aid schemes in order to monitor impact on competition and effectiveness of the aid”.

This update of the Scoreboard is divided into three parts. The first part focuses on the actions
undertaken by both the Commission and the Member States to follow up the above-mentioned
Council conclusions on State aid. The second part looks at one of the most distortive types of
State aid, that is rescuing and restructuring firms in difficulty. Finally, part three looks at recent
developments in the Commission’s State aid reform programme.

The  spring  2003  update of  the Scoreboard provides  an  overview of  the  State aid  situation
in    the    Union  and    examines    the  underlying  trends    based    on  the    latest    available    data
(2001). 
a  permanent  online  Scoreboard
(http://europa.eu.int/comm/competition/state_aid/scoreboard/)  consisting  of  a  series  of  key
indicators, statistical information and a Member State Forum was launched in 2002.

this  paper 

addition 

edition, 

In 

to 

3

PART ONE: FOLLOW-UP TO THE COUNCIL CONCLUSIONS ON STATE AID

The  following  is  a  brief  description  of  the  key  points  emerging  from  the  various  Council
conclusions on State aid since the Lisbon agenda was launched in March 2000. A full set of the
conclusions can be found in Annex I.

The  Lisbon  European  Council  set  out  to  make  the  EU  the  most  competitive  and  dynamic
knowledge-based economy in the  world. The Council, Commission and Member States were
requested “to further their efforts to promote competition and reduce the general level of State
aids”.  One  year  later  at  the  Stockholm  European  Council,  Member  States  pledged  to
“demonstrate a downward trend in State  aid  in relation  to GDP  by 2003, taking into account
the  need  to  redirect  aid  toward  horizontal  objectives  of  common  interest,  including  cohesion
objectives.” Further impetus was provided at the Barcelona European Council in March 2002
when Member States  agreed to step  up  their efforts  to  reduce  aid  levels.  In  March  2003,  the
Brussels  European Council  called  for  “a further  reduction in state  aids and the  redirection of
aid to horizontal objectives and welcomes the Commission's intention to continue working to
simplify and modernise state aid arrangements, focusing attention on the most distorting aid”.

In  addition  to  the  references  to  State  aid  at  the  European  Council  summits,  more  specific
conclusions  on  State  aid  have  also  been  adopted.  In  December  2001,  under  the  Belgian
Presidency,  the  Industry  Council  adopted  a  set  of  conclusions  in  which  it  invited  Member
States to continue their efforts to reduce aid levels, reorient aid towards horizontal objectives,
further develop the use of "ex ante" and "ex post" evaluations of aid schemes, and improve the
transparency  and  the  quality  of  reporting  to  the  Commission.  The  Council  also  asked  the
Commission to take an active role in following-up the implementation of these conclusions and
to present an initial assessment of progress in 20021.

In  November  2002,  under  the  Danish  Presidency,  the  Competitiveness  Council  adopted  a
further set of  conclusions on  “an  economic  approach  towards  less  and  better  State  aid”2  The
main aim of the conclusions is to develop a broader economic analysis of the effects of State
aid by encouraging greater dialogue and exchange of information between the Member States.
It  reaffirms  the  need  to  “closely  evaluate  State  aid  in  order  to  identify  and  reduce  the  most
distortive  types  of  State  aid,  underlining  that  monitoring  and  follow-up  of  State  aid
expenditures are essential components of State aid policies in Member States and Community
State aid policy;”  In  this context, it invites Member  States  to  “consider  before  granting  State
aid  whether  it  is  targeted  on  clearly  identified  market  failures  or  directed  at  horizontal
objectives  of  common  interest,  including  economic  and  social  cohesion  objectives,  and
whether an intervention in the form of State aid is the  most  appropriate  and effective  way to
address  these  issues;”  and  to  continue  to  “develop  the  use  of  “ex-ante”  and  “ex-post”
evaluations  of  individual  State  aid  and  State  aid  schemes  in  order  to  monitor  impact  on
competition  and  effectiveness  of  the  aid”.  The  Council  also  invited  Member  States  and  the
Commission to exchange information and experience, notably through meetings and seminars
and the development of a web-based network, on their efforts to reduce and redirect State aid.

1  The  Commission’s  progress  report  to  the  Council  (COM(2002)  555  final)  concerning  the  reduction  and

reorientation of State aid was adopted on 16th October 2002:
http://europa.eu.int/comm/competition/state_aid/others/

2  Council document number 13799/02: http://register.consilium.eu.int/pdf/en/02/st13/13799en2.pdf

4

                                                
In addition, the Council invited the Commission, among other things, to continue to modernise,
simplify, and clarify the scope and content of EU rules on State aid (see Part Three).

Member States and Commission’s response to the Council conclusions

In its progress report to the Council mentioned above, the Commission invited Member States
in October 2002 to send a contribution indicating the actions they have undertaken to follow up
the various conclusions on State aid. The contributions received from thirteen Member States
were  the  subject  of  a  meeting  in  July  2003  between  the  Commission  services  and  State  aid
experts from the Member States. The following is a summary of Member States contributions
together with details of some of the Commission’s work in response to the conclusions.

Reduction and reorientation of aid

In  view  of  the  current  political  and  economic  situation,  there  is  a  general  consensus  among
Member  States  on  the  need  to  balance  the  grant  of  State  aid  against  constraints  on  national
public  finances.  Some  Member  States  contend  that  their  national  economic  policies  are  very
much in line with the goals to reduce and reorient aid and cite specific efforts that have or will
further  reduce  State  aid  levels.  For  example,  the  present  Danish  Government  cut  total  aid  to
companies  by  over  10%  in  the  Financial  Law  for  2003.  In  the  Irish  Budget  for  2003  the
termination dates for a number of tax incentive schemes were set at 31 December 2004, which
the Irish expect “will further contribute to the downward trend in State aid.”

A  number  of  Member  States  cite  recent  efforts  to  streamline  and  rationalise  their  business
support schemes with a view to both reducing aid levels and increasing the effectiveness of the
aid schemes. For example:

- The United Kingdom began work in November 2002 to restructure the manner in which its
Department  of  Trade  and  Industry  (DTI)  business  support  services  were  organised.  The
intention is “to rationalise  the current business support schemes, and  close  those  which  were
unnecessary  or  not  achieving  their  desired  results.”  It  is  envisaged  that  “the  new  business
support  structure  will  focus  more  strongly  on  horizontally  based  business  support  schemes
which are more closely aimed at addressing demonstrable market failures.”

-  A  review  of  innovation  policy  in  the  Netherlands  concluded  that  “streamlining  the
instruments  is  vital  for  improving  transparency  for  users  and  for  reducing  the  amount  of
(inefficient)  overlap  and  conflicting  goals.  This  requires  a  restriction  in  the  number  of
instruments and a reduction in departmental compartmentalisation, as well as a shift towards a
more generic structure for the instruments.”

-  Denmark  has  carried  out  a  series  of  economic  analyses  of  both  existing  and  potential  new
state aid schemes. By drawing attention to both the positive and negative sides of state aid it
hopes that this “will lead to better state  aid  schemes” and that “state  aid  should in the future
secure  the  largest  possible  effect  for  taxpayers’  money  and  with  the  smallest  possible
distortionary  effects  on  competition.”  As  well  as  distortion  of  competition,  other  negative
effects  identified  by  Denmark  include  excessive  profits,  excessive  wages,  low  productivity,
outdated industrial structure, direct costs, administrative costs and distortionary taxes.

- In Finland, with a view to improving the quality of aid programmes, “opportunities have also
been  identified  to  move,  by  degrees,  from  grants  towards  funding  instruments  that  ‘come
back’, such as loans, guarantees and conditional own capital funding.”

5

-  Belgium  too  is  also  looking  at  the  possible  development  of  more  innovative  instruments
having concluded that direct grants are often less effective.

Furthermore, there appears to be a trend in several Member States towards making greater use
of general measures rather than aid schemes or at least towards greater synergy and interaction
with other non-aid instruments. For example:

-  The  United  Kingdom  states  that  government  policy  is  “to  move  whatever  support  it  is
necessary to provide to industry away from routes which constitute State aid.”

-  In  Ireland,  “while  payment  of  State  aid  under  the  Regional,  Training,  R&D  and  SME
headings  is  continuing  …,the  State’s  focus  on  also  using  non-State  aid  measures  to  achieve
development objectives in these areas has been stepped up. For example, the establishment of
research  capacity  and  other  measures  in  relation  to  education  significantly  reduces  the
proportion of State funding to R&D which will be delivered in the form of State aid.”

