State aid control as a coordinating instrument for EU industrial policy in the internal market : conference paper.
Date: 2025-05-23
Institutions: Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs
Subjects: EU industrial policy, State aid, control of State aid, single market

 
 
 
 
 
 
 
 
Paper submitted to the 

Research Conference on the Single Market 

organised by 

European Commission, Directorate General for Internal Market, Industry, 

Entrepreneurship and SMEs 

Brussels, 10 April 2025 

EUROPEAN COMMISSION 

Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs 
Directorate A – Strategy & Economic Analysis 
Unit A1 – Chief Economist Unit 

Contact: GROW-A1@ec.europa.eu 

The opinions expressed in this paper are the authors’ alone and cannot be attributed to the European Commission 

European Commission 
B-1049 Brussels 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
State Aid Control  

as a Coordinating Instrument for  

EU Industrial Policy  

in the Internal Market 

Single Market Economics Papers 

Lena Hornkohl 

Dionysios Pelekis  

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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ISSN 2529-332X 

DOI:10.2873/5847550  ET-01-25-097-EN-N 

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State Aid Control as a Coordinating Instrument for EU Industrial 
Policy in the Internal Market 

by Lena Hornkohl and Dionysios Pelekis* 

Abstract 

The  European  Union’s  industrial  policy  has  gained  renewed  significance  in  response  to 
geopolitical shifts, intensifying global competition, and the twin digital and green transitions. 
This  paper  analyses  the  coinciding  role  that  EU  State  aid  law  plays  as  a  coordinating 
instrument for EU industrial policy in the internal market. In recent years, the EU’s approach 
to State aid has undergone a significant transformation, moving from a strict prohibition model 
towards a more flexible compatibility regime. By leveraging instruments in the renewed State 
aid toolbox, such as the General Block Exemption Regulation, Important Projects of Common 
European Interest, and temporary crisis frameworks, the Commission now facilitates targeted 
State  aid  to  support  industrial  goals,  particularly  in  green  technologies,  innovation,  and 
strategic autonomy. The paper critically assesses this development and analyses its advantages 
and disadvantages. While this shift overall enables swifter resource mobilisation, it also raises 
concerns  over  competitive  neutrality  and  the  potential  for  deepening  economic  divergence 
between  Member  States.  Ultimately,  balancing  ambitious  industrial  objectives  with  market 
fairness remains a core challenge for the EU’s evolving governance architecture. At the same 
time, the paper shows that further stand-alone industrial policy is needed. 

I. 

Introduction  

In  recent  years,  the  strategic  importance  of  industrial  policy  has  resurfaced  as  one  of  the 
European  Union’s  most  salient  policy  domains  to  bolster  strategic  sectors,  accelerate 
innovation,  and  ensure  resilience.  Driven  by  the  imperatives  of  economic  resilience,  digital 
transformation, and the green transition, the EU has multiplied its efforts to shape a forward-
looking industrial strategy. The call for an industrial policy at EU level, distinct from that of 
the Member States, the associated desire to establish a consolidated EU industry and industrial 
base, even including ‘European champions’, and the assertion and further establishment of the 
EU economy in the international sphere, are currently the subject of debate. Nowadays, the 
EU’s  industrial  policy  is  largely  characterised  by  a  range  of  instruments  aimed  at  fostering 
innovation,  sustainability,  resilience,  and  strategic  autonomy,  such  as  the  2023  Green  Deal 
Industrial Plan for the Net-Zero Age. The new Commission also has some plans in this regard; 
the Draghi Report or the Commission’s Competitiveness Compass explicitly refer to industrial 
policy as part of the new approach to competitiveness. 

* Lena Hornkohl is an Assistant Professor (Tenure Track) for European Law at the University of Vienna and a Postdoctoral 
Researcher  (Habilitandin)  at  the  University  of  Heidelberg.  Dionysios  Pelekis  is  a  Postdoctoral  Researcher at  Utrecht 
University. Corresponding emails: lena.hornkohl@univie.ac.at; d.pelekis@uu.nl. In accordance with the ASCOLA declaration 
of ethics, we have nothing to disclose. 

 
 
 
 
Hornkohl/Pelekis, State Aid Control as a Coordinating Instrument for EU Industrial Policy in the Internal Market 

Coinciding  with  an  increased  importance  of  industrial  policy  on  EU  level,  we  witness  a 
loosening of the EU State aid regime. State aid rules, enshrined in Articles 107 – 109 of the 
Treaty  on  the  Functioning  of  the  European  Union  (TFEU),  have  traditionally  served  as  a 
safeguard against market distortions caused by Member State subsidies. However, in recent 
years, the EU’s approach to state aid has undergone a significant transformation, moving from 
a  strict  prohibition  model  towards  a  more  flexible  compatibility  regime,  with  the  European 
Commission  playing  a  central  role  in  defining  and  promoting  policy  priorities  through  the 
granting  of  “good”  aid.  The  expansion  of  compatibility  criteria,  particularly  through  the 
General Block Exemption Regulation and sector-specific Guidelines, reflects a move towards 
an authorisation model that aligns more closely with EU industrial policy goals, including the 
green and digital transitions, strategic autonomy, and economic resilience. Correspondingly, 
the  EU’s  limited  fiscal  capacity  means  that  much  of  its  industrial  policy  must  be  financed 
through Member State subsidies, governed by the State aid rules, potentially at the expense of 
the Member States’ own industrial strategies. Compatible or exempted State aid accounts for 
approximately 1.4% of the EU’s GDP. While not huge, this amount seems to dwarf what the 
Union is able to, directly, put towards achieving the goals of its industrial strategy. 

Against  this  backdrop,  this  paper  explores  the  evolving  role  of  state  aid  control  as  a 
coordinating instrument for EU industrial policy. It examines how the compatibility regime, 
shaped  by  the  European  Commission’s  discretionary  powers  and  policy  priorities,  has 
effectively enabled a selective alignment of state aid with the Union’s industrial strategy. By 
approving—and in many cases encouraging—national aid measures aligned with overarching 
EU  objectives,  the  Commission  channels  Member  State  interventions  toward  the  priorities 
identified  at  European  level.  As  such,  State  aid  policy  is  no  longer  limited  to  a  policing 
function;  it  also  enables  Member  States  to  deploy  resources  in  a  coordinated  manner  that 
furthers  shared  competitive,  technological,  and  sustainability  objectives.  The  result  is  a 
complex  but  evolving  interplay  between  competition  principles  and  industrial  policy  goals, 
with the Commission’s role as arbiter and facilitator at its core. The paper argues that while 
this development enhances policy coherence at the EU level, it also raises critical questions 
about the balance of power between the EU institutions and Member States, the effectiveness 
of industrial policy instruments on EU level, and the long-term implications for competition 
and market integration, offering insights into the broader challenges of economic governance 
in the internal market. 

II. 

Background: (EU) Industrial Policy 

a.  What is ‘Industrial Policy’ in General? 

At the outset, it is important to note that there is no consensus on a specific model of industrial 
policy in the EU and beyond,1 and there is no commonly agreed upon definition of it.2 This 

1  OECD,  ‘Pro-competitive  industrial  policy’  (2024)  OECD  Roundtables  on  Competition  Policy  Papers  No.  309  OECD 
Publishing;  Chiara  Criscuolo,  Nicolas  Gonne,  Kohei  Kitazawa,  Guy  Lalanne,  ‘An  industrial  policy  framework  for  OECD 
countries:  old  debates,  new  perspectives’    (2022)  OECD  Science, Technology  and  Industry  Policy  Papers  No.  127  OECD 
Publishing; Valentine Millot, Łukasz Rawdanowicz, ‘The return of industrial policies: Policy considerations in the current 
context’ (2024) OECD Economic Policy Papers No. 34 OECD Publishing; See also: Editorial Comments, ‘Paying for the EU’s 
Industrial Policy’ (2023) 60 Common Market Law Review 617.  
2 Millot and Rawdanowicz (n 1), 9. 

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Hornkohl/Pelekis, State Aid Control as a Coordinating Instrument for EU Industrial Policy in the Internal Market 

lack  of  consensus  results  from  the  width  of  the  very  concept  of  industrial  policy  and  the 
available models. In turn, this means that ‘industrial policy’ refers to a broad range of policies, 
with  the  overall  aim  of  altering  or  transforming  the  structure  of  economic  activity,  and  of 
pursuing public (policy) objectives,3 including but not limited to enhancing the performance 
and encouraging the development of (part of) the economy.4 Academically, industrial policy 
generally refers to governmental measures aimed at developing or reshaping certain types of 
economic activities, including through subsidies, especially if the understanding of subsidies 
is broadly construed, as it is the case with EU State aid law.5 Industrial policies are deployed 
to address important challenges that markets cannot deal with themselves, such as economic, 
social,  or  environmental  challenges.  Thus,  despite  those  definitional  difficulties,  it  can  be 
argued that all States have some form of industrial policy, be it systematised or fragmented, 
overt or covert.6 

To  a  large  extent,  the  theoretical  rationale  of  industrial  policies  relates  to  the  existence  of 
unpriced  externalities  –  positive  or  negative,  which  lead  to  the  inefficient  allocation  of 
resources  by  the  market.7  Industrial  policy,  thus,  often  deals  with  market  failures8  (or 
coordination  failures),9  especially  in  relation  to  public  goods,  or  creating  new  markets.10  In 
other words, industrial policies are useful in bridging gaps between private returns and societal 
benefits,11 which can occur due to economy of scale effects, coordination failures,12 or when 
firms  and  consumers  do  not  bear  the  full  social  costs  of  their  production  and  consumption 
respectively,13 or there is underinvestment in public goods.14 Simple examples in this context 
relate to the unpriced externalities of greenhouse gas emissions, or the lack of investment in 

3 Ken Warwick, ‘Beyond Industrial Policy: Emerging Issues and New Trends’ (2013) OECD Science, Technology and Industry 
Policy  Papers  No.  2  OECD  Publishing;  Criscuolo  et  al.  (n  1),  14;  Réka  Juhász,  Nathan  Lane,  Dani  Rodrik,  ‘The  New 
Economics of Industrial Policy’ (2024) 16 Annual Review of Economics 213, 216; Karl Aiginger, Dani Rodrik, ‘Rebirth of 
Industrial Policy and an Agenda for the Twenty-First Century’ (2020) 20 Journal of Industry, Competition and Trade 189. See 
also: Otis L Graham, Losing Time: The Industrial Policy Debate (Harvard University Press, 1992). 
4 Réka Juhász, Claudia Steinwender, ‘Industrial Policy and the Great Divergence’ (2024) 16 Annual Review of Economics 27. 
5 Case 30/59 De Gezamenlijke Steenkolenmijnen in Limburg v High Authority of the European Coal and Steel Community 
EU:C:1961:2, p 19. 
6 See: William R Nester, American Industrial Policy: Free or Managed Markets? (Palgrave Macmillan 1997). 
7 Millot and Rawdanowicz (n 1), 13; Nicholas Crafts, Alan Hughes, ‘Industrial Policy for the Medium to Long-term’ (2013) 
Future of Manufacturing Project: Evidence Paper 37 Foresight, UK Government Office for Science, available at: Industrial 
Policy for the medium to long-term (publishing.service.gov.uk) [accessed 14 February 2025]. 
8 OECD ‘Pro-Competitive Industrial Policy’ (n 1), 31-33; Reda Cherif, Fuad Hasanov, ‘The Return of the Policy That Shall 
Not  Be  Named:  Principles  of  Industrial  Policy’  [2019]  International  Monetary  Fund  Working  Paper  No.  2019/074;  Chris 
Hughes, Peter Spiegler, ‘Marketcrafting: A 21st-Century Industrial Policy’[2023] Roosevelt Institute May 2023; Nathan Lane, 
‘A Flight Plan that Fails’, Boston Review (15 September 2021), available at: https://www.bostonreview.net/forum_response/a-
flight-plan-that-fails/> [accessed 14 February 25]; Simone Tagliapietra, Reinhilde Veugelers, ‘A green industrial policy for 
Europe’ [2020] Bruegel Blueprint 31; Brilé Anderson, Emile Cammeraat, Antoine Dechezleprêtre, Luisa Dressler, Nicolas 
Gonne,  Guy  Lalanne,  Joaquim  Martins  Guilhoto,  Konstantinos  Theodoropoulos,  ‘Policies  for  a  climate-neutral  industry: 
Lessons from the Netherlands’ (2021) OECD Science, Technology, and Industry Policy Paper No. 108, OECD Publishing; 
Tadashi  Matsumoto,  Dorothée Allain-Dupré,  Jonathan  Crook, Alexis  Robert,  ‘An  integrated  approach  to  the  Paris  climate 
Agreement: The role of regions and cities’ (2019) OECD Regional Development Working Paper 2019/13, OECD Publishing. 
9 Juhász, Lane, Rodrik (n 3); Criscuolo et al. (n 1), 17; Mariana Mazzucato, ‘Mission-oriented innovation policies: challenges 
and opportunities’ (2018) 27 Industrial and Corporate Change 803; Tilman Altenburg, Dani Rodrik, ‘Green industrial policy: 
Accelerating structural change towards wealthy green economies’ [2017] UN Environment & German Development Institute 
/ Deutsches Institut für Entwicklungspolitk (DIE). 
10 See, e.g.: Mariana Mazzucato, ‘The Innovative State: Governments Should Make Markets, Not Just Fix Them’ (2015) 95 
Foreign Affairs 61; Mariana Mazzucato, Mission Economy: A Moonshot Guide to Changing Capitalism (Allen Lane/Penguin 
2021); Dominique Foray, David C Mowery, Richard Nelson, ‘Public R&D and social challenges: What lessons from mission 
R&D programs?’ (2012) 41 Research Policy 1697; Millot and Rawdanowicz (n 1), 13. 
11 Criscuolo et al. (n 1), 17, 27. 
12 Juhász, Lane, Rodrik (n 3). 
13 Millot and Rawdanowicz (n 1), 13. 
14 Juhász, Lane, Rodrik (n 3). 

