The modernisation of state aid for economic and social development

Introduction: The Modernization of StateAid Regulation Bruno Nascimbene 1 The Complexities of EU State Aid Policies In recent years, competition policy has seen State aid regulation take

Studies in European Economic Law and Regulation 14

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Bruno Nascimbene • Alessia Di Pascale Editors

The Modernisation

of State Aid

for Economic and Social Development

Studies in European Economic Law and Regulation

ISBN 978-3-319-99225-9 ISBN 978-3-319-99226-6 (eBook)

https://doi.org/10.1007/978-3-319-99226-6

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Introduction: The Modernization of State Aid Regulation 1Bruno Nascimbene

Part I A New Institutional Framework for State Aid Control

State Aid Modernization 17Nicola Pesaresi and Rodrigo Peduzzi

The Notice on the Notion of State Aid: Every Light Has Its Shadow 43Andrea Biondi and Oana Stefan

A More Economic Approach to the Control of State Aid 63Phedon Nicolaides

State Aid Control: Are the Standards and the Institutional

Setting Appropriate? 75Alberto Heimler

Part II Policy Areas

Services of General Economic Interest 91Erika Szyszczak

Infrastructure Financing and State Aid Control: The Potential

for a Virtuous Relationship 123Ginevra Bruzzone and Marco Boccaccio

Tasks for National Authorities in the Modernization Era:

A Case Study—Italy 147Valerio Vecchietti

Energy and Environment 169Massimo Merola and Omar Diaz

v

Public Policies for Financing the Deployment of Broadband

and Very High-Speed Broadband Networks and EU Rules

on State Aid Control 237Mario Siragusa and G Cesare Rizza

State Aids, Social Services and Healthcare in EU Law 267Daniele Gallo

Introduction: The Modernization of State

Aid Regulation

Bruno Nascimbene

1 The Complexities of EU State Aid Policies

In recent years, competition policy has seen State aid regulation take on an ingly relevant role, while trying to occupy a middle ground between pushing towardthe single market and protecting common interests.1

increas-a) In the matter of State aid regulation, the European Union is unique in that wefind various public authorities (Member States) abiding by rules set out by asingle higher authority (the European Commission) Moreover, the legal frame-work underpinning this system was designed at a time when no precedent orprevious experience were available.2

Even though the rules on State aid were established in 1957 (Article 87 of theTreaty of Rome)3and scarcely changed since then, we have had to wait almost

40 years to see them in effect.4

In spite of this stagnation, however, the definition of State aid has undergone

an evolution, influenced by the policies of the European Commission, thedifficulties in their enforcement and the build-up of case law produced by theEuropean Court of Justice during the integration process.5

B Nascimbene ( * )

University of Milan, Milan, Italy

e-mail: info@nascimbene.com

1 See, inter alia, Tosato ( 2011 ), pp 3 et seq.

2 See Ehlermann ( 1994 ), pp 1213 et seq.

3 The only modi fication consisted of the substitution of “common market” with “internal market”.

4 See Lyons and Kassim ( 2013 ), p 4.

5 For an analysis of the different interests involved in the evolution of the EU concept of State aid, see Piernas Lopez ( 2015 ), chapter 1.

© Springer Nature Switzerland AG 2018

B Nascimbene, A D Pascale (eds.), The Modernisation of State Aid for Economic

and Social Development, Studies in European Economic Law and Regulation 14,

https://doi.org/10.1007/978-3-319-99226-6_1

1

b) According to many political scientists, one has to consider the economic andpolitical context which accompanied this evolution of State aid policies, as itmay be argued that the very definition of State aid has been subject to variousinterpretations according to the interests and political aims prevailing at aparticular time—thus giving rise to a somewhat fluid concept of State aid.6