-  In  Belgium,  policy  in  recent  years  has  focused  on  measures  to  improve  the  business
environment (e.g., reducing the administrative burden, access to finance, etc) and strengthening
the synergy of the various policies.

It is important to stress that a reduction in the level of State aid does not necessarily imply a
reduction in  the level  of State  funding.  For  example, a Member State may decide, instead  of
granting State aid, to allow all enterprises to deduct for tax purposes certain expenditure such
as  the  expenses  incurred  for  the  training  of  workers.  This  would  be  a  measure  of  general
economic  policy,  not  caught  by  the  State  aid  rules.  See  box  on  ‘State  aid  versus  general
measures’.

All  Member  States  refer  to  the  main  indicators  in  the  spring  2003  update  of  the  State  aid
Scoreboard  which  allow  progress  towards  the  commitments  undertaken  at  Stockholm  to  be
monitored. Due to a time-lag in the data3, it is not yet possible to see whether Member States
are  able  to  demonstrate  a  downward  trend  in  total  aid  as  a  percentage  of  GDP  by  2003,  as
agreed at Stockholm. Nevertheless, the spring 2003 Scoreboard shows that up to 2001 the vast
majority of Member States have reduced aid levels as a percentage of Gross Domestic Product
(GDP). EU-wide, total aid amounted to 0.99% of GDP in 2001, a decrease of -0.31 percentage
points compared with 1997. Excluding the agriculture, fisheries and transport sectors, aid fell
from 0.66% of GDP in 1997 to 0.38% in 2001.

The  other  main  goal  concerns  a  reorientation  of  aid  from  ad  hoc  and  sectoral  aid  towards
horizontal objectives of common interest. Looking at recent trends, the share of EU aid granted
for  horizontal  objectives  increased  by  10  percentage  points  from  the  period  1997-1999  to
1999-2001. This was largely the result of a sharp increase (+8 points over this period) in aid for
environmental objectives. All Member States have, to differing degrees, redirected aid to such
objectives although the level of sectoral aid, mainly for the coal sector, remains relatively high
in certain Member States. Aid to the assisted regions4 however fell dramatically over the period
1993 – 2001, largely due to the phasing out of aid to the new German Bundesländer. In most

3  As part of the ongoing procedural reform, the Commission is exploring the possibility to reduce this time-lag

from two years to one.

4  Aid awarded under  Article 87(3)(a) of the Treaty. See also Section 2.3  of  State  aid  Scoreboard  spring  2003

update.

6

                                                
cases, the increase in horizontal aid is clearly the result of explicit national policies favouring
aid for horizontal objectives.

The Commission has also played a role in this process. First, it adopted guidelines on State aid
on  environmental  protection  in  20015,  which  provide  a  favourable  framework  for  aid  for  the
development  of  renewable  energy  supplies.  Second,  in  order  to  eliminate  unnecessary
procedural  formalities  whenever  possible,  the  old  frameworks  for  small  and  medium-sized
enterprises,  training  and  employment  have  been  replaced  by  block  exemption  regulations6,
which eliminate the need for notification by Member States of individual aid or aid schemes. A
proposal  to  block  exempt  research  and  development  aid  for  small  and  medium-sized
enterprises should be adopted by the end of 2003. Third, in cases where it can be shown that
the State aid rules are too strict and may actually constitute a hindrance to the achievement of
the  broader  economic  policy  objectives  of  the  Union,  the  Commission  has  shown  that  it  is
prepared to take remedial action. A good example is the Commission Communication on State
aid  and  risk  capital7.  In  that  case,  working  closely  with  the  European  Venture  Capital
Association, the Commission established that there was a gap in the market provision of capital
for  high  risk  company  start-ups  and  that  a  solution  was  not  available  within  the  existing
frameworks. The resulting Communication provides a very flexible instrument to give public
support  through  venture  capital,  especially  to  start-ups  involved  in  innovative  projects,  to
SMEs, and to companies located in assisted areas.

State aid versus general measures

State  aid  is  a  form  of  state  intervention  used  to  promote  a  certain  economic  activity.  It  implies  that
certain  economic  sectors  or  activities  are  treated  more  favourably  than  others  and  thus  distorts
competition because it discriminates between companies that receive assistance and others that do not.
In  order  to  determine  whether  a  measure  constitutes  State  aid,  a  distinction  has  thus  to  be  drawn
between the situation where the support is directed at certain undertakings or the production of certain
goods, as specified in Article 87(1) of the Treaty, and the situation where the measures in question are
equally applicable throughout the Member State and are intended to favour the whole of the economy.
In the latter case, there is no State aid within the meaning of Article 87(1).

This selective character thus distinguishes State aid measures from general economic support measures.
Most nation-wide fiscal measures would be regarded as general measures as they apply across the board
to all firms in all sectors of activity in a Member State. The distinction is however not always clear-cut.
For example, the fact that certain companies might benefit more than others from a measure does not
necessarily mean that the measure is selective. Accordingly, the Commission decided that a Dutch tax
measure involving partially accelerated depreciation for R&D laboratories did not constitute State aid8.
On the other hand, a measure is considered to be “selective” if it applies to only one or some sectors of
activity regardless of the fact that the measure covers a large number of companies or that the sectors
concerned are particularly diverse.9 Similarly, a measure reserved for certain companies is deemed to be
selective even if a limitation on the number of companies to benefit from the aid is based on objective
criteria.10 A scheme may also be selective if the authorities administering the scheme enjoy a degree of
discretionary power.

5  Official Journal C 37, 3.2.2001, pages 3-15
6  Regulations (EC) N°68/2001, N° 70/2001 and N°2204/2002
7  OJ C 235, 21.8.2001, p. 3-11
8  Decision of 11.5.1999. Case N 18/97. OJ C 225 of 7.8.1999
9  See in particular judgment of the Court of 17.6.1999. Belgium v Commission. AFF C-75/97
10  See in particular judgment of the Court of 1.12.1998. Ecotrade v AFS. AFF C-200/97 Item 38

7

                                                
The  interpretation  of  the  concept  of  selectivity  has  evolved  over  the  years  following  various
Commission  decisions  and  court  rulings.  Details  of  the  most  important  cases  are  provided  in  recent
Annual Competition Reports (http://europa.eu.int/comm/competition/annual_reports/).

The distinction between State aid measures and general economic support measures should be borne in
mind  when  interpreting  some  of  the  data  included  in  the  Scoreboard.  Some  of  the  detailed  statistical
tables on the online Scoreboard show that some Member States have reduced the amount of State aid
for some horizontal objectives such as training, employment or R&D. This does not however mean that
public expenditures on these activities have fallen. Instead, a number of Member States have increased
spending on general economic support measures.

Ex ante and ex post evaluation exercises

All  Member  States  carry  out  some  form  of  monitoring  and  evaluation  of  their  aid  schemes
though,  for  some,  such  exercises  have  begun  only  within  the  last  few  years.  Member  States
such as Belgium and Portugal point to the considerable amount of experience acquired over the
years in evaluating the Structural Funds. Other Member States have set up special evaluation
units. For example:

- The Ministry of Finance in the Netherlands set up a special monitoring and evaluation unit in
2002 to evaluate both policy aims and instruments.

-  In  Ireland,  an  Industry  Evaluation  Unit  was  established  in  1993  to  “undertake  analysis  of
particular  measures  or  sub-programmes  co-financed  under  the  Operational  Programme  for
Industry, assess the impact, effectiveness and efficiency of those interventions and recommend,
as appropriate, changes in approach.”

-  In  Finland,  evaluating  aid  programmes  is  a  statutory  duty11.  The  authorities  “have  an
obligation  to  monitor  the  progress  of  aid  programmes  and  to  have  evaluations  carried  out  to
establish the objectives of aid and how successful it is.” General business aid policy, including
initiatives  to  develop  evaluation  practices,  is  co-ordinated  by  an  advisory  committee.
Furthermore,  the  Finns  also  set  up  a  working  party  in  2000  to  examine  the  effectiveness  of
business aid.

-  In  France,  in  addition  to  other  bodies  which  carry  out  evaluation  exercises,  le  Conseil
National de l’Evaluation was created in 1998 to develop an evaluation programme for a variety
of topics such as the Structural Funds and regional policy.

-  In  Greece,  the  Ministry  of  Economy  and  Finance  is  currently  trying  to  develop  a
methodology for the appraisal of aid granted. A State aid unit was set up within the Centre for
European and International Economic Law in October 2001.