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Hornkohl/Pelekis, State Aid Control as a Coordinating Instrument for EU Industrial Policy in the Internal Market 

research due to the inability to reap the benefits. Thus, depending on the base rationale(s), a 
given industrial policy can pursue different objectives.15 Industrial policy effectively refers to 
governmental assumption of a strategic and coordinating role in the economy, and primarily in 
the business/private sector.  

inherently 

It  is  worth  noting  that,  as  the  OECD  has  previously  observed,16  but  also  highlighted  in  the 
Draghi  Report,17  and  Commission  President  Ursula  von  der  Leyen’s  mission  letter  to 
Commissioner  Ribera18  charged  with  the  Competition  portfolio,  industrial  policy  is 
intrinsically  and 
linked  with  competition  policy.  The  Commission’s 
Competitiveness Compass also makes this connection, explicitly referring to industrial policy 
as part of the new approach to competitiveness.19 The major economic crises and shocks of the 
21st  century,  from  the  Great  Recession  to  the  Covid-19  pandemic,  have,  per  the  OECD, 
strengthened the case for more robust industrial policies worldwide,20 ushering in the ‘return’ 
(and  growing  importance)  of  industrial  policies  around  the  globe.21  Long-term  economic 
realities and paradigm shifts, such as the digital transition and the imperative to combat climate 
change, have also had a similar effect.22 There seems, in brief, to be a resurgence of industrial 
policy in developed economies.23 It is in this context, and bearing in mind the broad definition 
and characteristics of industrial policies, that we turn our attention to the EU’s own industrial 
policy.  

b.  The Evolution and Content of Industrial Policy in the EU 

Naturally,  given  the  global  context  discussed,  the  topic  of  industrial  policy  and  industrial 
strategy has gained traction in the EU.  

First of all, it is indisputable that the EU, as an entity, indeed has an industrial policy of its own, 
although the magnitude and impact, also vis-à-vis its Member States own industrial policy, is 
debated.24 Starting from a legal point of view, Article 173 TFEU is dedicated to the Union’s 
industrial policy and forms the legal basis for such policy. This Article, which also requires a 
degree of coordination and cooperation between the Member States and the Institutions, and, 
subject to limitations discussed below, is aimed at (i) speeding up the adjustment of industry to 
structural  changes;  (ii)  encouraging  an  environment  favourable  to  initiative  and  to  the 
development  of  undertakings  throughout  the  Union,  particularly  small  and  medium-sized 
to  cooperation  between 
undertakings;  (iii)  encouraging  an  environment  favourable 

15  OECD  ‘Pro-Competitive  Industrial  Policy’  (n  1),  13-14;  Mariana  Mazzucato,  Dani  Rodrik,  ‘Industrial  Policy  with 
Conditionalities: A Taxonomy and Sample Cases’ (2023) UCL Institute for Innovation and Public Purpose, Working Paper 
Series (IIPP WP 2023-07). 
16 OECD ‘Pro-Competitive Industrial Policy’ (n 1). 
17 Mario Draghi, The Future of European Competitiveness Part A: A competitiveness strategy for Europe, September 2024, 
65. 
18 Commission President von der Leyen, Mission Letter to Commissioner-Designate Ribera Rodríguez, 5. 
19 Commission, ‘A Competitiveness Compass for the EU’ (Communication) COM(2025) 30 final, 25. 
20 See: Millot and Rawdanowicz (n 1), 8-13; Criscuolo et al. (n 1) 8-10; Mario Draghi, The Future of European Competitiveness 
Part B: In-depth analysis and recommendations, September 2024, 69. 
21 See, e.g.: Cherif and Hasanov (n 8). 
22 Millot and Rawdanowicz (n 1), 8-13; Criscuolo et al. (n 1) 8-10. 
23 Millot and Rawdanowicz (n 1); Cherif and Hasanov (n 8). 
24 Karl Aiginger, Christial Ketels, ‘Industrial Policy Reloaded’ (2024) 24 Journal of Industry, Competition and Trade; Editorial 
Comments,  ‘The  EU’s  integrated  policy  approach  towards  competitiveness:  The  interplay  between  State  aid  control  and 
industrial policies’ (2024) 61 Common Market Law Review 1; Philippe Aghion, Julian Boulanger, Elie Cohen, ‘Rethinking 
Industrial Policy’ [2011] Bruegel Policy Brief 2011/04; Editorial Comments, ‘Paying for the EU’s Industrial Policy’ (n 1), 618. 
See also: Bruno Deffains, Olivier d’Ormesson and Thomas Perroud, ‘Competition Policy and Industrial Policy: For a reform 
of European law’ (2020) Fondation Robert Schuman, European issues, p.543. 

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Hornkohl/Pelekis, State Aid Control as a Coordinating Instrument for EU Industrial Policy in the Internal Market 

undertakings;  (iv)  fostering  better  exploitation  of  the  industrial  potential  of  policies  of 
innovation, research and technological development. 

While European industrial policy can be traced back to 1970 and the Colonna Memorandum,25 
the ‘predecessors’ of Article 173 TFEU were only added in the Treaty of Maastricht. In 2005, 
a Communication titled ‘Implementing the Community Lisbon Programme’ was issued, aiming 
towards  a  “more  integrated  approach  for  industrial  policy”.26  Gradually,  that  Lisbon 
Programme  evolved  and  was  eventually  replaced  five  years  later  by  the  ‘Europe  2020 
Strategy’,27  and  supplemented  by  the  ‘Industrial  Policy:  Reinforcing  Competitiveness’ 
Communication  in  2011.28  There  were  further  revisions  and  additions,  with  some  focused 
(partly) on mid or post-financial crisis recovery,29 industrial “renaissance”,30 digitalisation,31 
the green transition,32 and Europe’s competitiveness.33 It is worth noting that a lot of those focal 
points are part of Article 173’s aim, or introduced in 2005, with the subsequent (and current) 
industrial policy frameworks mainly adding meat to the bones. 

In recent years, the discussion about a more in-depth EU industrial policy has gathered pace.34 
Currently, several instruments determine EU industrial policy, which is to be seen distinctly 
from the industrial policies of Member States but is nevertheless intertwined with them. Most-
of-all, the Commission issued a Communication on a ‘New Industrial Strategy for Europe’ in 
March 2020,35 which it was forced to update only fourteen months later, due to the Covid-19 
pandemic  and  the  need  for  an  economic  recovery.36  There  was  a  further  addition  to  those 
Communications, in the form of the 2023 ‘Green Deal Industrial Plan for the Net-Zero Age’,37 
while  the  ‘European  Green  Deal’  must  also  be  taken  into  account.38  The  ‘green  transition’ 
remains a centrepiece of the Union’s approach, with decarbonisation, clean production, and the 
circular economy all featuring as elements of competitiveness in the Compass.39 The March 
2020 package also included a strategy aimed at Small and Medium Enterprises (SMEs) in the 
context of sustainability and digitalisation,40 which while not being explicitly referred to as 

25 Commission Memorandum to the Council, The Community's industrial policy, COM(70) 100. 
26 Commission, ‘Implementing the Community Lisbon Programme: A policy framework to strengthen EU manufacturing - 
towards  a  more  integrated  approach  for  industrial  policy’  (Communication)  COM(2005)  474  final;  Commission, 
‘Implementing the Community Lisbon Programme: More Research and Innovation - Investing for Growth and Employment: 
A Common Approach’ (Communication) COM(2005) 488 final. 
27 Commission, ‘Europe 2020 : A Strategy for Smart, Sustainable, and Inclusive Growth’ (Communication) COM(2010) 2020 
final. 
28 Commission, ‘Industrial Policy: Reinforcing Competitiveness’ (Communication) COM(2011) 642 final. 
29 Commission, ‘A Stronger European Industry for Growth and Economic Recovery Industrial Policy Communication Update’ 
(Communication) COM(2012) 582 final. 
30 Commission, ‘For a European Industrial Renaissance’ (Communication) COM(2014) 14 final. 
31  Commission,  ‘Digitising  European  Industry  Reaping  the  full  benefits  of  a  Digital  Single  Market’  (Communication) 
COM(2016) 180 final. 
32 Commission, ‘The European Green Deal’ (Communication) COM(2019) 640 final. 
33 Commission, ‘A Competitiveness Compass for the EU’ (n 19). 
34  Michael  Landesmann  and  Roman  Stöllinger,  ‘The  European  Union’s  Industrial  Policy’  in Arkebe  Oqubay,  Christopher 
Cramer, Ha-Joon Chang, Richard Kozul-Wright (eds), The Oxford Handbook of Industrial Policy (OUP 2020); Maria Cristina 
Barbieri  Góes,  Gianfranco  Viesti,  ‘The  Revival  of  Industrial  Policies  in  the  EU?’  [2024]  Review  of  Political  Economy; 
Reinhilde Veugelers,  Simone Tagliapietra,  Cecilia Trasi,  ‘Green  Industrial  Policy  in  Europe:  Past,  Present,  and  Prospects’ 
(2024) 24 Journal of Industry, Competition and Trade. See also: Millot and Rawdanowicz (n 1); Cherif and Hasanov (n 8). 
35 Commission, ‘A New Industrial Strategy for Europe’ (Communication) COM(2020) 102 final. 
36  Commission,  ‘Updating  the  2020  New  Industrial  Strategy:  Building  a  stronger  Single  Market  for  Europe’s  recovery’ 
(Communication) COM(2021) 350 final. 
37 Commission, ‘A Green Deal Industrial Plan for the Net-Zero Age’ (Communication) COM(2023) 62 final. 
38 Commission, ‘The European Green Deal’ (n 32).  
39 Commission, ‘A Competitiveness Compass for the EU’ (n 19), Part 1.2. 
40 Commission, ‘An SME Strategy for a sustainable and digital Europe’ (Communication) COM(2020) 103 final. 

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industrial  policy,  has  the  hallmarks  of  it,  based  on  the  definitions  above.41 Those  initiatives 
build on previous industrial policy strategies (as the Union often calls its industrial policies), 
such as the one launched by the Juncker Commission already in 2017,42 or the mentioned 2005 
package.43  Next  to  the  Commission,  the  Council  has  also  been  involved  in  the  Union’s 
industrial policy, calling in 2019 for a comprehensive long-term industrial policy,44 and adding 
to the framework for future industrial policy in May 2024 by endorsing the existing instruments 
and adopting very favourable conclusions on ‘A competitive European industry driving our 
green, digital and resilient future’.45 This multitude of often overlapping instruments however 
can conflict with, at the very least the spirit of, the simplification effort encompassed in the 
Competitiveness Compass.46 However, the impetus behind such a simplification drive could 
lead  to  the  creation  of  a  single,  core  document,  outlining  the  EU’s  industrial  policy  and  its 
priorities.   

Notwithstanding the existing complexity in the realm of EU industrial policy instruments, the 
current Commission appears keen to add to the existing EU industrial policy arsenal. In this 
context,  there  is  an  explicit  instruction  to  “draw  on”  the  Draghi  Report,  which  focuses 
significantly  on  industrial  strategy,47  but  also  on  simplification.48  The  inclusion  of 
Commissioners for Prosperity and Industrial Strategy, for Trade and Economic Security, and 
for Defence and Space further demonstrates the Commission’s focus on industrial policy. This 
focus is further corroborated by the objectives the current Commission. The Competitiveness 
Compass,  for  instance,  proposes  a  novel  approach,  combining  investment  and  reforms  with 
industrial  policy.49  The  above  does  not  represent  an  exhaustive  account  of  all  relevant 
instruments,  but  it  is  indicative  of  the  evolution  of  the  EU’s  industrial  policy  and  is 
comprehensive enough to allow us to distil and discuss the objectives of the EU’s industrial 
policy.   

Based on that, it becomes apparent that there is indeed an EU industrial policy, distinct from 
that of the individual Member States. Yet, it is also worth noting that this industrial policy is 
made up of disparate instruments and appears quite fragmented.50 In other words, it is not ab 
initio clear what is and is not part of that EU industrial policy. Further, due to the multitude of 
instruments  and  policy  priorities,  there  is  also  a  lack  of  coherence  in  the  EU’s  industrial 
policy.51 The mandate of the Commissioner for Prosperity and Industrial Strategy explains that 
the EU needs a new industrial strategy;52 a view echoed throughout the Draghi Report.53 In 
analysis of the available instruments, the EU’s industrial policy appears to have some elements 

41 SMEs, and their development, as elements of an EU industrial policy can also be seen in the Draghi Report. See Draghi 
Report Part B (n 20), 83, 322. 
42  Commission,  ‘Investing  in  a  smart,  innovative  and  sustainable  Industry  A  renewed  EU  Industrial  Policy  Strategy’ 
(Communication) COM(2017) 479 final.  
43 Commission COM(2005) 474 final (n 26). 
44 Council Conclusions on an EU Industrial Policy Strategy: A Vision for 2030, (2019) 9706/19 COMPET 433 IND 185 MI 
476. 
45 Council Conclusions on ‘A competitive European industry driving our green, digital and resilient future’, (2024) 10127/24 
COMPET 573 IND 272 MI 519. 
46 Commission, ‘A Competitiveness Compass for the EU’ (n 19), Part 2.1. 
47 von der Leyen, Mission Letter to Ribera Rodríguez (n 18), 1-3; Commission President von der Leyen, Mission Letter to 
Commissioner-Designate Séjourné , 1-3. See also: Draghi Report Part A (n 17), 15. 
48 Draghi Report Part A (n 17), 71; Draghi Report Part B (n 20), 309, 311. 
49 Commission, ‘A Competitiveness Compass for the EU’ (n 19), 25. 
50 See, e.g.: Landesmann, Stöllinger (n 34), 622-627. 
51 Draghi Report Part B (n 20), 128-129. 
52 von der Leyen, Mission Letter to Séjourné (n 47), 5. 
53 Draghi Report Part A (n 17), 15-17. 