This matter—as well as being a unique phenomenon that is wholly European

in creation—has numerous implications that go beyond mere economic or legalconsiderations The political nature of decisions taken by the European Unionregarding State aid means that the effect of such decisions on the internalbalance of the EU has to be considered Indeed, the Commission has exercisedon-and-off control and its monitoring actions have been carried out with varyingintensity, sometimes in sharply opposed directions This happened not because

of specific deficiencies in the Treaties, but as a result of the economic andpolitical conditions of the European Union

Furthermore, it should be stressed that the uniqueness of State aid rules dependalso on the fact that State aid involves a multiplicity of public and private parties,which leads to many difficulties in the coordination and in the relationships betweennational authorities (central and regional) and the Commission.7

Finally, a genuine modernization process of State aid rules was sparked by therecent financial and economic crisis, which was followed by huge injections ofliquidity in support of companies and banks

2 The Modernization Process: Historical Background

As mentioned previously, although the main rules regarding State aid have been leftwell-nigh unaltered in substance, their application has seen remarkable changes overthe years Initially, this process was propelled mainly by the implementation ofArticles 101 and 102 of the Treaty on the Functioning of the European Union(hereinafter the“TFEU”), while that of Articles 107 and 108 TFEU took over at alater stage

Again, the context in which these changes took place has to be considered: thefirst important drive toward a revolution of the enforcement systems came from the

EU enlargement With the addition of new Member States in the 1990s, thecentralized system began to be considered ineffective in protecting competition: inorder to preserve the Commission’s resources for the most important cases, decen-tralization—that is, task distribution—was to be put in place

6 De Burca ( 2002 ), p 181 The terminology of De Burca has already been borrowed by Piernas Lopez ( 2015 ).

7 In this sense, see Tesauro ( 2011 ), p XIII; Köhler ( 2014 ), P-165-174.

a) The modernization process involved the entire area of EU antitrust law In 2004,

EC Regulation no 1/20038replaced EEC Regulation no 17/62.9The edgement of the direct effect of Article 101(3) TFEU, and the subsequent repeal

acknowl-of the mechanism for prior notification, brought about a “network” system, inwhich the application of Articles 101 and 102 is fully shared between theCommission, the national courts and the competition authorities of MemberStates, in contrast with the previous centralized system that hindered the Com-mission’s ability to tackle the most serious infringements of antitrust rules.b) Subsequently, efforts toward decentralization were also evident in the applica-tion of the rules for the control of State aid In 2012 the adoption of a commu-nication by the Commission on the modernization of State aid control launchedthis second phase.10 The objective was to cut down the number of ex antenotifications of aid measures and aid schemes to the Commission—underArticle 108 TFEU—by making such notifications compulsory only for thosemeasures likely to have far-reaching consequences on competition and theinternal market Projects raising lesser competition concerns would be exemptfrom the notification obligation, while certain requirements—set out by theCommission—would ensure the compatibility of non-notified aid measureswith Article 107 TFEU New responsibilities would fall to Member States inensuring the compliance of aid measures with EU rules New safeguards—inparticular transparency obligations and ex post monitoring—would be necessary

as well.11

By contrast with Articles 101 and 102 TFEU, Article 107 has not becomeapplicable directly and the Commission retains the exclusive competence toestablish whether an aid measure is compatible with the Treaty There aresimilarities between the two modernization processes, in particular in theattempt to reduce the administrative burden on the Commission Nevertheless,certain peculiar features distinguish the modernization of State aid control fromthe modernization of antitrust rules The subject matter of State aid control is theuse of public resources by Member States With the erosion of Member States’financial capabilities and the increased pressure for more efficient public spend-ing, the reform of State aid control actually aims to encourage a more effectiveuse of public resources by national authorities To this end, the latest regulationsand guidelines are consistently designed to promote‘better-targeted’ aid, needed

8 Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty.

9 Council Regulation (EEC) No 17/62: First Regulation implementing Articles 85 and 86 of the Treaty.

10 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, EU State Aid Modernisation (SAM), COM (2012) 209 of 8 May 2012.