A number of Member States have developed criteria, either for the ex ante stage, i.e. to develop
new schemes, or for the ex post stage, to evaluate the effectiveness of the aid:

- Denmark points out, “experience from ex post analyses leads to some general conclusions as
well as a general methodology that will be useful in future ex ante analyses.” Furthermore the
Danish  government  has  introduced  an  approach  aimed  at  ensuring  State  aid  is  treated  in  the
same way for comparable activities in all sectors. It is based on two general welfare economic

11  State  aid  Act  of  2001  and  Act  on  the  General  Terms  and  Conditions  of  Business  Subsidy  which  came  into

force in 1999

8

                                                
principles which state that, first, no aid should be given unless there are externalities, the gains
of which should outweigh  the  costs,  including  the marginal  cost  of  public  funds  and  second,
there are barriers for the commercial sector to undertake profitable activities.

- As part of the preparation of the German Federal Budget for 2004 and the Finance Plan to the
year 2007 all financial assistance listed in the Federal Government's subsidy report is audited.
The Federal Ministry of Finance has drawn up an audit plan including an ex-ante and ex-post
questionnaire to be completed by specialist departments.

- In Finland, the Ministry of Trade and Industry has developed an aid monitoring system and
series  of  project-related  indicators.  Collecting  monitoring  information  at  project  level  takes
place at various stages beginning with the application stage, when key figures such as expected
growth of the company (turnover, employees, exports) are entered into the monitoring system.
The  process  ends  with  an  ex-post  questionnaire  on  the  impact  of  the  aid  which  is  sent  to  all
recipients  of  aid  within  two  years  of  the  end  of  the  project.  This  allows  actual  and  expected
results to be compared and tests for deadweight effects.

- Ireland has also developed a list of criteria for the various stages: ex-ante stage (e.g., identify
any  possible  displacement/deadweight  issues;  build  in  evaluation  criteria  in  scheme
description); implementation stage (e.g., use cost benefit economic model where appropriate);
ex-post  stage  (e.g.,  review  impact,  use  of  independent  consultants  such  as  universities
/academics).

- In France, a new Financial Law adopted in August 2001 has placed much greater emphasis on
the results and effectiveness of public management. Budgeting decisions are now based on the
achievement of results from pre-defined objectives.

- In the United Kingdom, all policies, projects or programmes undertaken by the government
are  subject  to  ex-ante  appraisal  and  ex-post  evaluation.  This  is  facilitated  by  the  use  of  an
assessment  cycle  known  as  ROAMEF,  standing  for  Rationale,  Objective,  Appraisal,
Monitoring,  Evaluation  and  Feedback.  The  United  Kingdom  cites  a  number  of  reasons  why
appraisal  is  a  key  element  of  the  current  design  of  policies,  projects  and  programmes:
“prudence  in  spending  public  funds,  promoting  efficient  policy  development,  informing
decision  making,  examining  the  wider  social  costs  and  benefits  of  proposals,  promoting
economic efficiency and value for money.”

Several Member States provide detailed information on specific evaluation exercises that have
been undertaken. For example:

- Italy produces every year a series of reports detailing the impact of various aid schemes on
economic activity. One such report from 2002  looks at  the impact  of  aid programmes on the
industrialisation  process  in  the  southern  regions  of  Italy.  It  includes  a  comprehensive
evaluation exercise drawing largely on information provided in a questionnaire completed by
all  businesses  benefiting  from  State  aid.  This  provides  a  range  of  information  such  as  the
incentive effect of the  aid vis-à-vis the  decision  to  invest  in  the  region.  Furthermore,  Italy  is
also in the process of developing a database detailing all beneficiaries of State aid.

- In Ireland, the Industry Evaluation Unit has undertaken a large number of evaluations ranging
from  a  review  of  training  grants  to  a  review  of  effectiveness  indicators  in  the  operational
programme for industrial development.

9

- In the Netherlands, an Interministerial policy review has recently looked at the legitimacy and
efficiency  of  the  Netherlands’  innovation  policy  in  the  light  of  future  developments  and  the
opportunities for improving this policy.

- In 2001, the Danish Ministry of Economic and Business Affairs carried out ex-post analyses
of  three  state  aid  schemes  (shipbuilding  subsidies,  transport  aid  to  firms  producing  on  the
island Samsoe and subsidies to firms’ investment in energy saving technology).

- In Finland, a working party to examine the effectiveness of business aid included among its
recommendations:  the  reliability  of  information  produced  by  monitoring  systems  must  be
improved and the information produced by different systems harmonised; develop a common
indicator system to support monitoring and evaluation; set up an evaluation unit independent of
the  Ministry’s  departments;  create  a  manual  for  evaluating  effectiveness,  etc.  The  Finnish
report also contains valuable descriptions of several aid evaluation studies.

- The Belgian report cites several examples of evaluation exercises. For example, in 1998 and
2000 Belgium carried out in-depth ex-post evaluations of the impact of investment aid on the
Wallonian economy. Some econometric tests were used to  assess  the effectiveness  of  the  aid
schemes.

-  Portugal  has  carried  out  a  number  of  ex  ante  and  ex  post  assessments  of  aid  schemes.  For
example,  a  report  in  2002  on  the  selection  criteria  adopted  for  the  SIME  –  Sistema  de
Incentivos à Modernização Empresarial (Incentives for  Business Modernisation)  and SIPIE –
Sistema  de  Incentivos  às  Pequenas  Iniciativas  Empresariais  (Incentives  for  Small  Business
Initiatives)  schemes  made  proposals  for  the  modification  and  redesign  of  these  incentive
schemes.

Member  States  also  point  to  the  need  to  raise  awareness  about  State  aid  through  advice,
training, drafting manuals and guides, etc. For example:

- In the United Kingdom, the State Aid Branch in the Department of Trade and Industry runs a
range  of  training  and  awareness  raising  programmes  aimed  at  “assisting  administrators  to
understand  the  need  for  State  aid  control  …,  to  provide  them  with  basic  advice  on  how  to
approach projects which may constitute State aid. It is hoped that such exercises will assist in
the  reorientation  and  reduction  of  State  aid,  e.g.,  a  greater  awareness  of  the  need  to  comply
with  the  State  aid  rules  should  assist  in  reducing  the  number  of  cases  where  aid  is  granted
without notification. It should also result in more schemes being designed so that aid is avoided
or, where it is necessary to include aid, targeted towards horizontal measures.”

- In Finland, among the recommendations of the working party to examine the effectiveness of
business  aid  were  “drawing  up  a  manual  for  evaluating  effectiveness  and  increasing  the
evaluation know-how of ministry staff”.

-  Belgium  has  placed  on  the  internet  a  considerable  amount  of  information  ranging  from
detailed descriptions of all aid schemes in Wallonia to an online service for aid applications in
the Flemish region.

In  the  context  of  devising  indicators  of  effectiveness,  the  Commission  decided  in  2001  to
procure  a  study  from  outside  consultants.  The  purpose  of  this  study  was  two-fold.  First,  to
devise a methodology for assessing the contribution of different forms of State aid towards the
achievement  of  various  clearly  defined  policy  objectives.  Second,  to  develop  general  criteria

10

that can be used to explain the efficient use of state aid. In assessing the effectiveness of State
aid, the study does not attempt to identify and measure market failures directly nor to compare
the level of aid intensity with regional gaps, but rather to define policy objectives of State aid
and  to  investigate  the  effectiveness  of  State  aid  as  a  policy  instrument  for  achieving  these
objectives.  The  study  proposes  a  econometric  model  to  investigate  the  determinants  of
effectiveness,  and  uncovers  a  number  of  conditions  that  explain  variations  in  effectiveness
across  Member  States  and  state  aid  objectives.  The  effectiveness  of  state  aid  is  measured  in
four  policy  fields:  R&D,  SME,  Regional  aid  and  Railways.  Some  robust  but  rather  general
conclusions can be drawn from the study. The econometric approach is clearly superior to the
use  of  simple  ratios  and  correlations;  there  are  diminishing  returns,  i.e.  as  expenditure
increases, marginal effectiveness falls; there are wide variations between Member States in the
effectiveness of aid; complementarities can often be observed between aid for different primary
objectives;  the  financial  instrument  used  (grant,  tax  relief,  etc)  has  a  strong  influence  on
effectiveness.

Conclusions and next steps

Member States contributions point to a range of actions that have been undertaken to follow up
the various conclusions on State aid. Throughout the Union, there has been a concerted effort
to  reduce  the  overall  level  of  aid  while  redirecting  aid  to  horizontal  objectives.  The  most
notable  policy  innovation  has  been  in  Denmark  where  the  total  amount  of  aid  to  companies
was cut by 10% in 2003. Several Member States also report that they are making greater use of
general measures rather than aid schemes as well as developing greater synergy with other non-
aid  instruments.  The  Commission  welcomes  such  an  approach.  Some  Member  States  are
however continuing to award aid that is particularly distortive of competition, such as ad hoc
and sectoral aid and aid for rescue and restructuring.