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Hornkohl/Pelekis, State Aid Control as a Coordinating Instrument for EU Industrial Policy in the Internal Market 

which  can  be  referred  to  as  “central”.  Those  are  the  elements,  or  policy  objectives,  which 
underpin a large number of those instruments, and which can be traced to Article 173 TFEU 
and date back to the earliest more in-depth conceptions of a distinct EU industrial policy, twenty 
years ago in the mentioned 2005 Communication.54 Obviously, the green and energy transition 
features  heavily  in  the  EU’s  industrial  policy,  being  a  core  element  of  the  2020  and  2021 
Commission Communications and having a dedicated ‘Green Deal Industrial Plan’55 aimed at 
it.  Equally,  the  digital  transition  or  transformation  is  another  key  component  of  the  EU’s 
industrial  policy,  as  are,  more  broadly,  R&D&I  activities.  Supporting  and  accelerating  the 
green and digital transitions (often referred to as the twin transitions) is a policy objective the 
EU’s industrial policy is quite focused on and has been for years.56 This objective is explicitly 
embraced by the Draghi Report, as a key goal of EU industrial policy.57 This focus on the twin 
transitions, and the opportunities they present from a growth and competitiveness perspective, 
is also replicated in the Competitiveness Compass.58 

Additionally, measures to support the resilience of the internal market form part of the EU’s 
industrial  policy. The  EU  policy  of  “open  strategic  autonomy”  –  cooperating  multilaterally 
wherever we can, acting autonomously wherever we must – forms an important component of 
that  industrial  policy,  while  also  going  beyond  economic  autonomy  and  including,  e.g.,  the 
capacity  to  uphold  democratic  values.59  Resilience  and  open  strategic  autonomy  are  also 
explicitly referred to as key objectives of the EU’s industrial policy in the Draghi Report.60 
There  have  been  major  legislative  interventions  in  relation  to  the  internal  market  and  open 
strategic  autonomy,  such  as  (in  part)  the  Foreign  Subsidies  Regulation  (FSR),61  the  Critical 
Raw Materials Act,62 or the Chips Act.63 Further, in this same context, it is important to consider 
the  current  proposal  for  the  revision  of  the  FDI  Screening  Regulation,64  or  the 
Recommendation on reviewing outbound investment,65 both of which, inter alia, aim to protect 

54  For  instance,  the  2005  plan  mentions  environmental  and  sustainability  concerns,  and  technological  leadership  and 
adaptation. See: Commission COM(2005) 474 final (n 26). 
55 Commission, ‘A Green Deal Industrial Plan for the Net-Zero Age’ (n 37).  
56  Marcin  Szczepański,  ‘A  renewed  industrial  policy  strategy’,  (2017)  Members’  Research  Service  PE  608.808  European 
Parliamentary Research Service, p 4. See also: Commission COM(2005) 474 final (n 26); Commission, ‘A Digital Agenda for 
Europe’(Communication) COM(2010) 245 final; EU industrial policy - Consilium (europa.eu) [accessed 14 February 2025]. 
57 Draghi Report Part A (n 17), 15. See also: von der Leyen, Mission Letter to Ribera Rodríguez (n 18), 1; von der Leyen, 
Mission Letter to Séjourné (n 47), 1. 
58 Commission, ‘A Competitiveness Compass for the EU’ (n 19), Parts 1.1, and 1.2. 
59 Commission, ‘Trade Policy Review - An Open, Sustainable and Assertive Trade Policy’ (Communication) COM(2021) 66 
final. 
60 Draghi Report Part A (n 17), 15. 
61  Regulation  (EU)  2022/2560  of  the  European  Parliament  and  of  the  Council  of  14  December  2022  on  foreign  subsidies 
distorting the internal market [2022] OJ L 330/1. 
62 Regulation (EU) 2024/1252 of the European Parliament and of the Council of 11 April 2024 establishing a framework for 
ensuring  a  secure  and  sustainable  supply  of  critical  raw  materials  and  amending  Regulations  (EU)  No  168/2013,  (EU) 
2018/858, (EU) 2018/1724 and (EU) 2019/1020 [2024] OJ L 2024/1252. 
63 Regulation (EU) 2023/1781 of the European Parliament and of the Council of 13 September 2023 establishing a framework 
of measures for strengthening Europe’s semiconductor ecosystem and amending Regulation (EU) 2021/694 (Chips Act) [2023] 
OJ L 229/1. See also: Commission, ‘A Chips Act for Europe’ (Communication) COM(2022) 45 final. 
64  Commission,  Proposal  for  a  Regulation  of  the  European  Parliament  and  of  the  Council  on  the  screening  of  foreign 
investments in the Union and repealing Regulation (EU) 2019/452 of the European Parliament and of the Council COM(2024) 
23 final 2024/0017 (COD). 
65 Commission Recommendation (EU) 2025/63 of 15 January 2025 on reviewing outbound investments in technology areas 
critical for the economic security of the Union [2025] OJ L 2025/63. 

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essential interests and economic security,66 as part of the EU’s Economic Security Strategy.67 
Moreover,  even  a  cursory  look  at  the  Strategic  Technologies  for  Europe  Platform,68  or  the 
proposed Net-Zero Industry Act,69 reveal that there is a clear and direct link between the various 
policy  objectives  outlined  above  –  for  example  R&D&I  spending  aimed  at  technology 
important  to  the  green  and  energy  transition  could  also  “check”  the  resilience  and  strategic 
autonomy boxes, as could, e.g., a reform of electricity or energy markets. This demonstrates 
that the objectives of the EU’s industrial policy can themselves be complementary, interrelated, 
and self-reinforcing, and that a given measure can be derived from multiple policy bases.  

In summary, despite the definitional difficulties inherent in the complexity and multifaceted, 
context-specific nature of industrial policies, it appears clear that the EU has its own, distinct, 
industrial policy, albeit fragmented. This policy, which is by no means a new phenomenon, 
while disparate, can be argued to have a number of core pillars, which the EU’s industrial policy 
aims at supporting or accelerating. Those pillars, based on the instruments issued and those 
mooted,  are  the  green  and  energy  transition,  the  digital  transition,  R&D&I  activities,  open 
strategic  autonomy,  and  resilience.  Those  same  three  pillars  are  identified,  in  the 
Competitiveness  Compass,  as  the  “three  transformational  imperatives  to  strengthen 
competitiveness”.70 

III. 

State Aid as a Coordination Instrument for EU Industrial Policy? 

1.  Overview: The Evolution of the EU’s State Aid Regime 

The EU State aid regime, as encompassed in Articles 107 – 109 TFEU, has been a core EU 
policy since the beginning and aims to restrict the ability of Member States to directly interfere 
in the economy via the granting of subsidies to (certain) undertakings to the detriment of the 
internal  market.71  In  that  core  objective  alone,  industrial  policy  considerations  shimmer 
through.  

The prohibition on the granting of distortive State aid is based on the imperative to maintain a 
level  playing  field  within  the  EU’s  internal  market,  to  protect  and  promote  undistorted 
competition, and to shield undertakings from preferential (and often discriminatory within the 
meaning of the free movement provisions) treatment.72 A further element of the rationale of 

66  Commission,  ‘Commission  proposes  new  initiatives  to  strengthen  economic  security’  (Press  Release)  IP/24/363; 
Commission, ‘Commission calls on Member States to review outbound investments and assess risks to economic security’ 
(Press Release) IP/25/261. 
67 Commission and High Representative of the Union for Foreign and Security Policy, ‘Joint Communication to the European 
Parliament , the European Council, and the Council on European Economic Security Strategy’ (Communication) JOIN(2023) 
20 final.  
68 Regulation (EU) 2024/795 of the European Parliament and of the Council of 29 February 2024 establishing the Strategic 
Technologies  for  Europe  Platform  (STEP),  and  amending  Directive  2003/87/EC  and  Regulations  (EU)  2021/1058,  (EU) 
2021/1056, (EU) 2021/1057, (EU) No 1303/2013, (EU) No 223/2014, (EU) 2021/1060, (EU) 2021/523, (EU) 2021/695, (EU) 
2021/697 and (EU) 2021/241 [2024] OJ L 2024/795. 
69  Commission,  ‘Proposal  for  Regulation  of  the  European  Parliament  and  of  the  Council  on  establishing  a  framework  of 
measures  for  strengthening  Europe’s  net-zero  technology  products  manufacturing  ecosystem  (Net  Zero  Industry  Act)’ 
COM(2023) 161 final. 
70 Commission, ‘A Competitiveness Compass for the EU’ (n 19), 4. 
71 Joined Cases C-278/92, C-279/92, and C-280/92 Spain v Commission EU:C:1994:325, para 20; Case C-482/99 France v 
Commission EU:C:2002:294, para 68. See also: Andrea Biondi, ‘State aid is falling down, falling down: An analysis of the 
case law on the notion of aid’ (2013) 50 Common Market Law Review 1719. 
72 Viktor Kreuschitz, Hanns Peter Nehl, ‘State Aid Review in a Multi-level System: Motivations for Aid, Why Control It, and 
the Evolution of State Aid Law in the EU’ and ‘Evolution of Aid in the EU: Classifying Different Types of Countries, and the 

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State aid is the prevention of (expensive and ultimately inefficient, at least from an EU-wide 
perspective)  negative  externalities  between  Member  States,  as,  while  part  of  the  Union’s 
competition law apparatus, State aid law is addressed to Member States and aims to regulate 
competition  between  those  States.73  In  effect,  State  aid  law  has  dual  objectives  and  a  dual 
rationale – one aligned with and closely linked to the core principles underpinning the internal 
market (access to the market and ability to compete on said market on equal terms), and one 
aimed  at  promoting  the  efficient  allocation  of  resources  and  at  precluding  distortive  State 
interventions.74 Based on those goals, it is clear that the deployment and utilisation of the State 
aid prohibition, mainly since the 1980s, has had the (intended) effect of limiting the Member 
States’  ability  to  design  and  implement  their  own  industrial  policies  via  the  instrument  of 
subsidies, broadly construed.  

However,  through  the  decades,  and  as  cases  became  increasingly  complex  and  subject  to 
regulatory technique by Member States, the notion of aid has, in practical terms, expanded.75 
This expansion is, largely, the result of the functional, teleological approach adopted by the 
Court  of  Justice  (ECJ)  in  its  interpretation  of  the  conditions  of  State  aid.  For  instance,  the 
‘jurisdictional’ criterion of effect on trade and distortion of competition is generally seen as 
being very easily satisfiable; almost automatically so.76 Equally, the burden on State resources 
(sub)criterion has been given a functional interpretation, which includes legal fictions such as 
sufficiently concrete risk,77 or effective control of resources.78 And, perhaps most importantly, 
the analysis applicable to the concept of selectivity, which deals with the crux of the notion of 
aid,79 has also been argued to have widened,80 a position supported by the case law, as, for 
example,  measures  of  general  application  can  fall  within  the  scope  of  selectivity,81  entire 
systems can be ab initio selective,82 and there is a presumption that an individual advantage 
will also be selective.83 In other words, the scope of the constituent elements of the notion of 