11 See, inter alia: Walter ( 2013 ), pp 757 –772; von Wendland ( 2015 ), pp 25 –50; Lever ( 2013 ),

pp 5 –10.

Introduction: The Modernization of State Aid Regulation 3

either to correct actual market failures in connection with the objectives of the

‘Europe 2020’12agenda or to encourage social cohesion

c) Thus, the modernization of State aid control aims at economic and social reform.Under the modernized approach, the conditions under which a State aid measure

or regime is deemed compatible with the internal market follow a set of commonprinciples aimed at ensuring that State aid pursues clearly defined objectives ofgeneral interest, is an appropriate instrument, does not go beyond what is strictlynecessary to pursue such objectives and that negative consequences of State aidfor competition are kept to a minimum In other words, decentralization is thekey through which a more flexible and efficient control of State aid may beachieved, following a similar pattern to that of the European antitrust modern-ization In particular, a widespread shift from ex ante to ex post State aid controlwas set in motion by the mentioned Regulation 651/2014—extending theexemption from notification obligation (pursuant to Article 108(3) TFEU) to awide number of aid measures As a result of this provision, Member States arerequired to verify the conditions for the exemption and in some cases theythemselves must evaluate the effect of the adopted aid measures This substan-tial shift from the traditional ex ante to ex post control could make it easier forMember States to grant aids that are assumed to be compatible with the internalmarket, and some fear that effective control has been weakened.13

d) It should be recalled that the so-called Almunia Package14 on the assessmentunder State aid rules of the compensation of public service obligations forservices of general economic interest (SGEI), adopted in 2011, alreadyenshrined some of the main features of the new approach: only measurespotentially entailing major distortions of competition remain subject to thenotification obligation; the Commission, moreover, sets forth detailed require-ments that aim to ensure that service providers are not overcompensated and thatthe use of public resources is limited to what is strictly necessary in the publicinterest Moreover, in the Almunia Package the Commission tried to simplifyprocedures, in particular with reference to social services of general economicinterest

e) Between 2012 and 2015 the reform announced by the Commission in thecommunication on the modernization of State aid control has been almostentirely completed Procedural rules have been revised (they were recentlyconsolidated in Council Regulation No 1589/201515); a new broad general

12 Communication from the Commission, Europe 2020: A strategy for smart, sustainable and inclusive growth, COM (2010) 2020 of 3 March 2010.

13 See Boccaccio ( 2016 ).

14 The Commission, on 8 September 2015, published the Member States ’ reports on compliance with the rules on State aid for the provision of services of general economic interest ( “Almunia package ”) in 2012–2014.

15 Council Regulation (EU) 2015/1589 of 13 July 2015 laying down detailed rules for the tion of Article 108 of the Treaty on the Functioning of the European Union (codi fication).

block exemption regulation16together with a new de minimis regulation17havebeen adopted Several acts of soft law have been either revised or adopted exnovo, aiming to provide a complete and consistent set of guidelines to the publicadministration of the Member States for the use of public resources in a waywhich is consistent with the Treaty The topics covered by the various commu-nications and guidelines include the rescue and restructuring of companies,regional aid, research and development, energy and environment, agriculture,investment and riskfinancing, broadband, air transport and airports, and projects

of European interest Moreover, the Directorate-General for Competition(DG COMP) has published some complementary documents on how to conductthe ex post evaluation of the impact of major aid schemes and how to assess thecompatibility of State aid in thefield of infrastructure