All  Member  States  have  recognised  the  need,  particularly  in  the  context  of  tightening
budgetary constraints, to evaluate the effectiveness of their aid measures. A variety of ex-ante
and ex-post  evaluation exercises  have  been  developed,  particularly  within  the  last  few  years,
although some Member States are clearly further advanced than others in the degree to which
such exercises are being carried out systematically.

The actions undertaken by Member States to follow up these conclusions were the subject of a
meeting in July 2003 between the Commission services and national State aid experts. It was
agreed  that  such  a  meeting  should  be  held,  in  general,  on  an  annual  basis,  to  discuss
developments in this area.

In response to the Council’s request to the Commission to provide a web-based network for the
exchange  of  information  and  best  practices,  the  Commission  established  in  2003  a  CIRCA
interest group12 on State aid. It was agreed that all Member States should make full use of this
facility to exchange information on their efforts to reduce  and redirect State  aid  and evaluate
the effectiveness of aid.

The Commission has made available to Member States, for internal use, the results of the study
on effectiveness of aid referred to above. The Commission services are currently reflecting on
a possible follow-up study in this area.

12  The  State  aid  interest  group  on  CIRCA  (Communication  &  Information  Resource  Centre  Administrator)
allows  for  the  exchange  of  confidential  and  non-confidential  information  between  the  Commission  and  the
Member States.

11

                                                
PART TWO: STATE AID FOR RESCUING AND RESTRUCTURING FIRMS IN DIFFICULTY

Introduction

In  its  conclusions  on  State  aid,  adopted  in  November  2002,  the  Council  invited  the  Member
States to “commit themselves to continue their efforts to reduce the overall level of State aid, in
particular those aids which imply the greatest risk of competition distortions.”

Aid for rescue and restructuring firms in difficulty is undoubtedly one of the most potentially
distortive types of State aid. It cannot be the norm that a company which runs into difficulties
is kept artificially in the market by the State. The exit of unprofitable firms is a normal part of
the  functioning  of  a  market  economy.  Rescue  aid  is  a  one-off  operation  designed  to  keep  a
company in business for a limited period, during which its future can be assessed. On the other
hand, repeated rescues that would merely maintain the status quo, postpone the inevitable and
in the meantime shift the attendant economic and social problems on  to other, more  efficient
producers  or  other  Member  States  cannot  be  allowed.  Aid  for  restructuring  raises  particular
competition concerns as it can shift an unfair share of the burden of structural adjustment and
the  attendant social  and  economic  problems  onto  other  producers  who  are  managing  without
aid and to other Member States. As well as the competition concerns, the ineffectiveness of a
lot of rescue and restructuring aid is clearly a concern for Member States in their pursuit of an
efficient allocation of state resources.

Hence,  the  current  Community  guidelines  on  rescuing  and  restructuring  (see  box  below)
confirm  that  state  aid  for  rescuing  firms  in  difficulty  from  bankruptcy  and  helping  them  to
restructure may only be regarded as compatible under certain strict conditions imposed on the
recipient and the Member State. It may be justified, for instance, by social or regional policy
considerations:  for  example,  if  it  can  be  shown  that  any  distortions  of  competition  will  be
offset by the benefit flowing from the firm's survival (in particular, where it is clear that the net
effect of redundancies resulting from the firm going out of business, combined with the effects
on  its  suppliers,  would  exacerbate  local,  regional  or  national  employment  problems)  or,
exceptionally, where the firm's disappearance would result in a monopoly or tight oligopolistic
situation  and,  where  appropriate,  there  are  adequate  compensatory  measures  in  favour  of
competitors. The grant of rescuing and restructuring may also be approved by the need to take
into account the beneficial role played  by  small and medium-sized  enterprises  (SMEs) in  the
economy.

A forthcoming review of the current guidelines, which expire in October 2004, will focus on
whether  stricter  conditions  to  aid  given  to  undertakings  in  financial  difficulty  are  required,
while  at  the  same  time  ensuring  that  the  necessary  means  are  available  for  the  training  and
reemployment  of  the  workers  concerned.  See  box  on  ‘Revision  of  the  Restructuring
Guidelines’ for further information.

12

Brief summary of the current guidelines on rescue and restructuring13

The compatibility of State aid for rescue and restructuring is governed by the Community guidelines on
State  aid  for  rescuing  and  restructuring  firms  in  difficulty,  first  adopted  in  1994  and  then  revised  in
1999.

Rescue aid and restructuring aid are covered by the same set of guidelines, because in both cases the
public authorities are faced with a firm in difficulties and the rescue and the restructuring are often two
parts  of  a  single  operation,  even  if  they  involve  different  processes.  A  company  in  difficulty  is  a
company  that  is  unable  to  stem  losses  which  without  outside  intervention  by  public  authorities  will
almost certainly condemn it to go out of business in the short or medium term. Rescue aid is by nature
temporary  assistance.  It  should  make  it  possible  to  keep  an  ailing  firm  afloat  for  the  time  needed  to
work out a restructuring or liquidation plan and/or for the length of time the Commission needs to be
able  to  reach  a  decision  on  that  plan.  Restructuring,  on  the  other  hand,  will  be  based  on  feasible,
coherent and far-reaching plan to restore firm's long-term viability. Restructuring usually involves one
or more of the following elements: the reorganisation and rationalisation of the firm's activities on to a
more efficient basis, typically involving the withdrawal from loss-making activities, the restructuring of
those  existing  activities  that  can  be  made  competitive  again  and,  possibly,  diversification  in  the
direction of new and viable activities. Financial restructuring (capital injections, debt reduction) usually
has  to  accompany  the  physical  restructuring.  Restructuring  operations  within  the  scope  of  the
Guidelines  cannot,  however,  be  limited  to  financial  aid  designed  to  make  good  past  losses  without
tackling the reasons for those losses.

In order to be approved by the Commission, rescue aid has to meet the following conditions:

- consist of liquidity support in the form of loan guarantees or loans bearing normal commercial interest
rates;

- be restricted to the amount needed to keep the firm in business;

- should be temporary, i.e. only for the time needed (max. 6 months) to devise the recovery plan;

- be warranted on the grounds of serious social difficulties and have no unduly adverse spillover effects
on other Member States;

- should be a one-off operation.

Similarly, restructuring aid can be granted only if certain criteria are met:

- a viable restructuring/recovery programme is submitted to the Commission;

- measures are taken to avoid undue distortions of competition (e.g. appropriate reduction of capacity);

-  aid  is  limited  to  the  minimum  needed  for  the  implementation  of  the  restructuring  measures.
Beneficiaries have to make a significant contribution;

- the company has to implement the restructuring plan in full;

- restructuring aid can be granted once only (‘one time, last time principle’);

- strict monitoring and annual reporting is required.

The  vast  majority  of  aid  for  rescue  and  restructuring  is  awarded  on  an  individual  (ad  hoc)  basis.
Member  States  may  notify  rescue  and  restructuring  schemes  for  small  and  medium-sized  enterprises
but for large companies such aid is always assessed on an individual basis.

13  http://europa.eu.int/eur-lex/pri/en/oj/dat/1999/c_288/c_28819991009en00020018.pdf

13

                                                
The current set of guidelines, adopted in 1999, strengthened the rules in several areas, notably:

- on repeated restructuring aid. The "one time last time" principle ruled out a second restructuring aid
for a company for ten years after the end of its first restructuring.  An  exception  may  be  made  where
there are exceptional circumstances that are not attributable to the company;

-  on  which  firms  can  be  considered  as  firms  in  difficulty  and  can  therefore  benefit  from  rescue  and
restructuring  aid.  Although  there  is  no  precise  Community  definition  of  what  constitutes  ‘a  firm  in
difficulty’,  for  the  purposes  of  the  current  Guidelines,  the  Commission  regards  a  firm  as  being  in
difficulty where it is  unable,  whether  through  its  own resources  or  with the funds  it  is  able to  obtain
from  its  owner/shareholders  or  creditors,  to  stem  losses  which,  without  outside  intervention  by  the
public authorities, will almost certainly condemn it to go out of business in the short or medium term.
New firms and firms formed out of the assets of previous ones are excluded;

-  on  the  ability  of  Member  States  to  give  aid  approved  for  other  reasons  (such  as  regional  aid)  to
companies undergoing an aided restructuring.