Financial and Economic Crisis’ in C H Hofmann, Claire Micheau (eds), State Aid Law of the European Union (OUP 2016); 
Kelyn Bacon, European Union Law of State Aid (3rd edition, OUP 2017) 3-11. 
73  See  James  Brander  and  Barbara  Spencer,  ‘Export  Subsidies  and  International  Market  Share  Rivalry’  (1985)  Journal  of 
International Economics 18, 83; Timothy Besley and Paul Seabright, ‘The Effects and Policy Implications of State Aids to 
Industry: An Economic Analysis’ (1999) Economic Policy 34, 13; Mathias Dewatripont and Paul Seabright, ‘‘Wasteful’ Public 
Spending and State Aid Control’ (2006) Journal of the European Economic Association, 513.  
74 Kati Cseres, Agustin Reyna ‘EU State Aid Law and Consumer Protection: An Unsettled Relationship in Times of Crisis’ 
(2021) 12 Journal of European Competition Law and Practice; Editorial Comments, ‘Paying for the EU’s Industrial Policy’ (n 
1). 
75  Juan  Jorge  Piernas  López,  The  Concept  of  State Aid  Under  EU  Law:  From  internal  market  to  competition  and  beyond 
(Oxford University Press 2015); T Jaeger, ‘The Future of State Aid’ (2022) 21 European State Aid Law Quarterly, 117. 
76 See, e.g.: Joined cases C-278/92, C-279/92 and C-280/92 Spain v Commission Opinion of AG Jacobs EU:C:1994:112, para 
33. 
77 See, e.g.: Joined Cases C‑399/10 P and C‑401/10 P Bouygues SA and Bouygues Télécom SA v European Commission and 
Others and European Commission v French Republic and Others EU:C:2013:175 paras 101-107. 
78  See,  e.g.:  Case  C-677/11  Doux  Élevage  SNC  and  Coopérative  agricole  UKL-ARREE  v  Ministère  de  l’Agriculture,  de 
l’Alimentation,  de  la  Pêche,  de  la  Ruralité  et  de  l’Aménagement  du  territoire  and  Comité  interprofessionnel  de  la  dinde 
française  (CIDEF)  EU:C:2013:348,  paras  32-35 ;  Case  C-345/02  Pearle  BV,  Hans  Prijs  Optiek  Franchise  BV  and  Rinck 
Opticiëns BV v Hoofdbedrijfschap Ambachten EU:C:2004 :448, paras 36-41. 
79 See, e.g.: Case C-237/04 Enirisorse SpA v Sotacarbo SpA Opinion of AG Maduro EU:C:2006:21, para 49; Case C-66/14 
Finanzamt Linz v Bundesfinanzgericht, Außenstelle Linz Opinion of AG Kokott EU:C:2015:242, para 114 ; Case C-308/01 
GIL Insurance Ltd and Others v Commissioners of Customs & Excise Opinion of AG Geelhoed EU:C:2003:481, para 74. 
80 See, e.g.: Andreas Bartosch, ‘Is There a Need for a Rule of Reason in European State Aid Law? Or how to Arrive at a 
Coherent Concept of Material Selectivity’ (2010) 47 Common Market Law Review 729, 734, 752. 
81  Joined  Cases  C‑20/15  P  and  C‑21/15  P  Commission  v  World  Duty  Free  Group,  Banco  Santander  SA,  Santusa  Holding 
EU:C:2016:981 paras 75-76, 79, 86-88. 
82  Joined  cases  C-106/09  P  and  C-107/09  P  Commission  and  Spain  v  Government  of  Gibraltar  and  United  Kingdom 
EU:C:2001:732, paras 101-104. 
83 Case C-15/14 P European Commission v MOL Magyar Olaj- és Gázipari Nyrt EU:C:2015:362, para 26. 

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aid have themselves expanded, leading inevitably to an expansion of the very notion of aid 
itself.84 

At  the  same  time,  the  State  aid  prohibition  is  neither  absolute  nor  unconditional;  there  are 
multiple means for an aid to be deemed to be compatible with the internal market.85 The gradual 
widening of the notion of aid over the years has, in turn, increased the significance of the State 
aid  compatibility  regime;  a  regime  in  which  the  Commission  occupies  a  central  and  very 
powerful position. Due to the structure of the compatibility regime, as it results from Articles 
108 and 109 TFEU, and from the exceptions encompassed in Article 107(2) and (3) TFEU as 
well  as  the  accompanying  Regulations,  Communications  and  Guidelines,  the  Commission 
plays a central role, as the sole body competent to decide on the compatibility of aid.86  

Under  the  TFEU,  the  Enabling  Regulation,87  the  Procedural  Regulation,88  and  the 
Implementing Regulation,89 grosso modo allow the Commission to define State aid policy, due 
to the wide discretion it enjoys under Article 107(3) TFEU and under secondary law.90 In this 
capacity,  the  Commission  has  enacted  the  General  Block  Exemption  Regulation  (GBER),91 
under which certain categories of aid are deemed or declared to be compatible with the internal 
market. Complementing the GBER, discussed in more detail below, the Commission has also 
periodically  issued  detailed  Guidelines,  Communications,  and  other  soft  law  instruments, 
outlining the compatibility criteria for types or amounts of aid not covered by the GBER.92 The 
Commission, in effect, limits its own discretion by issuing those Communications.93 Some of 
those  Communications  are  sectoral,  but  most  focus  on  wider  policy-oriented  goals.  Most 
compatibility  analyses  not  based  on  the  GBER  contain  an  element  of  a  balancing  exercise 
between positive and negative effects, based largely on the Commission’s own assessment.94  

84 Jaeger (n 75). 
85 This is evident from the structure of Article 107 TFEU, and especially Articles 107(2) and (3) TFEU. See also: Case C-39/94 
Syndicat français de l'Express international (SFEI) and others v La Poste and others EU:C:1996:285, para 36. 
86 Case C-234/99 Niels Nygård v Svineafgiftsfonden, and Ministeriet for Fødevarer, Landbrug og Fiskeri EU:C:2002:244, para 
62. See also: Article 108(3) TFEU. 
87  Council  Regulation  (EU)  2015/1588  of  13  July  2015  on  the  application  of Articles  107  and  108  of  the  Treaty  on  the 
Functioning of the European Union to certain categories of horizontal State aid (codification) [2015] OJ L 248/1. 
88 Council Regulation (EU) 2015/1589 of 13 July 2015 laying down detailed rules for the application of Article 108 of the 
Treaty on the Functioning of the European Union (codification) OJ L 248/9. 
89 Commission Regulation (EC) No 794/2004 of 21 April 2004 implementing Council Regulation (EC)No 659/1999 laying 
down detailed rules for the application of Article 93 of the EC Treaty [2004] OJ L 140/1. 
90 Case C-526/14 Tadej Kotnik and Others v Državni zbor Republike Slovenije EU:C:2016:570, paras 37-40; Case C-440/22 
P  Wizz  Air  Hungary  v  Commission  EU:C:2024:26,  para  33;  Case  730/79  Philip  Morris  Holland  BV  v  Commission 
EU:C:1980:209, paras 17, 24. 
91 Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal 
market in application of Articles 107 and 108 of the Treaty [2014] OJ L187/1; Commission Regulation (EU) 2023/1315 of 23 
June 2023 amending Regulation (EU) No 651/2014 declaring certain categories of aid compatible with the internal market in 
application  of Articles  107  and  108  of  the  Treaty  and  Regulation  (EU)  2022/2473  declaring  certain  categories  of  aid  to 
undertakings  active  in  the  production,  processing  and  marketing  of  fishery  and  aquaculture  products  compatible  with  the 
internal market in application of Articles 107 and 108 of the Treaty [2023] OJ L 167/1. 
92 See, e.g.: Commission, ‘Guidelines on State aid for climate, environmental protection and energy 2022’ (Communication) 
[2022]  OJ  C80/01;  Commission,  ‘Framework  for  State  aid  for  research  and  development  and  innovation  2022’ 
(Communication) [2022] OJ C414/1. 
93  Kotnik  (n  90),  paras  39-40;  Case  C-284/21  P  Commission  v  Braesch  and  Others  EU:C:2023:58,  para  90;  Antonios 
Bouchagiar ‘The Binding Effects of Guidelines on the Compatibility of State Aid: How Hard is the Commission’s Soft Law?’ 
(2017) 8 Journal of European Competition Law & Practice 157, 164. 
94 Philip Morris (n 90), para 24; Case 310/85 Deufil GmbH & Co. KG v Commission EU:C:1987:96 para 18; Case C-301/87 
France v Commission EU:C:1990:67, para 49 ;  Joined cases T-371/94 and T-394/94 British Airways plc, Scandinavian Airlines 
System  Denmark-Norway-Sweden,  Koninklijke  Luchtvaart  Maatschappij  NV,  Air  UK  Ltd,  Euralair  international,  TAT 
European Airlines SA and British Midland Airways Ltd v Commission EU:T:1998:140, para 283. See also: Tim Maxian Rusche, 
‘General Theory of Compatibility of State Aid’ in H Hofmann, C Micheau (eds) State Aid Law of the European Union (OUP 
2016). 

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In  practical  terms,  the  compatibility  regime  operates  in  a  rather  simple  manner.  The 
Commission is the only entity competent to declare aid compatible, and all new aids must be 
notified to it. The GBER, however, removes the notification and standstill obligations, allowing 
Member States to enact measures which are presumed to be compatible, provided they are in 
line with the general and specific conditions contained therein, with the Commission becoming 
a monitor of the aid granted under it. Still, not all aid measures fall within the scope of the 
GBER.  The  various  soft  law  instruments,  in  this  context,  add  content  to  the  compatibility 
derogations  found  in  the  Treaties.  As  they  necessarily  structure,  and  thus  limit,  the 
Commission’s discretion and are binding upon it,95 an aid which meets the conditions laid out 
in a given soft law instrument and is in line with the objectives of that instrument is akin to aid 
granted under Article 107(2) TFEU, where the Commission “shall” deem it compatible;96 as 
opposed to the modal verb “may” used in Article 107(3) TFEU. The compatibility of aid is 
assessed based on the objectives of the derogation invoked. Aid falling outside the soft law 
instruments, is to be assessed solely on the basis of the Treaty-based derogations, without the 
Commission’s discretion being self-limited or structured. Article 107(3)(c) is perhaps the most 
relevant example of how the soft law instruments, in effect, extend compatibility. It provides 
that “aid to facilitate the development of certain economic activities or of certain economic 
areas, where such aid does not adversely affect trading conditions to an extent contrary to the 
common  interest”  may  be  compatible  with  the  internal  market  –  a  derogation  which  is 
extremely  wide.  In  lieu  of  the  Commission  approaching  an  aid  measure  under  such  a  wide 
derogation,  it  opts  to  structure  its  discretion  by  setting  out  the  conditions  under  which  aid 
aimed,  e.g.,  at  supporting  clean  mobility  is  to  be  assessed,  thus  allowing  Member  States  to 
enact such aid measures without the risk of the Commission finding them incompatible, as the 
soft law instruments provide the objectives and conditions under which an aid measure is to be 
assessed.  

Thus,  overall,  the  evolution  of  the  compatibility  regime  can  be  described  as  a  move,  via 
secondary and soft law instruments, from the clear-cut prohibition as set-out in the Treaties, to 
an authorisation model governed by the EU Commission.97 This process follows from the non-
notification  inherent  in  the  GBER,  which  limits  the  Commission  to  a  monitor  of  presumed 
compatible aid. However, the soft law regime adds to this dynamic, by effectively allowing the 
Commission  to  structure  its  discretion,  and  set  out  certain  objectives  for  which  aid  can  be 
granted, and the conditions under which its compatibility with those objectives and with the 
internal  market  is  to  be  assessed.  Both  the  GBER  and  the  soft  law  regimes  effectively 
announce, ex ante, what types of aid are permissible; even if the specific legal effects of the 
two regimes are different. Therefore, a door has been opened for this authorisation process to 
be influenced by EU industrial policy considerations.  

2.  Expanding State Aid Compatibility – From an Industrial Policy Lense 

95 See, e.g.: Case C-91/01 Italy v Commission EU:C:2004:244, para 91; Joined cases C-189/02 P, C-202/02 P, C-205/02 P to 
C-208/02 P and C-213/02 P Dansk Rørindustri A/S, Isoplus Fernwärmetechnik Vertriebsgesellschaft mbH and Others, KE 
KELIT Kunststoffwerk GmbH, LR af 1998 A/S, Brugg Rohrsysteme GmbH, LR af 1998 (Deutschland) GmbH and ABB Asea 
Brown Boveri Ltd v Commission EU:C:2005:408 para 211.  
96 Rusche (n 94), 226. 
97 María Muñoz de Juan ‘Monitoring of State Aid: From Ex Ante to Ex Post Control’ (2018) 17 European State Aid Law 
Quarterly 483. See also: Juan Jorge Piernas López, ‘The transformation of EU State aid law … and its discontents’ (2023) 60 
Common Market Law Review 1623. 

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As  the  notion  of  aid  has  expanded,  more  measures  fall  within  the  scope  of  the  State  aid 
prohibition, while at the same time, more of those measures can be deemed compatible with 
the internal market, provided they represent “good aid” in the sense of the compatibility regime. 
This  characterisation  of  aid  as  “good”  stems  from  the  Commission’s  policy  on  State  Aid 
Modernisation, of which the GBER was a core element.98 It also showcases the importance of 
(broader)  policy  considerations  in  the  context  of  compatibility.  It  is  in  this  context,  that  a 
connection  between  State  aid  and  industrial  policy  can  be  observed.  As  will  be  further 
discussed, some of the policy considerations which inform the State aid compatibility regime 
can, and appear to, be influenced by the focal points of the EU’s industrial policy, creating a 
strong link between the two areas.   

Therefore, in the context of the relationship of State aid to industrial policy, and its potential 
tensions,  the  compatibility-extending  Communications  are  of  particular  interest.  In  that 
category, we find a series of recent soft law instruments, such as the ‘Guidelines on State aid 
for climate, environmental protection and energy 2022’ (CEEAG);99 the ‘Framework for State 
aid for research and development and innovation 2022’;100 the ‘Guidelines on regional State 
aid 2021’;101 or the ‘Guidelines on State aid for broadband networks 2023’,102 which are, at 
least in part, industrial-policy-oriented. Further, the Commission has put more emphasis on a 
rather nebulous concept encompassed in Article 107(3)(b) TFEU, namely Important Projects 
of Common European Interest (IPCEIs), which also coincide with mentioned industrial policy 
objectives, issuing a Communication on the criteria for those in 2014, updating it in 2021.103  

Those soft law instruments, within the framework established by the Treaties, effectively allow 
the  Commission  to  structure  its  wide-ranging  discretion.  Effectively,  they  add  content  and 
context  to  the  Treaty-derived  exemptions.  Due  to  their  binding  nature,  and  the  subsequent 
inherently necessary limitation of the Commission’s discretion,104 those soft law instruments 
can  extend  compatibility,  by  articulating  objectives  and  creating  conditions  for  such 
compatibility which the Commission cannot depart from.  