Trends and patterns of rescue and restructuring aid per sector

A  comparison  of  the  overall  amounts  of  aid  awarded  for  rescue  and  restructuring  in  each
Member State over time is not particularly meaningful. First, the very nature of the aid means
that each individual case is examined on its own merits. As a result, one large award of State
aid, as in the Crédit Lyonnais case in France, may outweigh all other cases. Second, recourse to
rescue and restructuring aid has been influenced by  the level  of financial support afforded to
the various economic  sectors by each Member State (e.g.,  the long-standing State  guarantees
for  public  banks  in  Germany  undoubtedly  helped  them  to  better  stand  competitive  pressure)
and, in particular, to the timing of and degree to which each sector has been liberalised. Third,
the  overall  economic  climate  also  has  an  impact  on  the  extent  of  aid  for  rescue  and
restructuring.  As  a result of  the recent economic  downturn, the  number  of  firms  in  difficulty
has risen and hence there has been a greater tendency for Member States to resort to State aid
for rescue and restructuring. This is reflected in the number of important cases involving ailing
firms  that  the  Commission  has  been  dealing  with  in  the  last  couple  of  years.  The  overall
number of cases however remains relatively small: 14 new registered cases in 2002 involving
the  rescue  and  restructuring  of  firms  in  the  manufacturing  and  service  sectors.  The  overall
picture of aid for rescue and restructuring is thus rather complex and varies considerably from
one Member State to another and from one sector to another.  It is however worth noting that
while  some  Member  States  regularly  award  aid  to  rescue  and  restructure  ailing  firms,  others
clearly do not have such a policy.

The vast majority of aid for rescue and restructuring is awarded on an individual (ad hoc) basis
to  ailing  firms  and  it  is  this  aid  that  is  most  prone  to  distort  competition.  During  the  period
1990-2002, the Commission approved rescue and restructuring aid in this way to around 120
firms  in  difficulty  in  the  manufacturing  and  service  sectors14.  Several  Member  States,  in
particular Germany, Spain and Austria, have also introduced aid schemes  for rescuing and/or
restructuring small and medium-sized enterprises in difficulty in these sectors over this period.
The overall amounts of aid awarded through such schemes are, in general, relatively small.

14  This figure also includes a small number of firms operating in the construction, engineering and mining sectors

14

                                                
In  looking  at  the  number  of  individual  awards  of  rescue  and  restructuring  aid  per  Member
State, it is important to bear in mind that aid amounts have varied from less than €1 million up
to  more  than  €20  billion.  Furthermore,  the  figures  do  not  include  the  large  number  of
companies that received aid under the enormous restructuring programme15 carried out in the
new German Bundesländer during the 1990s. Nevertheless, the figures are quite revealing: of
the  120  firms  in  the  manufacturing  and  service  sectors,  around  35  were  in  Germany,  20  in
France,  15  in  Spain  and  Italy  and  5-10  in  Austria,  Belgium  and  Portugal.  In  contrast,  in
Denmark,  Greece,  Ireland,  Luxembourg,  Netherlands,  Finland,  Sweden  and  the  United
Kingdom,  there  were  at  most  2  cases  of  rescue  and  restructuring  aid  being  awarded  and  in
some cases none whatsoever.

Of  the  120  individual  awards  of  rescue  and  restructuring  aid,  around  90  were  for
manufacturing firms in difficulty. Indeed, during the 1990s, the bulk of aid granted ad hoc in
the Union was awarded for the purpose of the vast restructuring programme in the new German
Bundesländer  and  for  the  rescuing  or  restructuring  of  companies  and  large  industrial
conglomerates in other Member States. Ad hoc aid to the new German Bundesländer peaked in
1994  when  just  over  €10  billion  was  awarded  and  then  dropped  considerably  until  the
Treuhand  programme  expired  at  the  end  of  the  decade.  In  total,  an  estimated  €45  billion  of
State aid was awarded under this programme. A similar trend is found in ad-hoc aid that was
granted in other Member States to certain sections of their respective manufacturing industries.

As regards shipbuilding, a sub-sector of the manufacturing sector, the Commission approved a
number  of major restructuring programs  during the second half  of the  1990s, in  particular  in
shipyards in the former East Germany and Spain. Over the last few years, however, no major
restructuring aid has been applied for by the Member States.

As a general rule, rescue and restructuring aid for the steel industry, another sub-sector of the
manufacturing  sector,  has  been  prohibited.  However,  major  restructuring  and  concomitant
capacity  reductions  were  undertaken  exceptionally  in  the  early  to  mid-nineties  in  several
Member States. In its 2002 Communication16 on Rescue and restructuring aid and closure aid
for  the  steel  sector,  the  Commission  noted  that,  in  the  last  decisions  adopted  in  1993  on  the
basis of Article 95 of the ECSC Treaty, the Commission and the Council agreed that no further
decisions of this nature would be taken to rescue Community steel firms. Following this, steel
companies had  been acting  on  the  market on  the  assumption that no further restructuring  aid
was  available  to  them.  If  this  state  of  affairs  were  to  change  in  future,  there  would  be  no
guarantee that  steel firms would not  relax their efforts  towards  costs  reduction  and  increased
these
competitiveness, 
circumstances,  the  Commission  considered  that  rescue  aid  and  restructuring  aid  for  firms  in
difficulty in the steel sector as defined in Annex B of the Multisectoral  framework, were not
compatible with the common market.

the  enormous  efforts  already  made.  In 

thereby  endangering 

During the 1990’s, a considerable amount of rescue and restructuring aid, in the region of €31
billion,  was  granted  to  the  banking  sector  involving  a  number  of  high-profile  cases  in
Germany, France and Italy. This was due largely to the profound modification in the European
banking sector that characterised the last decade. Following the adoption of European banking
directives,  the  legislative  and  regulatory  framework  of  national  banking  systems  underwent
important changes. The institutional separation between the establishments and the operational

15  Aid given via the Treuhandanstalt or the Bundesanstalt für vereinigungsbedingte Sonderaufgaben
16  2002/C 70/05

15

                                                
constraints  progressively  fell  away,  the  markets  opened  up,  technological  advances  offered
new  commercial  opportunities  and  competitive  pressures  increased  throughout  Europe.  The
necessity for many banks and the banking sector to restructure became more urgent because of
the economic crisis in the early 1990’s. The delay in adapting to the new banking environment,
notably by public banks, led to dramatic consequences. Some banks in certain Member States,
as  in  France  and  Italy,  went  through  deep  crises  and  received  large  amounts  of  restructuring
aid.  Since  1998,  the  Commission  has  dealt  with  no  new  cases  for  this  sector  in  France  and
Italy,  appearing  to  confirm  that  the  major  restructuring  operations  undertaken  had  reached
completion.  Some  banks  in  Germany  however,  which  first  came  under  scrutiny  in  1994,  are
still currently being investigated.

Other  service  sectors  where  rescue  and  restructuring  aid  has  been  awarded  over  the  last  ten
years or so include media, culture and tourism. Overall amounts of aid are relatively small.

There have also been several restructuring cases in the postal sector but in the vast majority of
cases  the  Commission  concluded  that  the  financial  support  granted  by  Member  States
constituted compensation to the undertaking concerned for the operation of services of general
economic interest. However, in the Deutsche Post case the Commission found that part of the
aid was also being used to subsidise activities in the competitive business parcels sector as well
as for public postal services and it therefore ordered the recovery of the corresponding part of
the aid.

As regards the railway sector, there have been important efforts in recent years to revitalise the
Community’s  railways.  While  several  Member  States  have  provided  financial  support  to
railway companies as compensation for the operation of services of general economic interest,
no restructuring aid has been notified nor authorised by the Commission.

With  the  liberalisation  of  the  air  transport  sector,  many  airline  companies  introduced  major
restructuring  programmes  during  the  early  to  mid-nineties.  Aid,  mostly  ad-hoc,  that  was
granted to this sector peaked in 1994 with around €2.5 billion awarded in the Union but since
1998  the  level  of  aid  has  fallen  significantly.  This  is  largely  due  to  the  fact  that  the
Commission adopted strict guidelines in 1994 that reinforced, in particular, the one-time-last-
time  principle  for  restructuring  aid  to  companies  in  financial  difficulty.  Although  the  airline
industry was hit badly following the terrorist attacks of 11 September 2001, this did not lead to
specific  rescue  and  restructuring  aid  in  this  sector.  In  2001  and  2002,  however,  aid  schemes
were approved by the Commission for most Member States to, among other things, provide for
the  insurance  cover  that,  due  to  an  increased  terrorist  threat,  the  insurance  market  failed  to
provide. It is not possible to quantify such aid.