In the context of the present analysis, for example, the CEEAG contains provisions allowing 
for aid to be deemed compatible if it offers support, e.g., for renewable energy production and 
energy efficiency, or for clean mobility.105 Both those objectives are related to EU industrial 
policy. Equally, the R&D&I Framework permits aid to be deemed compatible in the context of 
process  and  organisational  innovation  or  of  innovation  procurement;106  both  of  which  are 

98  European  Commission,  General  Block  Exemption  Regulation  (GBER)  –  Frequently  Asked  Questions,  March  2016, 
available  at:  https://competition-policy.ec.europa.eu/system/files/2021-04/regulations_gber_practical_guide_gber_en.pdf  
[accessed on 14 February 2025]. 
99 Commission, ‘Guidelines on State aid for climate, environmental protection and energy 2022’ (n 92). 
100 Commission, ‘Framework for State aid for research and development and innovation 2022’ (n 92). 
101 Commission, ‘Guidelines on regional State aid 2021’ (Communication) [2021] OJ C153/1. 
102 Commission, ‘Guidelines on State aid for broadband networks 2023’ (Communication) [2023] OJ C36/1. 
103 Commission, ‘Criteria for the analysis of the compatibility with the internal market of State aid to promote the execution 
of  important  projects  of  common  European  interest’  (Communication)  C(2021)  8481  final;  Commission,  ‘Criteria  for  the 
analysis of the compatibility with the internal market of State aid to promote the execution of important projects of common 
European interest’ (Communication) [2014] OJ C188/4. It is also worth noting that in relation to IPCEIs the General Court has 
held that notions such as incentive effect, or concepts such as the lifetime of a project apply slightly differently. See to that 
effect Case T-390/20 Scandlines Danmark and Scandlines Deutschland v Commission EU:T:2024:126, paras 118, 173-185, 
and  compare  with  Case  C-349/17  Eesti  Pagar  AS  v  Ettevõtluse  Arendamise  Sihtasutus  and  Majandus- 
ja 
Kommunikatsiooniministeerium EU:C:2019:172, paras 62-63. 
104 Rusche (n 94), 226. 
105 Commission, ‘Guidelines on State aid for climate, environmental protection and energy 2022’ (n 92), Parts 4.1, 4.3. 
106 Commission, ‘Framework for State aid for research and development and innovation 2022’ (n 92), paras 13, 32. 

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linked to the imperative for the EU to close the innovativeness gap – a fundamental element of 
both the Draghi Report,107 and the Competitiveness Compass.108  

Moreover,  under  the  Chips  Act  framework,109  an  instrument  that  aims  to  boost  Europe's 
competitiveness and resilience in semiconductor technologies and applications, large sums of 
aid can also be deemed compatible.110 The final Banking Communication of 2013 is still valid 
and applied,111 and, more importantly, while the Covid-19 Temporary Framework itself came 
to an end, it was succeeded by a Temporary Crisis and Transition Framework, parts of which 
are  supposed  to  be  operational  until  December  2025,112  with  an  extension  having  been 
proposed.113 Whether the latter framework is indeed temporary, only time can tell – the Banking 
Communication was also supposed to be temporary, yet it still applies more than a decade later.  
Generally, the mission letters to the new Commissioners, as well as the Draghi Report, suggest 
the creation of new compatibility frameworks, based on the Covid-19 and Crisis and Transition 
temporary frameworks, as well as some other instruments aimed at energy/electricity markets 
or innovative SMEs.114 

However,  probably  the  best  example  of  this  connection  between  the  State  aid  soft  law 
instruments and the objectives of EU industrial policy are IPCEIs. IPCEIs are directly linked 
with contributing to the EU’s objective, and  should be focused on breakthrough-innovation or 
first industrial deployments.115 IPCEIs, and reforming the rules surrounding them, are also a 
component of the Draghi Report, and of the portfolio and mandate of the Commissioners for 
Prosperity and Industrial Strategy and for Clean, Just and Competitive Transition.116 Thus, the 
link between the objectives of the IPCEI derogation, as outlined in the Communication, and 
the objectives of EU industrial policy is obvious. In effect, therefore, the soft law instruments 
articulate and expand upon the conditions under which aid can be deemed compatible (provided 
it is aligned with general principles of State aid law), if it is granted in support of the objectives 
outlined in those instruments. At the same time, the objectives of the instruments themselves 
are, often, linked to the objectives of EU industrial policy.  

Based  on  the  aforementioned  instruments  and  on  how  the  compatibility  regime  as  a  whole 
operates, we have in effect a partial reversal of the State aid regime, in part, to benefit the EU’s 
industrial  strategy.  The  regime  has  partially  (i.e.,  the  parts  covered  by  the  GBER,  and  the 
various other Regulations, Communications and Frameworks) transformed from a prohibition 

107 Draghi Report Part A (n 17), 19. 
108 Commission, ‘A Competitiveness Compass for the EU’ (n 19), Part 1.1. 
109 Chips Act (n 63); Commission ‘A Chips Act for Europe’ (n 63). 
110  See:  Commission,  ‘Commission  approves  €5  billion  German  State  aid  measure  to  support  ESMC  in  setting  up  a  new 
semiconductor manufacturing facility’ (Press Release) IP/24/4287; Draghi Report Part B (n 20), 88. 
111 Commission, ‘Application, from 1 August 2013 , of State aid rules to support measures in favour of banks in the context of 
the financial crisis ( ‘Banking Communication’ )’ (Communication) [2013] OJ C216/1. 
112 Commission, ‘Temporary Crisis and Transition Framework for State Aid measures to support the economy following the 
aggression  against  Ukraine  by  Russia’  (Communication)  [2023]  OJ  C101/3;  Commission,  ‘Second  amendment  to  the 
Temporary Crisis and Transition Framework for State Aid measures to support the economy following the aggression against 
Ukraine by Russia’, (Communication) [2024] OJ C/2024/3113. 
113 Draghi Report Part B (n 20), 135. 
114 Ibid, 39, 83, 106. See also: von der Leyen, Mission Letter to Ribera Rodríguez (n 18), 6. 
115 Commission, ‘Participating in an Important Project of common European Interest: Technical guidance on conditions and 
https://competition-policy.ec.europa.eu/document/download/279cbfaf-49b1-4b90-b8f7-
process’, 
89d1f4a21eb3_en?filename=JEF_IPCEI_technical-guidance-calls.pdf. 
116 Draghi Report Part B (n 20), 301. See also: von der Leyen, Mission Letter to Ribera Rodríguez (n 18), 6-7; von der Leyen, 
Mission Letter to Séjourné (n 47), 6.  

available 

at: 

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Hornkohl/Pelekis, State Aid Control as a Coordinating Instrument for EU Industrial Policy in the Internal Market 

regime  to  a  conditional  authorisation  model,117  with  the  Commission  largely  moving  from 
being  an  ex  ante  assessor  to  an  ex  post  monitor.118  In  effect,  the  Commission  (and  the  EU 
legislator), which controls State aid policy and has a significant influence on the legal regime 
surrounding State aid compatibility, especially through soft law, has set clear policy priorities, 
designating (policy) areas and fields where State aid rules apply practically only in relation to 
the  compatibility  of  the  measure.  The  combined  effect  of  the  GBER  and  the  soft  law 
instruments  is  the  creation  of  priority  areas.  The  balancing  exercise  inherent  in  most 
compatibility analyses is also naturally influenced by the Commission’s policy priorities.119  

3.  Deploying State Aid Compatibility to Coordinate EU Industrial Policy 

A clear connection and interrelation between State aid law, and particularly the compatibility 
regime, and EU industrial policy, and in particular its core objectives, already becomes visible. 
While  more  State  interventions  are  caught  by  the  prohibition,  equally,  more  measures  – 
provided  they  relate  to  the  “correct”  or  acceptable  policy  objectives  –  can  be  deemed 
compatible with the internal market. Those acceptable policy objectives overlap significantly 
with  the  core  policy  objectives  of  the  EU’s  growing  industrial  policy.  In  other  words,  the 
objectives  of  the  EU’s  industrial  strategy  are  very  well  aligned  with  those  permeating  a 
significant  part  of  the  State  aid  compatibility  regime;  a  regime  in  which  the  Commission 
occupies a central role and has a very wide margin of discretion. Thus, it appears that the State 
aid control system, which restricts Member States from intervening in the economy in a direct 
and distorting manner, is evolving, via the compatibility regime, into a regime which allows 
Member  States  to  intervene  in  the  economy  as  long  as  they  do  so  in  service  of  the  EU’s 
industrial, and wider, policy objectives – or in other words as long as they award “good” aid.  

Thus,  while  in  a  perfect  scenario,  EU  industrial  policy  and  State  aid  policy  (and  wider 
competition  policy)  ought  to  be  mutually  supportive  and  complementary,120  this  does  not 
appear to be the case here – rather the compatibility regime, or at least a significant part of it, 
appears  to  be  taken  over  by  EU  industrial  policy. This  hypothesis  is  only  reinforced  by  the 
suggestions,  in  the  Draghi  Report,  of  using  State  aid  as  a  tool  for  “efficiency  enhancing 
industrial policies”,121 or install new or expand existing State aid compatibility frameworks, 
aligned  with  EU  industrial  policy  objectives,  such  as  aid  directed  specifically  at  innovative 
SMEs,122 the financing of a broader class of innovations,123 further support under the Chips Act 
Framework,124  support  for  more  IPCEIs,125  electricity  pricing  relief  for  energy  intensive 
industries  in  the  context  of  the  Electricity  Market  Design  proposal,126  or  the  creation  of  a 
European Hydrogen Bank and Carbon Contracts for Difference.127  

117 This model is how the UK’s Subsidy Control Act 2022 (c. 23) is organised. The enactment of that Act was based on the 
post-Brexit Trade and Cooperation Agreement and the EU-UK withdrawal agreement; and thus the Act is supposed to reflect 
EU State aid law and policy.  
118 de Juan (n 97). 
119 Consider, e.g., Case T-390/20 (n 103). See also: Kristina Schattat, Natalia Budzynska, ‘The Balancing Test for Operating 
Aid for Airports under the Aviation Guidelines 2014: The Role of Economic and Financial Analysis and Evidence’ (2018) 17 
European State Aid Law Quarterly 399; Draghi Report Part B (n 20), 301. 
120 OECD ‘Pro-Competitive Industrial Policy’ (n 1), 22-42. 
121 Draghi Report Part B (n 20), 301. 
122 Ibid, 83. 
123 Ibid, 301. 
124 Draghi Report Part A (n 17), 60. 
125 Draghi Report Part B (n 20), 156, 221, 301, 312. 
126 Ibid, 39, 106. 
127 Ibid, 108. 

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a.  Rationale and Effects  

An evolution of the State aid compatibility regime to promote EU industrial policy, can, to an 
extent, be as a reasonable step, bearing in mind some key limitations of the EU’s ability to 
effectively pursue its own, ambitious, industrial policy.  

i.  Using State Aid to Fund EU Industrial Policy 

It  is  important  to  consider  the  funding  of  an  EU  industrial  policy. The  Union  would,  in  all 
likelihood, prefer to take the reins when it comes to putting its own industrial policy into effect, 
it is limited by financial concerns. While the EU does offer support to reach its industrial policy 
strategy, through various avenues, those are limited.  

For  instance,  funding  is  available  through  Horizon  Europe,128  the  Cohesion  Fund,129  the 
Connecting Europe Facility,130 InvestEU,131 the Digital EU Programme,132 the Programme for 
the  Environment  and  Climate  Action,133  the  EU  programme  for  the  Competitiveness  of 
Enterprises  and  Small  and  Medium-sized  Enterprises,134  as  well  as  the  European  Defence 
Fund.135 Another source of funding for the EU’s industrial policy is NextGenerationEU,136 and 
its centrepiece, the Recovery and Resilience Facility,137 which makes funds, comprising of a 
combination  of  grants  and  loans,  and  raised  by  the  Commission  through  capital  markets, 
conditionally  available  to  Member  States  in  order  to  address  policy  areas  deemed  to  be  of 
European  relevance,  such  as  the  twin  transitions. The  repayment  of  the  funds  raised  by  the 
Commission will affect the use of its own funds.138 On top of those, there are still other avenues 
of financing, such as innovation funds paid for by the monies raised from the auctioning of 

128 Horizon Europe the EU’s funding programme for research and innovation (europa.eu) [accessed on 14 February 2025]. 
129 Cohesion Fund (CF) - European Commission (europa.eu). See also: Regulation (EU) 2021/1060 of the European Parliament 
and  of  the  Council  of  24  June  2021  laying  down  common  provisions  on  the  European  Regional  Development  Fund,  the 
European  Social  Fund  Plus,  the  Cohesion  Fund,  the  Just  Transition  Fund  and  the  European  Maritime,  Fisheries  and 
Aquaculture Fund and financial rules for those and for the Asylum, Migration and Integration Fund, the Internal Security Fund 
and the Instrument for Financial Support for Border Management and Visa Policy [2021] OJ L 231/159. 
130 Connecting Europe Facility - European Commission (europa.eu). See also: Regulation (EU) 2021/1153 of the European 
Parliament and of the Council of 7 July 2021 establishing the Connecting Europe Facility and repealing Regulations (EU) No 
1316/2013 and (EU) No 283/2014 [2021] OJ L 249/38. 
131 InvestEU Programme - European Union (europa.eu). See also: Regulation (EU) 2021/523 of the European Parliament and 
of the Council of 24 March 2021 establishing the InvestEU Programme and amending Regulation (EU) 2015/1017 [2021] OJ 
L 107/30. 
132  Digital  Europe  Programme -  European  Commission  (europa.eu).  See  also:  Regulation  (EU)  2021/694  of  the  European 
Parliament  and  of  the  Council  of  29 April  2021  establishing  the  Digital  Europe  Programme  and  repealing  Decision  (EU) 
2015/2240 [2021] OJ L 166/1. 
133 Programme for the Environment and Climate Action (LIFE) - European Commission (europa.eu). See also: Regulation 
(EU) 2021/783 of the European Parliament and of the Council of 29 April 2021 establishing a Programme for the Environment 
and Climate Action (LIFE), and repealing Regulation (EU) No 1293/2013 [2021] OJ L 172/53.  
134 Regulation (EU) 2021/690 of the European Parliament and of the Council of 28 April 2021 establishing a programme for 
the internal market, competitiveness of enterprises, including small and medium-sized enterprises, the area of plants, animals, 
food and feed, and European statistics (Single Market Programme) and repealing Regulations (EU) No 99/2013, (EU) No 
1287/2013, (EU) No 254/2014 and (EU) No 652/2014 [2021] OJ L 153/1. 
135 Regulation (EU) 2021/697 of the European Parliament and of the Council of 29 April 2021 establishing the European 
Defence Fund and repealing Regulation (EU) 2018/1092 [2021] OJ L 170/149. 
136 NextGenerationEU - European Union (europa.eu). See also: Council Regulation (EU) 2020/2094 of 14 December 2020 
establishing a European Union Recovery Instrument to support the recovery in the aftermath of the COVID-19 crisis [2020] 
OJ L 433I/23. 
137 Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery 
and Resilience Facility [2021] OJ L 57/17. 
138 Alix  Delasnerie,  ‘Multiannual  financial  framework’  (2024)  European  Parliament  Fact  Sheets  on  the  European  Union, 
available  at:  https://www.europarl.europa.eu/factsheets/en/sheet/29/multiannual-financial-framework  [accessed  on  14 
February2025]. 

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allowances  under  the  Emissions  Trading  Schemes  Directive.139  The  mentioned  funding 
opportunities are not exhaustive, and the funding instruments listed do not exclusively aim to 
fund the Union’s industrial policy, but can contribute to it. 

Further, the 2021 – 2027 Multiannual Financial Framework (MFF) also offers some support 
towards the objectives of EU industrial policy.140 However, while the MFF may appear, at a 
first glance, to represent a quite substantial amount of money, in reality it does not – at least 
not for the purposes of executing an ambitious and broad industrial policy. Effectively, the MFF 
represents the EU’s budget as a whole and, thus, only part of it goes towards the industrial 
policy  objectives.  For  example,  under  the  2024  amendment,  only  slightly  over  40%  of  the 
programme-specific budget is allocated to the single market (which includes innovation and 
digitalisation).141 Per the Commission’s own numbers, the “new and reinforced priorities” only 
make up 32% of the MFF.142 This number needs to be placed in the appropriate context, as the 
EU budget is rather small,143 representing about 1% of the Union’s overall GDP,144 meaning 
that that 32% is actually 0.32%. It seems, for instance, that the MFF is not sufficient for paying 
for the green transition.145  

Thus,  it  is  apparent  that  the  EU  lacks  its  own  substantial  and  meaningful  fiscal  capacity  to 
pursue  the  objectives  of  its  industrial  policy.146  Consequently,  the  financing  of  the  EU’s 
industrial policy cannot and does not solely come from the EU’s budget, funding instruments, 
or own resources. It becomes clear that a core way of paying for the EU’s industrial policy, in 
fact,  could  Member  State  subsidies  –  an  area  governed  by  EU  State  aid  rules.147  The 
deployment of such aid has also been suggested as a means to remedy the EU’s lack of funds 
in the context of industrial policy.148  

Practice seems to agree with these findings. State aid expenditure in 2023 (the last year for 
which the full numbers are available) represented 1.4% of the Member States’ GDPs;149 almost 
four and a half times more than the relevant part of the MFF. Further, the long-term trends show 
that there has been a stable increase in the amount of aid expenditure;150 even excluding 2020 
and 2021, due to the extraordinary nature and effects of the Covid-19 pandemic, between 2012 
and 2019 the total aid expenditure of the EU-27 (i.e., excluding the UK) has almost doubled.151 
In  2023,  aid  aimed  at  environmental  protection  accounted  for  18.2%  of  the  total  aid 

139  Commission  Delegated  Regulation  (EU)  2019/856  of  26  February  2019  supplementing  Directive  2003/87/EC  of  the 
European Parliament and of the Council with regard to the operation of the Innovation Fund [2019] OJ L 140/6. 
140 Council Regulation (EU, Euratom) 2020/2093 of 17 December 2020 laying down the multiannual financial framework for 
the years 2021 to 2027 [2020] OJ L 433I/11; Commission, ‘Technical adjustment of the multiannual financial framework for 
2024 in accordance with Article 4 of Council Regulation (EU, Euratom) 2020/2093 laying down the multiannual financial 
framework  for  the  years  2021  to  2027  updating  and  replacing  Communication  COM(2023)320  final’  (Communication) 
COM(2024) 110 final. 
141 Council Regulation (EU, Euratom) 2024/765 of 29 February 2024 amending Regulation (EU, Euratom) 2020/2093 laying 
down the multiannual financial framework for the years 2021 to 2027 [2024] OJ L 2024/765, Annex II. 
142 What’s new? - European Commission (europa.eu) “A modernised EU long-term budget, powered by NextGenerationEU”. 
143 Barbieri Góes and Viesti (n 34), 14-15. 
144 Commission, ‘Technical adjustment’ (n 140), p 2-3. 
145  Susi  Dennison,  Mats  Engstrom,  ‘Eco-nomics:  A  green  industrial  policy  for  the  next  European  Commission’  [2024] 
European Council on Foreign Relations, Policy Brief, 9 July 2024. 
146 Barbieri Góes and Viesti (n 34), 14-17. 
147 Editorial Comments, ‘Paying for the EU’s Industrial Policy’ (n 1); Barbieri Góes and Viesti (n 34). 
148 Barbieri Góes and Viesti (n 34). 
149 European Commission, State Aid Scoreboard 2023, (2024), 25. 
150 Ibid, 28. 
151 Ibid, 28-30. 

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expenditure, and R&D&I accounted for 5.6%.152 Environmental aid accounts for over 50% of 
the  total  non-crisis  aid  expenditure  since  2016.153  Thus,  despite  the  multitude  of  potential 
funding  avenues  mentioned  above,  the  bulk  of  spending  on  industrial  policy  occurs  at  the 
Member State level, to a large extent through State aid.154 This is also recognised in the Draghi 
Report, to the point where suggestions are made about the next MFF and the deployment of 
more Union resources.155  

Consequently,  the  EU  can  be  argued  to  rely  on  Member  State  subsidies  to  fulfil  its  own 
industrial policy; or, in other words, the influence of EU industrial policy on State aid policy 
allows the former to tap the resources of the latter.  

ii. 

Putting Industrial Policy in Action With State Aid 

Further, despite the described large number of instruments existing in the field of EU industrial 
policy, they remain for the most part just that – policy instruments and documents. There is, at 
least  in  their  current  iteration,  little  in  terms  of  concrete  actions,  let  alone  any  coordination 
between Member States and the Union, or Member States amongst themselves. In this context, 
the  intermingling  between  State  aid  and  industrial  policy  can  be  seen  as  serving  a  purpose, 
especially as industrial policy seems to be the end goal and State aid the instrument.  

This  relationship  in  effect  creates  a  much  more  concrete  common  framework  for  Member 
States,  based  upon  a  common,  and  well  developed,  set  of  rules,  principles,  and  procedures. 
Member States will always spend part of their budget on subsidies. Logically, at least from the 
Commission’s  and  the  Union’s  perspective,  directing  that  spending  through  the  State  aid 
compatibility regime, ensures a degree of coherence in terms of the objectives and goals of that 
spending, at the EU level. The detailed State aid rules laid down by the Commission and the 
EU legislator, effectively, direct a substantial portion of the Member States’ aid expenditure 
into policy areas which are interlinked with EU industrial policy,156 and (thus also) reflect the 
Commission’s  policy  priorities.  In  other  words,  the  utilisation  of  State  aid  (and  specifically 
State  aid  compatibility)  as  a  makeshift  common  coordinating  tool,  or  set  of  interlinked 
instruments and procedures, for the EU’s industrial policy could facilitate the execution and 
implementation of that policy at the Member State level. The existing State aid compatibility 
framework  has  already  been  shown  to  be  influenced  by,  and  to  share  policy  foci  with,  EU 
industrial policy; meaning that in practice the compatibility conditions attached to certain types 
of  aid  reflect  EU  industrial  policy,  and  thus  that  the  compatibility  regime  can  be  seen  as  a 
nascent, gap-filling coordination framework in the realm of industrial policy. 

Additionally, the State aid regime is already developed, both in terms of concrete content, and 
in  terms  of  procedures  and  institutional  design.  State  aid  allows  the  Commission  (in 
cooperation and coordination with the Council) a substantial degree of discretion and power – 
elements  which  would  be  necessary  in  any  centralised,  coordinated  framework  for  EU 
industrial policy, in which the Union via its Institutions should have a leading role. For instance, 
the Treaties, and thus the State aid framework derived from them, reserve a central place for 
the Commission in all compatibility procedures. For the Commission to be able to exercise this 

152 Ibid, 37. 
153 Ibid, 39. 
154 Landesmann and Stöllinger (n 34), 623-628. 
155 Draghi Report Part B (n 20), 88, 294, 312-314. 
156 State Aid Scoreboard 2023 (n 149), 36-44. 

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exclusive  competence,  Member  States  are  not  allowed  to  introduce  new  aid  measures,  or 
significantly  alter  existing  ones,  without  notifying  the  Commission  and  awaiting  its 
assessment. This institutional framework also allows the Commission to adopt the various soft 
law instruments discussed above. Further, under Article 109 TFEU, the Council can, following 
from a Commission proposal, introduce appropriate regulations for the application of Articles 
107 and 108 TFEU. In those Council regulations, there is a particular focus on determining the 
categories  of  aid  exempted  from  the  notification  and  standstill  obligations  encompassed  in 
Article 108 TFEU. It is in this context that the Enabling Regulation157 was enacted, effectively 
empowering the Commission to adopt the GBER. Not all block exemption regulations need to 
be “general”;158 the Commission could, for instance, within the institutional framework of State 
aid, adopt block exemptions, perhaps narrower in scope but also potentially more generous and 
permissive,  specifically  aimed  at  facilitating  investment  in  sectors  or  policy  areas  directly 
linked to industrial policy.  

Further, the Commission’s wide margin of discretion is already “baked into” the system. In this 
context, the balancing exercise inherent in any State aid compatibility analysis is important, an 
analysis conducted by the Commission. The Commission grosso modo examines the positive 
effects of a given aid measure and balances them with the negative effects stemming from it, 
particularly in terms of distortions of competition and impact on trade between Member States. 
The balancing test examines the “common interest”,159 or in other words the single market, 
Union-wide effects of an aid measure. The risk of subsidy races between Member States can 
form part of the balancing exercise.160 Logically, for a measure to be compatible, the positive 
effects must outweigh the negative ones.161 While this exercise is not, and arguably cannot be, 
based  on  an  exact  quantification,  it  does  involve  weighting  of  effects,  and  thus  allows  the 
Commission a degree of leeway.162 It has also been suggested that the balancing exercise could 
take into account the coherence of a given aid measure with EU industrial policy.163 

Beyond  the  institutional  elements  which  can  make  State  aid  compatibility  a  plausible,  and 
potentially attractive, coordinating framework for EU industrial policy, some of its underlying 
principles are also worth discussing. Arguably, the two most relevant principles in this context 
are those of necessity or the incentive effect, and of legality. 

Under the former, the notion of incentive effect or necessity, aid can be compatible with the 
internal market to the extent that it is necessary for attaining the objective of the derogation 
invoked.164  Additionally,  aid  must  be  proportionate,  a  condition  very  closely  linked  with 

157 Council Regulation (EU) 2015/1588 (n 87). 
158 See, e.g.: Commission Regulation (EC) No 68/2001 of 12 January 2001 on the application of Articles 87 and 88 of the EC 
Treaty to training aid [2001] OJ L10/20 ;Commission Regulation (EC) No 2204/2002 of 12 December 2002 on the application 
of Articles  87  and  88  of  the  EC Treaty  to  State  aid  for  employment [2002]  OJ  L337/3;  Commission  Regulation  (EC)  No 
1628/2006 of 24 October 2006 on the application of Articles 87 and 88 of the Treaty to national regional investment aid [2006] 
OJ L302/29.   
159 Case C-464/09 P Holland Malt v Commission EU:C:2010:733, para 49. 
160 Commission, ‘2021 ICPEI Communication’ (n 103), para 46. 
161  Commission,  ‘Guidelines  on  State  aid  for  climate,  environmental  protection  and  energy  2022’  (n  92),  paras  71,  73; 
Commission, ‘Framework for State aid for research and development and innovation 2022’ (n 92), para 143; Commission 
‘2021 IPCEI Communication (n 103), para 43. 
162 Phedon Nicolaides, ‘Demystifying the Balancing of the Positive and Negative Effects of State Aid’ (2024) 23(2) European 
State Aid Law Quarterly 136. 
163 Draghi Report Part B (n 20), 301. 
164  Case  C-459/10  P  Freistaat  Sachsen  and  Land  Sachsen-Anhalt  v  Commission  EU:C:2011:515,  para  36;  Joined  Cases 
C‑630/11 P, C-631/11 P, C-632/11 P, and C‑633/11 P HGA Srl and Others, Regione autonoma della Sardegna, Timsas srl, and 
Grand Hotel Abi d’Oru SpA v Commission EU:C:2013:387, para 104.  