The  rescue  and  restructuring  guidelines  do  not  apply  to  the  coal  sector.  Aid  to  the  coal
industry,  insofar  as  ECSC  coal  products  were  concerned,  was  regulated  by  a  Commission
Decision17  which  expired  in  July  2002.  In  its  place,  the  Commission  adopted  a  Regulation
which  lays  down  rules  for  the  granting  of  State  aid  to  the  coal  industry  with  the  aim  of
contributing  to  the  restructuring  of  this  sector18.  The  rules  take  account  of  the  social  and
regional  aspects  of  the  sector’s  restructuring,  as  well  as  the  need  for  maintaining,  as  a
precautionary measure, a minimum quantity of indigenous coal production to guarantee access
to reserves.

17  Commission Decision 3632/93/ECSC adopted under Article 95 ECSC Treaty
18  Council Regulation (EC) No 1407/2002 of 23 July 2002 on State aid to the coal industry

16

                                                
Conclusions

It  is  widely  recognised  that  aid  for  rescue  and  restructuring  firms  in  difficulty  is  one  of  the
most potentially distortive types of State aid. Hence, the Commission has attempted to ensure a
rigorous  application of the  Community  guidelines  on  rescuing  and  restructuring  where  aid  is
compatible  only  under  certain  strict  conditions  -  justified  for  example  by  social  or  regional
policy concerns - imposed on the recipient and the Member State. A forthcoming review of the
current guidelines, which expire in October 2004, will examine whether stricter conditions are
required in order to reduce such potentially distortive aid to a minimum.

Revision of the Rescue and Restructuring Guidelines

The  Commission  has  begun  work  on  a  comprehensive  review  of  the  guidelines  in  view  of  the
preparation of new guidelines to replace the existing ones which expire in October 2004. A first internal
review of the guidelines has identified a series of problems, a selection of which are presented below:

(cid:1)  When  is  a  company  in  financial  difficulties?    There  is  no  Community  definition  of  a  "firm  in
difficulty" and it seems very difficult to  derive  any  definition  from  the  practice  of  Member  States
because of differences in national insolvency laws and procedures.

(cid:1)  Groups  of  companies.    The  guidelines  state  that  a  company  belonging  to  a  group  is  not  normally
eligible, except where the difficulties are the company's own and are not the result of  an  arbitrary
allocation  of  costs  within  the  group,  while  the  difficulties  are  too  serious  to  be  dealt  with  by  the
group itself.  These criteria are not easily applicable and raise a number of questions. For example,
where  a  subsidiary  in  one  Member  State  is  in  financial  difficulties  but  whose  parent  company
appears unwilling to support it.

(cid:1)  Urgency. Whereas the current Guidelines are based on the premise that aid is notified in advance,
rescue aid often has to be granted prior to Commission approval in order to avoid the collapse of the
company.    However,  any  possible  solution  to  this  situation  should  comply  with  the  notification
obligation under Art. 88 (3) EC Treaty.

(cid:1)  One-time last time principle.  The guidelines provide that rescue aid is a one-off operation and that
repeated rescue aids should be avoided.  However, there have been cases of companies which were
not eligible for restructuring aid because of the "one time, last time" principle, obtaining new rescue
aid.

(cid:1)  Various time limits.  The different time limits in the current framework are unclear and thus need to

be clarified.

(cid:1)  Compensatory  measures:  when  are  the  compensatory  measures  proposed  sufficient  in  scope  "to

mitigate the potentially distortive effects of the aid on competition"?

17

PART THREE: MODERNISING STATE AID CONTROL

The Council conclusions adopted in November 2002 on “an economic  approach towards less
and  better  State  aid”19  called  on  the  Commission,  in  close  co-operation  with  the  Member
States, to “continue to modernise, simplify,  and clarify the scope and  content of  EU rules on
State  aid,  including  making  them  more  effective  in  terms  of  the  length  of  process  and  the
administrative resources involved.” Unlike the reform of anti-trust or merger control, State aid
reform  is  not  being  undertaken  in  a  specific  single  initiative,  but  by  a  series  of  changes  at
different levels.

The  first  initiative  concerns  procedural  change  which  has  become  increasingly  important  in
view  of  enlargement.  The  objective  is  to  accelerate,  simplify  and  modernise  procedures,  in
particular with a view to reducing the resources  expended  on  routine cases  and to enable the
Commission to concentrate resources on more important cases which present real competition
concerns  at  the  Community  level  and  hamper  the  growth  and  competitiveness  of  European
business.  In  this  regard,  the  Commission  recently  undertook  a  detailed  internal  review  to
identify the possibilities for simplifying procedures and reducing their duration. As a result of
this  review,  the  Commission  services  identified  a  number  of  possible  changes  which  are
currently  the  subject  of  detailed  consultation  with  experts  from  Member  States.  This  work
includes the preparation of draft implementing provisions under Article 27 of Regulation (EC)
n° 659/1999 concerning the form, content and other details of notifications, the form, content
and other details of annual reports, details of time-limits and the calculation of time-limits, and
the  interest  rate  for  the  recovery  of  unlawful  aid,  as  well  as  other  suggestions  to  improve
current procedures and working methods.

The Commission will also continue to review its State aid instruments to simplify and clarify
them,  and  remove  possible  conflicts  between  the  different  texts.  At  present,  priority  is  being
given  to  reviewing  the  rules  on  rescue  and  restructuring  aid  for  companies  in  difficulty  (see
Part Two),  to  look  at  the  reform  of  the  Community's  regional  aid  rules  after  enlargement,  to
prepare new rules for shipbuilding, to simplify the rules on research and development aid for
small  and  medium-sized  enterprises,  to  clarify  the  area  of  services  of  general  economic
interest, and to review the State aid guidelines for the maritime and aviation sectors.

As  regards  the  regional  aid  guidelines,  it  is  clear  that  the  situation  will  change  significantly
after enlargement. The greater part of the territory of the Acceding States will receive “assisted
region” status. There will  thus be a clear  need to  review the  approach  to regional aid for the
period  after  2006,  while  at  the  same  time  taking  full  account  of  the  parallel  review  of  the
structural  fund  regulations.  For  the  period  up  to  2006,  the  current  regional  aid  maps  for  the
fifteen  Member  States  will  remain  in  place  while  regional  aid  maps  for  the  Acceding  States
have been elaborated.

The  Commission  is  preparing  a  framework  on  State  aid  to  shipbuilding  to  replace  the  1998
Shipbuilding  Regulation  which  expires  on  31  December  2003.  The  guiding  principle  of  this
exercise is to simplify and normalise the treatment of  shipbuilding, both as to the form and the
substance  of  State  aid  rules.  It  is  nevertheless  proposed  to  maintain  certain  sector-specific
provisions  on  the  basis  of  certain  particularities  that  distinguish  shipbuilding  from  other
industries.

19  Council document number 13799/02: http://register.consilium.eu.int/pdf/en/02/st13/13799en2.pdf

18

                                                
As  regards  research  and  development  aid  for  small  and  medium-sized  enterprises,  the
Commission  launched  in  July  2003  a  formal  consultation  of  Member  States  and  interested
parties on a draft regulation to amend the rules on aid for SMEs in order to incorporate the new
Community definition of an SME and to exempt aid for R&D from notification.

Services of General Economic Interest (SGEI)

The Commission has repeatedly stressed the importance that it attaches to the proper operation
of  Services  of  General  Economic  Interest  (SGEI).  Clearly,  undertakings  responsible  for  a
service  of  general  economic  interest  must  have  the  necessary  resources  to  ensure  that  it
operates  properly,  and  in  some  cases  public  financial  support  may  prove  necessary.  The
Commission’s  task  is  however  to  ensure  that  the  amount  of  such  financial  support  does  not
exceed  what  is  necessary  for  the  performance  of  the  public  service  obligation  and  that  the
resources  made  available  are  not  in  practice  improperly  used  to  finance  activities  on  other
markets open to competition.

In this context, the judgment delivered by the Court of Justice on 24 July 2003 in the Altmark
case20  provides  useful  clarification  on  how  Articles  87  and  88  of  the  EC  treaty  apply  to  the
public financing of undertakings responsible for services of general economic interest.

In  its  judgment,  the  Court  stated  that  “where  a  State  measure  must  be  regarded  as
compensation  for  the  services  provided  by  the  recipient  undertakings  in  order  to  discharge
public service obligations, so that those undertakings  do  not  enjoy  a  real  financial  advantage
and the measure thus does not have the effect of putting them in a more favourable competitive
position than the undertakings competing with them, such a measure is not caught by Article
87(1) of the Treaty.”

However, for such compensation to escape classification as State aid in a particular case, four
conditions must be satisfied:

- “The recipient undertaking must actually have public service obligations to discharge, and the

obligations must be clearly defined.”

- “The parameters on the basis of which the compensation is calculated must be established in
advance  in  an  objective  and  transparent  manner,  to  avoid  it  conferring  an  economic
advantage which may favour the recipient undertaking over  competing undertakings.” The
Court states that “payment by a Member State of compensation for the loss incurred by an
undertaking  without  the  parameters  of  such  compensation  having  been  established
beforehand,  where  it  turns  out  after  the  event  that  the  operation  of  certain  services  in
connection  with  the  discharge  of  public  service  obligations  was  not  economically  viable,
therefore constitutes a financial measure which falls within the concept of State aid.”

- “The compensation cannot exceed what is necessary to cover all or part of the costs incurred
in the discharge of public service obligations, taking into account the relevant receipts and a
reasonable profit for discharging those obligations.”

- “Where the undertaking which is to discharge public service obligations, in a specific case, is
not chosen pursuant to a public procurement procedure which would allow for the selection
of the tenderer capable of  providing those services at the  least  cost  to  the community, the
level of compensation needed must  be determined  on the basis  of  an  analysis of  the  costs

20    C-280/00  concerning  the  grant  of  licences  for  scheduled  bus  transport  services  in  the  Landkreis  of  Stendal

(Germany) and public subsidies for operating those services.

19

                                                
which a typical undertaking, well run and adequately provided with means of transport so as
to  be  able  to  meet  the  necessary  public  service  requirements,  would  have  incurred  in
discharging  those  obligations,  taking  into  account  the  relevant  receipts  and  a  reasonable
profit for discharging the obligations.”

When these conditions are met, any subsidies paid as compensation do not constitute state aid
and the prior notification  requirement is  not  therefore  applicable.  The  Court  broadly  upholds
the  traditional  approach  of  the  Commission,  balancing  the  need  to  ensure  the  financing  of
SGEI  against  the  need  to  prevent  unwarranted  distortions  of  competition.  In  the  light  of  this
Court  ruling,  the  Commission  must  now  draw  up  a  document  laying  down  the  conditions
governing their actual application by the Member States.

State aid to the fisheries sector

With regard to State aid procedures in the fisheries sector, the Commission has adopted a draft
regulation  proposing  to  exempt  most  categories  of state aid in  the  fisheries  sector  from  prior
notification  to  the  Commission.  The  aim  is  to  make  the  existing  rules  simpler  and  to  adapt
them  to  the  new  legal  framework  under  the  reformed  Common  Fisheries  Policy  adopted  in
December  2002.  Once  adopted,  this  block  exemption  will  further  reduce  administrative
procedures  necessary  before  granting  aid  to  the  sector,  and  will  thus  be  in  line  with  the
facilitation  already  approved  in  December  2002  for  the  Financial  Instrument  for  Fisheries
Guidance (FIFG), according to which Member States no longer have to notify the Commission
of  national  aid  which  co-finances  measures  benefiting  from  FIFG  support.  The  categories
proposed  for  exemption  include  aid  for  promotion  and/or  advertising  of  fisheries  products,
producers' groups, protection and development of aquatic resources, innovative measures and
technical  assistance,  fishing  port  facilities,  scrapping  of  fishing  vessels,  socio-economic
measures, investment in processing and/or marketing of fisheries products, and aquaculture and
inland  fishing.  Once  adopted,  the  block  exemption  will  apply  to  aid  granted  to  small  and
medium-sized enterprises for amounts below €1 million or to aid designed to finance measures
with a  maximum  eligible  amount  of  €2  million.  To  ensure  the  proper  allocation  of  such  aid,
monitoring will take place through ex post reporting obligations.

New  draft  guidelines  on  the  examination  of  State  aid  to  the  fisheries  sector,  in  the  form  of
appropriate measures under Article 88(1) of the Treaty will be submitted to the Commission at
a later stage, following a consultation with the Member States in October 2003.

State aid to the agricultural sector

Within the framework of the Commission Communication to the European Parliament and the
Council  on  the  Mid  Term  Review  of  the  Common  Agricultural  Policy,  the  Commission
recently adopted a draft block exemption regulation for certain types of State aid up to certain
ceilings, granted to small and medium-sized enterprises (SMEs) in the agricultural sector. Due
to the SME definition - up to  250  employees,  €40  million  turnover  or  a  €27  million  balance
sheet – this would cover almost all farms and companies active in the agriculture sector.

This draft regulation shows that the Commission is willing to take bold steps to simplify the
regulatory framework  for  agriculture  and to  modernise  and simplify the  state  aid  rules  in the
sector.

Accordingly,  provided  that  all  conditions  mentioned  in  the  draft  regulation  are  fulfilled,  it  is
now  proposed  that  Member  States  would  no  longer  need  to  notify  to  the  Commission  in
advance  certain  types  of  State  aid  for  clearance.  Such  types  of  aid  include,  among  others,

20

Investment aid of up to 40% for farmers /50% in less-favoured areas; Aid of up to 100% for the
costs of conservation of traditional landscapes and buildings; Investment aid of up to 40% or
50%  in  Objective  1  regions,  to  enterprises  active  in  the  processing  and  marketing  of
agricultural  products  or  aid  of  up  to  €100  000  per  beneficiary  over  a  three  year  period  to
encourage the production and marketing of quality agricultural products21.

The draft regulation was discussed with Member States in June 2003 and was published in the
Official Journal C 194 of 15.8.2003 to invite comments from third parties. It will be submitted
to a second consultation of Member States on 6 November after which the Commission intends
to adopt the final text by the end of 2003 and to make it applicable by January 2004.

Recovery of aid

The  Commission  has  the  power  to  require  that  aid  granted  by  Member  States  which  is
incompatible with the common market be repaid by recipients to the public authorities which
granted  it.  The  Member  State  must  recover  the  aid  immediately  in  accordance  with  national
procedures.

The  fact  that  Commission  decisions  are  enforced  through  the  Member  States  under  their
national  procedures  constitutes  a  weak  spot  in  the  enforcement  system.  Due  to  the  inherent
conflict  of  interest  (the  State  being  the  donor  of  aid  as  well  as  the  recovering  institution)
recovery  orders  often  do  not  enjoy  a  high  priority.  This  is  particularly  true  when  the  aid
beneficiary  has  declared  bankruptcy.  About  a  third  of  all  recovery  cases  concern  bankrupt
companies.  In  such  cases,  recovery  takes  place  under  national  insolvency  procedures  since
there  is  no  harmonised  European  insolvency  law.  Moreover,  a  number  of  Member  States,
including the Acceding States, have recently adopted insolvency laws, modelled to a greater or
lesser extent on the U.S. Chapter 11 insolvency statute. In line with the US model, these new
laws shield the economic activities of the insolvent company against its creditors, including the
State aid recovery claims.

In reaction to this and as part of the recent reorganisation of DG Competition, a new unit was
set up, specifically charged with ensuring the enforcement of recovery decisions. Besides the
treatment  of  individual  cases,  it  analyses  the  barriers  to  recovery  and  identifies  possible
solutions. A dialogue with practitioners and academics of insolvency law was started in order
to avoid a one-sided  approach  but to  pursue  the  goal  of effective  recovery  within the overall
internal market objectives.

Preparing for Enlargement

As of  1 May 2004, competition rules will apply directly  on  the  new  Member  States  with,  as
regards State aid, only some very limited transitional arrangements. The Commission will need
to ensure the application of the  State aid rules in  economies  which  are  in  some  respects  still
different  from  those  of  the  current  Member  States,  and  which  have  not  always  yet  fully
completed  the  process  of  transition  from  centrally  planned  to  market-based  economies.  The
experience of German reunification illustrates some of the difficulties which may arise.