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necessity. Overall understood as the incentive effect can, thus, operate as a useful limitation of 
the aid awarded in pursuit of EU industrial policy objectives, ensuring that the monies deployed 
are used efficiently and create actual investment incentives. As such, necessity, especially vis-
à-vis the compatibility objective pursued, could curb excesses, and allow for a regime where 
the Member States and the Commission, to a large extent, cooperate.  

The latter, as its name suggests, means that no aid measure can be deemed compatible if it 
produces contra legem results.165 This means that a measure containing a violation of EU law 
(beyond of course the prohibition found in Article 107(1) TFEU), which is indissolubly linked 
to the nature, objectives, or financing of the aid measure cannot be compatible with the internal 
market. At the same time, if the elements of the aid measure which are contrary to EU law can 
be  separated  from  the  overall  measure,  then  those  elements  must  be  severed  from  the  aid 
measure.166 This principle can be a useful safeguard in the implementation of EU industrial 
policy via State aid. 

Effectively,  in  the  context  of  instrumentalising  State  aid  compatibility  as  a  coordination 
framework for EU industrial policy, the principles underpinning State aid compatibility could 
be rather useful as a negative tool, determining what Member States cannot do. At the same 
time,  those  principles,  understood  and  applied  substantively,  can  ensure  that  any  new 
compatibility framework designed or repurposed to serve EU industrial policy will maintain 
those safeguards.  

The  overall  State  aid  system  is  well  established  –  from  the  notification  and  standstill 
obligations, the Commission’s margin of discretion and review, the requirement of necessity, 
or  the  balancing  exercise  inherent  in  a  compatibility  analysis.  There  is,  in  other  words,  an 
existing  structure,  which,  while  not  necessarily  operating  perfectly,  definitely  operates 
adequately. As State aid has already been argued to be linked to EU industrial policy to the 
point where it can operate as a common coordinating framework, State aid’s own norms and 
procedures  could,  and  in  this  context  probably  should,  also  become  part  of  that  common 
framework. Thus, deploying State aid compatibility as a common coordination instrument in 
the  field  of  EU  industrial  policy  would  effectively  bring  into  that  field,  at  least  in  the  parts 
related to State aid, on top of a common framework and common rules, also common obligation 
for Member States, common procedural rules, and common safeguards against negative effects 
on the market, while still maintaining the Commission’s role as a monitor (and occasionally 
assessor) of the national measures put in place within that context.  

In fact, there are already elements of the State aid compatibility regime where coordination 
between Member States is an important feature. While the Chips Act framework is still rather 
novel,167 making it difficult to extract lessons on potential coordination and cooperation from 
the existing administrative practice, IPCEIs offer a far better example.168 The importance and 

165  Case  C-594/18 P Austria v Commission  EU:C:2020:742,  para  45;  Case  C-284/21 P  Commission v Braesch  and  Others 
EU:C:2023:58, para 96. 
166 Case 74/76 Iannelli & Volpi SpA v Ditta Paolo Meroni EU:C:1977:51, paras 14-15.   
167 Chips Act (n 63); Commission ‘A Chips Act for Europe’ (n 63). 
168 Consider, for example: IPCEI on Microelectronics State Aid SA.46578 (2018/N) – Germany State Aid SA.46705 (2018/N) 
–  France  State Aid  SA.46595  (2018/N)  –  Italy  State Aid  SA.46590  (2018/N)  -  United  Kingdom,  Commission  Decision 
(C(2018) 8864 final) [2020] OJ C 7/6; or Important Project of Common European Interest on Hydrogen Technology (Hy2Tech) 
State Aid SA.64625 (2022/N) – Austria State Aid SA.64651 (2022/N) – Greece State Aid SA.64642 (2022/N) – Belgium State 
Aid SA.64644 (2022/N) – Italy State Aid SA.64640 (2022/N) – Czechia State Aid SA.64649 (2022/N) – Netherlands State 
Aid SA.64633 (2022/N) – Denmark State Aid SA.64626 (2022/N) – Poland State Aid SA.64646 (2022/N) – Estonia State Aid 
SA.64753 (2022/N) – Portugal State Aid SA.64632 (2022/N) – Finland State Aid SA.64635 (2022/N) – Slovakia State Aid 

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Hornkohl/Pelekis, State Aid Control as a Coordinating Instrument for EU Industrial Policy in the Internal Market 

potential of IPCEIs in the context of strategic investments and projects, and thus also within 
the context of the EU’s industrial policy, is recognised in academic literature,169 was featured 
in the Draghi Report,170 and forms part of the new Commission’s agenda.171 IPCEIs are, by 
their very nature, an example of State aid acting as a coordination tool; that is the very objective 
of  the  Article  107(3)(b)  derogation,  as  elaborated  in  the  IPCEI  Communication.172  For 
example,  a  minimum  of  four  Member  States  need  to  participate  in  a  project  for  it  to  be 
characterisable as an IPCEI,173 and the benefits stemming from it must extent to a wider part 
of the Union than the participating Member States.174 The common European interest is, thus, 
a key element of the very concept of an IPCEI. It is this condition that is the most developed 
in the soft law, providing that the project makes a concrete contribution to Union objectives, 
that the benefits of the project must be of wide relevance.175 Co-financing by the beneficiaries 
is also an essential element,176 thusly involving the mobilisation of private funds, with the State 
aid  element  covering  the  funding  gap.177  As  such,  the  IPCEI  framework  is  designed  to 
coordinate  the  actions  of  different  Member  States,  focused  on  the  same  project  –  a  project 
whose  benefits  must  be  widely  dispersed  and  important  from  a  Union  perspective.  Thus, 
IPCEIs,  and  the  legal  and  administrative  regime  governing  them,  already  operate  as  a 
coordination tool, also justifying the focus on them in the Draghi Report and the Commission’s 
priorities. As  such,  we  can  see  IPCEIs  as  a  proof  of  concept  of  the  State  aid  compatibility 
regime operating as a coordination and (multilevel) cooperation framework in the context of 
EU industrial policy.  

b.  Limitations of State Aid as a Coordinating Framework 

When addressing the evolution of State aid compatibility as a coordinating framework, the term 
‘makeshift’ was used – and not accidentally. The discussed evolution of State aid compatibility 
as a coordinating measure of industrial policy can have the discussed benefits, yet it should not 
be seen as a panacea. In any case, it is important to understand that the objectives of the two 
interrelated regimes may not necessarily be aligned.  

i.  Treaty Barriers for Union Intervention via State Aid 

Article 173 TFEU raises a conundrum. While Article 173(1) outlines the objectives of the EU’s 
industrial policy, and 173(3) TFEU states that the Union shall contribute to the achievement of 
those objectives “through the policies and activities it pursues under other provisions of the 
Treaties”, the final paragraph of the Article also states, unequivocally, that “this Title shall not 
provide  a  basis  for  the  introduction  by  the  Union  of  any  measure  which  could  lead  to  a 
distortion of competition” [emphasis added]. This creates an obvious tension, as on the one 
hand State aid is argued to be an important element of the EU’s industrial policy, while at the 

SA.64671 (2022/N) – France State Aid SA.64624 (2022/N) – Spain State Aid SA.64647 (2022/N) – Germany, Commission 
Decision (C(2022) 5158 final) [2024] C/2024/5128. 
169 Editorial Comments, ‘The EU’s integrated policy approach towards competitiveness’ (n 24).  
170 See, e.g.: Draghi Report Part B (n 20), 135, 153. 
171 von der Leyen, Mission Letter to Ribera Rodríguez (n 18), 6-7; von der Leyen, Mission Letter to Séjourné (n 47), 7.  
172 Commission ‘2021 IPCEI Communication’ (n 103). 
173 Ibid, para 16; Joined cases C-71/09 P, C-73/09 P and C-76/09 P Comitato «Venezia vuole vivere», Hotel Cipriani Srl, and 
Società Italiana per il gas SpA (Italgas) v Commission EU:C:2011:368, para 176; Joined Cases 62/87 and 72/87  Exécutif 
Régional Wallon and SA Glaverbel v Commission EU:C:1988:132, para 22. 
174 Commission ‘2021 IPCEI Communication’ (n 103), para 18. 
175 Ibid, paras 13-14. 
176 Cast T-390/20 (n 103), para 83. 
177 Commission ‘2021 IPCEI Communication’ (n 103), paras 33-36.   

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Hornkohl/Pelekis, State Aid Control as a Coordinating Instrument for EU Industrial Policy in the Internal Market 

same time, the relaxation of the compatibility regime, even sectorally, leads to a situation where 
it is inevitable that competition will be distorted. The State aid regime contains a normative 
dimension whereby the distortion of competition (and effect on trade) caused by the award of 
aid is balanced with the benefits stemming from such aid (even if said balancing exercise is 
influenced by the Commission’s policy priorities).  

However,  that  normative  nuance  does  not  seem  to  exist  in  Article  173  TFEU.  This  is 
particularly relevant in relation to R&D&I and environmental/energy related policies, and to 
those  preoccupied  with  resilience  and  strategic  autonomy.  In  other  words,  the  very  Treaty 
provision  which  empowers  the  Union  to  design  and  pursue  an  ambitious  industrial  policy 
appears to be placing limitations on the deployment of that policy vis-à-vis the distortion of 
competition.  In  effect,  therefore,  the  very  Treaty  provision  which  empowers  the  Union  to 
design and pursue an ambitious industrial policy seems to also be placing limitations on how 
that policy ought to be implemented, in particular via distortions of competition.   

ii.  Necessity of an EU Industrial Policy Without State Aid 

In general, within this interrelation of EU industrial policy and State aid compatibility, there 
should  be  clear  safeguards  and  a  clear  delineation  of  realms  of  action.  In  particular,  the 
utilisation of State aid compatibility as a coordination instrument for industrial policy can be 
problematic if it is only or even the main means of implementing that industrial policy. This 
risk  or  limitation  relates  to  the  restricted  scope  for  direct  EU  participation  and  EU-led 
interventions. While the Union would still have scope to act, it should not, in the long run, rely 
solely, or even mainly, on Member States policies. The Union should be proactive and should, 
thus, be granted the financial capacity to allow it to be. While State aid can indeed assist in 
coordination and cooperation, the Union and its institutions should be forming, setting, guiding, 
and implementing EU industrial policy, not just managing it.  

Further, the deployment of Union resources, not instead of but on top of, Member State funds 
can help assuage concerns of moral hazard, i.e., the Union being generous and taking risks with 
the Member States’ own funds. Additionally, the deployment of more Union resources, and the 
creation of additional, more comprehensive, coordination and cooperation frameworks would 
also help ensure that EU industrial policy is focused on Pan-European interests and priorities, 
and not on the narrower ones of Member States. As the EU and its Member States might not 
have  pockets  as  deep  as  those  of  the  US  or  China,178  interventions  derived  from  industrial 
policy would need to be carefully considered to maximise their effect; especially as a subsidy 
battle  with  those  countries  could  very  well  be  very  burdensome.  In  other  words,  while  the 
deployment of State aid as coordination instrument in relation to EU industrial policy seems 
reasonable from an availability of funds perspective, the Union must still remain proactive and 
involved in the overall execution of its industrial policy – State aid is thus part of the solution, 
but not the whole solution. 

iii.  Coming Back to Rationale and Purpose of State Aid Control 

Safeguards would also be necessary to ensure that the rationale and telos of the State aid regime 
is not frustrated. As mentioned above, State aid control is preoccupied with maintaining a level 
playing field, while also managing competition between Member States and limiting subsidy 
races. This very rationale could be threatened if the regime is repurposed and subsidies, even 

178 Barbieri Góes and Viesti (n 34), table 1. 

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Hornkohl/Pelekis, State Aid Control as a Coordinating Instrument for EU Industrial Policy in the Internal Market 

in limited areas of relevance to industrial policy and/or other policy priorities, are allowed to 
flow more freely.  

This is particularly relevant from the perspective of Member States, as not all of them have the 
same capacity to grant subsidies. As an illustration, during the Covid-induced loosening of the 
State aid regime, 77% of subsidies were granted by Germany and France, rising to nearly 85% 
if Italy is included. The remaining 24 Member States, representing 45% of the EU’s GDP, only 
awarded  the  remaining  15%.179  Further,  those  same  three  Member  States  have  received  the 
bulk of the aid awarded under the Chips Act framework.180 Additionally, some crisis measures 
also seem to have had a negative impact on market integration, for example in relation to the 
emergency measures adopted in the 2021-2023 period for both electricity and gas.181 Further, 
the  Covid-induced  relaxation  of  the  compatibility  rules  led  to  inefficient  subsidy  races  and 
arguably fragmented the internal market.182  

These developments demonstrate some of the risks inherent in the relaxation of the State aid 
regime, and its tying to wide ranging policy objectives, especially from the perspective of the 
overall  aim  of  State  aid  law  itself.  There  are,  however,  also  risks  from  the  perspective  of 
industrial policy, as strategic, coordinated industrial policy actions would benefit from a return 
to  a  pre-crisis  enforcement  of  State  aid  rules.183 Thus,  if  State  aid  becomes  the  only  or  the 
central coordinating framework for EU industrial policy this could, for example, risk resulting 
in an unequal, from an EU-wide perspective, distribution of any benefits stemming from the 
implementation of industrial policy.  

Given those risks, the context and content of the balancing exercise discussed above become 
paramount, potentially placing the Commission in a difficult situation, where it must, itself, 
balance its various roles within that balancing exercise. This could also become an issue in the 
context of major strategic interventions, which are important elements of industrial policy, but 
whose effects, positive or negative, a difficult to assess and evaluate ex ante. The level at which 
this exercise is undertaken, the considerations it takes into account, what effects take priority, 
and the prism under which positive and negative effects are weighed, can all become areas of 
tension, and can all influence the substantive content and thus the outcome of the balancing 
test. In other words, the balancing exercise can either act as a safeguard, or it can lead to a 
further relaxation of State aid compatibility rules, depending on how the Commission applies 
it. This dynamic shows that the Commission’s central role in the State aid regime is, in relation 
to its interconnection with industrial policy, a double edged sword – on the one hand, it can 
facilitate  the  coherent  deployment  of  State  aid  compatibility  as  a  coordinating  framework, 
while at the same time it can make compatibility completely subservient to industrial policy, 
taking away checks and balances. 

In the context of safeguards, it is important to note that there is little agreement as to the success 
of industrial policies, and the risks inherent in them. It is worth bearing in mind that industrial 

179 Jorge Liboreiro, ‘Germany & France account for most EU subsidies. Here's why it's a concern’ Euronews (17 January 2023) 
accessed 14 February 2025; Jonathan Packroff and Oliver Noyan, ‘Germany Under Fire for Push to Revamp EU-Subsidy 
Rules’ Euractiv (16 January 2023) accessed 14 February 2025. 
180 Chips Act (n 63); Commission, ‘A Chips Act for Europe’ (n 63). 
181 European Union Agency for the Cooperation of Energy Regulators, ‘10th ACER Report on Congestion in the EU Gas 
at: 
Markets 
https://acer.europa.eu/sites/default/files/documents/Publications/ACER_10_Gas_Congestion_Report.pdf. 
182 Draghi Report Part B (n 20), 301. 
183 Ibid. 

Managed’ 

available 

2023), 

(May 

How 

and 

is 

it 

Page 22 of 25 

 
 
 
Hornkohl/Pelekis, State Aid Control as a Coordinating Instrument for EU Industrial Policy in the Internal Market 

in 

incumbents 

the  EU,186  by  strengthening 

policies  can  be  costly,  and  can  have  wide-ranging,  negative,  effects,  going  beyond  the 
objectives of the industrial policy in question.184 Such an example is the path dependence of 
technological  development.185 Additionally,  the  State  aid  bonanza  can  undermine  effective 
those  with 
competition 
lobbying/political power, potentially even leading to regulatory capture),187 or affecting entry 
and  exit  conditions.  It  can  also  lead  to  inefficient  investment  and/or  location  decisions  by 
Member States and private firms.188 Importantly, conducting industrial policy through State aid 
compatibility  may  have  the  consequence  of  creating  “winners”  and  “losers”  among  the 
Member States, with the larger and wealthier ones in pole position to reap the benefits. The 
same “winner-loser” dynamic can be replicated sectorally, and in the context of undertakings. 
Thus, for State aid to be deployed in the manner suggested in this article, there would need to 
be,  as  explained  above,  safeguards,  to  ensure  that  any  distortions  stemming  from  the 
implementation of EU industrial policy is limited and proportionate to the envisaged benefit.  

(especially 

IV.  Conclusions and Policy Recommendations 

This  paper  has  argued  that  the  objectives  of  EU  industrial  policy  are,  conceptually  and 
substantively, closely connected to some of the compatibility avenues available under the State 
aid regime. Based on that, it was argued that there is indeed an emerging interrelation between 
(the objectives of) EU industrial policy and State aid compatibility, with the latter becoming 
instrumentalised by the former. It is in this context that this paper concludes that State aid has 
the potential to act as a coordinating framework for the deployment of EU industrial policy.  

In fact, there are plenty of arguments suggesting it should be deployed in such a capacity. This 
should  be  taken  to  mean  that  the  interrelation  should  grow  deeper  and  become  more 
pronounced  and  explicit  –  as  such  a  development  would  allow  for  positive  effects  to  be 
harnessed, while also allowing for safeguards to be erected. The existing State aid framework, 
given  the  overall  malleability  of  compatibility  conditions  in  the  context  of  the  institutional 
framework  and  the  Commission’s  role,  can  be  an  extremely  useful  tool  in  this  context  – 
directing spending, imposing common legal rules and obligations, and using developed terms 
and frameworks. There is a gap in this area at current: there is no coordination instrument for 
industrial policy at the moment, but there is a need for industrial policy and for coordination, 
as highlighted in the Draghi Report,189 and the Competitiveness Compass.190 State aid can ably 
fill part of that gap, at least temporarily and State aid would also produce beneficial effects for 
EU industrial policy; provided that that coordinating framework is adequately supported by 
other frameworks and initiatives. Already, it seems clear that there is a policy kinship between 
the two, and it is equally clear that EU industrial policy can influence and affect State aid policy. 

184 Millot and Rawdanowicz (n 1), 15-16, 19-20. 
185 Stan J Liebowitz, Stephen E Margolis, ‘Path Dependence, Lock-in, and History’ (195) 11 Journal of Law Economics and 
Organization 205; Daron Acemoglu, ‘Distorted Innovation: Does the Market Get the Direction of Technology Right?’ [2023] 
NBER Working Paper No. w30922; Philippe Aghion, Antoine Dechezleprêtre, David Hémous, Ralf Martin, and John Van 
Reenen,  ‘Carbon Taxes,  Path  Dependency,  and  Directed Technical  Change:  Evidence  from  the Auto  Industry’  (2016)  124 
Journal of Political Economy 1; Aghion, Boulanger, Cohen (n 24). 
186 OECD ‘Pro-Competitive Industrial Policy’ (n 1), 14, 20-21, 22-42; Millot and Rawdanowicz (n 1), 14-16.  
187 OECD ‘Pro-Competitive Industrial Policy’ (n 1), 14-15. 
188 OECD ‘Pro-Competitive Industrial Policy’ (n 1), 15; Millot and Rawdanowicz (n 1), 14-17, 19, 21-22. 
189 Draghi Report Part B (n 20), 128-129.  
190 Commission, ‘A Competitiveness Compass for the EU’ (n 19), 25.  

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Hornkohl/Pelekis, State Aid Control as a Coordinating Instrument for EU Industrial Policy in the Internal Market 

IPCEIs  in  this  context  make  for  a  very  good  example;  but  the  same  can  be  said  about  the 
R&D&I Framework or the CEEAG. 

Fist,  utilising  State  aid  compatibility  as  a  coordination  framework  will  have  the  effect  of 
increasing the funds directed at measures linked with the objectives of EU industrial policy. 
This can help close the funding gap that the Union has come across, and will continue to come 
across,  in  implementing  its  industrial  policy;  especially  in  the  context  of  Great  Power 
competition and the deep(er) pockets of China and the USA. Additionally, the deployment of 
State aid in such a manner is unlikely to negatively affect the budgets of Member States, as it 
will effectively redirect parts of the existing State aid expenditure to objectives linked with 
advancing  industrial  policy  –  something  with  which  State  aid  has  already  had  success  as 
demonstrated by, e.g., the percentage of aid expenditure linked to environmental and energy 
related objectives.191 In any case, for EU industrial policy to be successful in the long term, 
there needs to be at least a degree of buy-in from the Member States, something which State 
aid can help achieve, as the Member States will retain their agency and power to act – within a 
given, common, framework. Thus, the proposed instrumentalisation of State aid as a lever and 
coordinating framework for EU industrial policy, from a financing perspective, is amicable.   

Second,  the  existing  institutional  structures,  procedures,  and  principles  of  State  aid  law  can 
help ‘harden’ EU industrial policy and provide for useful limitations on the actions of Member 
States,  ensuring  that  what  is  being  pursued  is  EU,  and  not  Member  State,  industrial  policy. 
Further, the institutional structure of State aid maintains the Commission at its centre, allowing 
it to also maintain its wide discretion, while remaining within the Treaty-derived framework 
and having to respect principles of Union law. In this context, State aid law and policy can add 
concrete,  substantive  content  to  EU  industrial  policy,  building  on  existing  frameworks  and 
structures, and taking advantage of the expertise the Commission has accumulated. State aid is 
a well-established area of law, and Member States also have experience with it, which makes 
its deployment as an instrument of EU industrial policy more straight-forward, and faster, than 
creating a whole new framework. The principles underpinning the computability regime, as 
well as the balancing test inherent in a compatibility analysis, can also facilitate the coherence 
of action and increase the coordination effects, while providing useful, as will be discussed 
below, limitations and guardrails.  

In  other  words,  it  has  been  shown  that  State  aid  compatibility  should  become  a  gap-filling 
common  coordinating  framework  for  the  implementation  of  EU  industrial  policy  at  the 
Member State level. State aid can indeed be deployed as such a framework for EU industrial 
policy, as such a move will have significant benefits vis-à-vis the institutional structure and 
balance of EU industrial policy, and its financing; while at the same time facilitating Member 
States to take action in pursuit of the objectives of EU industrial policy and maintaining the 
Commission’s central, driving, competence.  

Despite those benefits however, utilising State aid as a means to implement EU industrial policy 
cannot  be  seen  as  a  panacea;  or  rather  it  should  not  be  seen  as  the  only  means  for  creating 
coordination and instilling coherence in the deployment and execution of EU industrial policy. 
This is because, State is a multipurpose legal framework, and its complete subsumption and 
absorption into EU industrial policy can affect some of the aims of the overall State aid regime. 
Such  a  development  will  inevitably  cause  issues  which  will  affect  the  competitiveness  and 

191 State Aid Scoreboard 2023 (n 149), 36-44.   

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Hornkohl/Pelekis, State Aid Control as a Coordinating Instrument for EU Industrial Policy in the Internal Market 

soundness of the internal market, possibly even leading to its partial fragmentation, and which 
will  also  jeopardise  the  success  of  EU  industrial  policy. A  subsidy  race,  or  a  replication  of 
infrastructures, will not be beneficial under either the prism of State aid, or that of industrial 
policy. Similarly, a balance needs to be kept, to ensure that (harmful) Member State competition 
is limited, and that the benefits stemming from EU industrial policy are EU benefits and are 
dispersed  in  an  efficient  and  fair  manner.  Additionally,  State  aid  should  maintain  some 
independence,  as  the  current  regime  covers  aid  expenditure  which,  while  of  paramount 
importance, is not directly linked to EU industrial policy – from relief for natural disasters to 
financing  SGEIs.  In  other  words,  robust  safeguards  and  limitations  are  necessary  for  the 
successful instrumentalisation of State aid within the context of industrial policy. A lot of the 
limitations can be grouped together under the banner of political concerns, as State aid law and 
policy are already, inherently, politicised. Inserting them into an EU industrial policy which is 
likely to generate both winners and losers would risk increasing this politicisation, potentially 
reducing the legitimacy of the State aid regime, and exacerbating misalignments of interests 
between Member States. 

A  further  reason  why  State  aid  should  be  part  of  the  solution  but  the  whole  solution  is  the 
imperative for a more active Union role in the deployment of industrial policy, including the 
financing of it – something which State aid does not really allow for. Additionally structures 
and frameworks ought to be put in place to facilitate the Union and its institutions to take a 
more proactive role in the implementation of EU industrial policy.  

In summary, it is clear that there is a kinship between State aid policy and EU industrial policy, 
creating a strong interconnection between the two. In this context, it is submitted that State aid 
should  become  a  common  coordinating  framework  for,  and  thus  an  instrument  for  the 
achievement  of,  the  objectives  of  EU  industrial  policy,  and  that  such  a  move  would  create 
significant  benefits  from  the  perspective  of  EU  industrial  policy.  However,  for  this 
instrumentalisation to be successful, measures would need to be taken to ensure that the State 
aid regime maintains (some of) its autonomy and independence, and that its core rationale is 
not frustrated, necessitating the erection of safeguards. Further, the Union must also assume a 
larger  role,  both  structurally/organisationally  and  financially,  necessitating  the  creation  of 
additional frameworks and instruments for the implementation of EU industrial policy. State 
aid thus should absolutely be part of EU’s industrial policy apparatus – but for the sake of both 
industrial policy and State aid, it cannot be the only or the central part. Its deployment would 
need to be supported by other concrete actions. Nonetheless, the core argument remains: State 
aid  already  acts,  and  should  continue  to  act,  as  a  common  coordination  framework  for  EU 
industrial policy.  

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DOI: 10.2873/5847550 
ISBN 978-92-68-27117-9