In order to prepare for a gradual introduction of State aid control in line with the EU acquis, the
Commission  has  over  many  years  been  working  closely  with  the  authorities  in  the  Acceding

21  Details on the different types of aid are provided on:

http://europa.eu.int/comm/agriculture/stateaid/leg/sum_en.pdf

21

                                                
States. Since the late 1990s, the Commission has actively encouraged the introduction of State
aid  legislation  and  the  establishment  of  State  aid  monitoring  authorities  in  the  Candidate
Countries,  in  line  with  the  provisions  of  the  Europe  Agreements.  The  Commission  has
consistently  taken  the  view  that  Candidate  Countries  had  to  demonstrate  a  credible  State  aid
enforcement record in line with the acquis well before the date of accession. This has ensured
that the Acceding States have phased out or aligned their most distortive forms of aid, i.e. aid
for  the  bail-out  of  ailing  businesses  as  well  as  incompatible  fiscal  aid  measures,  largely
designed  to  attract  internationally  mobile  investments.  Furthermore,  the  Accession  Treaty,
signed  in  Athens  in  April  2003,  provides  for  a  mechanism  that  enables  the  Commission  to
screen  State  aid  measures  that  entered  into  effect  before  the  date  of  accession  and  that  the
authorities  of  the  Acceding  States  intend  to  continue  to  operate  after  that  date.  The  Treaty
provisions  enable  the  Commission  to  object  to  any  such  measure,  if  it  considers  that  it  is
incompatible with the common market. The mechanism enables the Acceding States to ensure
continuity without any interruption in the their state aid systems immediately after accession.
At the same time, it allows the Commission to ensure an effective control of any State aid that
is granted in these countries after accession.

An overview  of the  State  aid  situation  in  the  new  Member  States  is  foreseen  for  the  autumn
2004 update of the State aid Scoreboard.

ONLINE SCOREBOARD

Further  information  on  methodological  issues,  a  set  of  key  indicators  and  a  wide  array  of
statistical tables may be found on  the online  Scoreboard.  A  selection of the key indicators  is
presented in the table below.

The  website  also  contains  internet-links  to  information  on  State  aid  policy  issues  of  the
Member States and the European Parliament.

http://europa.eu.int/comm/competition/state_aid/scoreboard/

Key indicators on State aid

State aid as a % of GDP
Total aid
Total* aid
0,38
0,99
0,31
1,34
0,68
1,36
0,58
1,14
0,36
1,02
0,42
0,74
0,42
1,10
0,65
1,20
0,35
1,01
0,16
1,30
0,15
0,98
0,26
0,99
0,77
1,04
0,29
1,58
0,19
0,71
0,17
0,66

EU
B
DK
D
EL
E
F
IRL
I
L
NL
A
P
FIN
S
UK

Trend in the share 
of aid to GDP, 1997- 2001
in % points (1)

Total aid
-0,16
-0,05
+0,20
-0,20
-0,28
-0,19
-0,23
-0,05
-0,30
+0,19
+0,13
-0,15
-0,46
-0,34
-0,08
-0,07

Total* aid
-0,14
-0,03
+0,09
-0,15
-0,11
-0,15
-0,22
-0,20
-0,24
-0,09
0,00
-0,04
-0,35
-0,08
-0,02
-0,08

Share of aid to
horizontal objectives
as a % of total* aid, 2001

71
99
97
63
99
55
53
78
96
87
90
94
41
97
78
91

Trend in the share of aid to
horizontal objectives as a %
of total* aid, 1997- 2001
in % points (1)
+9,8
+0,6
-2,1
+11,2
+2,0
+10,7
+11,9
+0,1
+6,9
-5,7
-1,6
+2,9
+12,3
+3,3
-1,9
+15,6

total* :
(1)
**

 total state aid less agriculture, fisheries and transport
Change in percentage points between the annual average for 1997-1999** and that of 1999-2001
Data for Ireland cover the period 1998-1999 instead of 1997-1999.

22

ANNEX I: COUNCIL CONCLUSIONS ON STATE AID

In  March  2000,  the  Lisbon  European  Council  set  out  to  make  the  EU  the  most
competitive  and  dynamic  knowledge-based  economy  in  the  world.  The  Council,
Commission  and  Member  States  were  requested  “to  further  their  efforts  to  promote
competition and reduce the general level of State aids”.

In its conclusions of 24 March 2001, the Stockholm European Council indicated that
“the level of state aids in the European Union must be reduced and the system made
more transparent”…. “To that effect, Member States should demonstrate a downward
trend in State aid in relation to GDP by 2003, taking into account the need to redirect
aid toward horizontal objectives of common interest, including cohesion objectives.”

At Barcelona, on 16 March 2002, the European Council renewed “its call to Member
States  to  reduce  the  overall  level  of  State  aid  as  a  percentage  of  GDP  by  2003,  and
onwards,  and  to  redirect  such  aid  towards  horizontal  objectives  of  common  interest,
including  economic  and  social  cohesion,  and  target  it  to  identified  market  failures.
Less and better-targeted State aid is a key part of effective competition.”

On 5 December 2001, the Council adopted Conclusions concerning State aid. In those
conclusions, the Council invited the Member States to:

- continue their efforts to reduce aid levels, in terms of percentage of GDP;
- reduce, by way of priority, with a view to eliminating, aid which has the  greatest distortive
effects;
- reorient aid towards horizontal objectives, including cohesion and, where appropriate, small
and medium-sized enterprises (SMEs);
-  further  develop  the  use  of  "ex ante"  and  "ex post"  evaluations  of  aid  schemes,  so  as  to
rebalance  them  in  a  more  effective  way;  such  evaluations  should  focus  on  the  quality  of  aid
packages, their effects on competition and their impact;
-  improve  the  transparency  and  the  quality  of  reporting  to  the  Commission,  particularly  by
national  control  and  follow-up  procedures  as  well  as,  where  possible,  by  the  provision  of
relevant statistics;

In addition, the Council invited the Commission to:

- develop, together with the Member States, statistical tools enabling these Conclusions to be
followed  up  and  devise  indicators  of  effectiveness  and  efficiency;  those  indicators  should
thereafter, where appropriate, supplement the Scoreboard;
-  intensify  the  assessment  of  the  impact  of  aid  on  competition,  on  the  basis  of  economic
criteria;
-  encourage  exchanges  of  experience  and  concerted  evaluation  exercises,  in  order  to
benchmark the effectiveness of instruments on a European scale;
-  continue  its  efforts  to  simplify  European  rules  on  State  aid,  to  modernise  them  and  clarify
them in order to make them more effective, particularly in terms of the length of processes;
- submit an initial assessment of progress in 2002;

23

On  26  November  2002,  the  Council  adopted  Conclusions  concerning  State  aid.  In
those conclusions, the Council invited the Member States to:

-  commit  themselves  to  continue  their  efforts  to  reduce  the  overall  level  of  State  aid,  in
particular those aids which imply the greatest risk of competition distortions;
- consider before granting State aid whether it is targeted on a clearly identified market failures
or  directed  at  horizontal  objectives  of  common  interest,  including  economic  and  social
cohesion  objectives,  and  whether  an  intervention  in  the  form  of  State  aid  is  the  most
appropriate and effective way to address these issues;
- continue to develop the use of .ex-ante. and .ex-post. evaluations of individual State aid and
State aid schemes in order to monitor impact on competition and effectiveness of the aid;
-  contribute  to  the  report  of  the  Commission  to  the  European  Council  in  spring  2003  on  the
steps taken concerning the reduction and reorientation of State aid with a view to developing in
the  long  term  perspective  an  analytical  framework  for  the  evaluation  of  State  aid  impact  on
markets and economic development.

In addition, the Council invited the Commission to:

-  in  close  co-operation  with  the  Member  States  and  without  delay,  continue  to  modernise,
simplify,  and  clarify  the  scope  and  content  of  EU  rules  on  State  aid,  including  making  them
more effective in terms of the length of process and the administrative resources involved and
include in the autumn edition of the State aid scoreboard each year a section on the results of
these considerations;
- clarify the economic criteria used to assess the effects of aid whether in established or in new
areas of activity;

In  addition,  the  Council  invited  Member  States  and  the  Commission,  in  their
respective areas of competence, to:

- to  exchange  experiences,  starting in  2003, notably  through meetings  and  seminars,  on  their
efforts  to  reduce  State  aid;  the  results  of  this  work  will  be  reported  in  the  framework  of  the
scoreboard  and  could  ideally  include  an  evaluation  of  the  State  aid  trend  based  on  the
following indicative list of themes and issues:

(cid:1)  development of statistical measures and indicators;

(cid:1)  methodologies and tools used to evaluate impact and effectiveness of State aid;

(cid:1)  national targets and results of efforts to reduce State aid;

(cid:1)  experience in using .ex ante. and .ex post. evaluations of aid;

(cid:1)  other concrete measures in order to fulfil the targets  set  in  the  conclusions  of  the
Stockholm  and  Barcelona  European  Council  concerning  a  reduction  and
reorientation of aid, including suggestions for further work and initiatives;

-  to  develop  within  the  State  aid  scoreboard  a  web-based  network  for  the  exchange  of
information  and  experience  between  Member  States  and  the  Commission,  and  continue  to
increase transparency."

24