3 The Modernization Process: A First Assessment

a) It is still too early to make an assessment of the overall effectiveness of thereform of State aid control Whether it will respond to the expectations of theCommission strongly depends on how Member States play their role in the newdecentralized application system Nonetheless, at this stage of the process itappears relevant to put forward an in-depth analysis and discussion of the mainfeatures of the State aid modernization framework, considering both its strengthsand the challenges that will have to be met in the coming years

b) Furthermore, the factors mentioned in Sect.1above are still in the balance Oneshould also consider that the evolution of the Commission’s policy related toState aid reveals how dynamic the development of State aid regulation hasbeen.18This is of course a consequence of the subject matter’s interconnectionwith the main economic and political events that have affected the EuropeanUnion (and, before, the European Community) Indeed, the literature oftendistinguishes a number of periods of EU integration and shows how the objec-tives and priorities of State aid policy have been influenced by the generalpolitical and economic developments taking place at EU level.19The Commis-sion had to cope with a “dilemma of discretion” at the heart of its State aidmandate Even as the Commission had considerable freedom to exercise its

16 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 Text with EEA relevance.

17 Commission Regulation (EU) No 1407/2013 of 18 December 2013 on the application of Articles

107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid.

18 For an in-depth analysis of the evolution of the Commission ’s policy on State aid divided into four main periods, see Piernas Lopez ( 2015 ), chapter 3.

19 For different periodizations of the evolution of EU competition law, see: Weiler ( 1991 ), p 2403; Wesseling ( 2000 ), p 9; Doleys ( 2009 ).

Introduction: The Modernization of State Aid Regulation 5

delegated autonomy, it was also subject to embedded institutional controlmechanisms and political pressures that served to condition that autonomy.Some would argue that the history of EU State aid policy is written in theCommission’s efforts to navigate that dilemma.20

c) Another relevant factor to be considered is the evolution in the European Court

of Justice’s case law Over the years, the Court of Justice has shown a morebalanced approach between deregulation and other values, with an evolvingrecognition, for example, of the importance of social policy and public service.21

In other words, the case law on State aid has been influenced by economicinterestsfixed by the Treaty, such as the competition rules or the free movement

of goods The influence of the Court of Justice’s case law is for example evident

in the broad definition of State aid, which comprehends several State measuresand forms of public intervention, not considering its form as essential

Furthermore, as has already been stressed,22the role of national courts in thematter of State aid is marginal despite the Commission’s efforts to improve this,

as evidenced by the 2009 Communication.23

d) It is also relevant that the State Aid Action Plan (SAAP) implemented by theCommission24was primarily designed to significantly reduce the number of aidsand to redistribute them according to horizontal objectives, such as relating toresearch or innovation.25As a consequence of the SAAP, the State aid definitionhas also been frequently interpreted from an economic perspective, while beforealmost only legal scholars debated this field.26 Two main theories on theobjectives and the nature of State aid rules have been developed in literature,

as a consequence of the SAAP.27Thefirst school of thought considers State aidrules to be deeply linked to the internal market; therefore economics has a verylimited role in the State aidfield.28

By contrast, another part of the literatureconsiders that State aid measures are by definition connected to the competitionrules; therefore an economic approach is needed in order to carry out an analysis

24 The State Aid Action Plan presented by the Commission launched a comprehensive reform of State aid policy that will cover a 5-year period (2005 –2009) The objective was to guarantee the Member States a clear and predictable framework in order to enable them to grant State aid, targeted towards achieving the Lisbon Strategy objectives.

25 See Schepisi ( 2011 ), pp 17 et seq.

26 See, Crocioni ( 2006 ), p 89; Neven and Verouden ( 2008 ), p 99; Garcia and Neven ( 2004 ); Nitsche and Heidhues ( 2005 ).

27 For an analysis of these two approaches, see Piernas Lopez ( 2015 ).

28 See, inter alia: Buendia Sierra ( 2006 ), p 59.

of distortions of competition produced by those measures and to complete thetrend toward an effects-based approach.29

4 The Central Idea of the Volume

The contributions collected in this book are linked together by a common thread Thedifferent features of the reform—from the institutional framework to the substantivecriteria of evaluation of State aid in the different policy areas—are analysed in light

of three main objectives of the reform: clarity of rules; effectiveness of procedures;ability to promote additional investment and a more dynamic, sustainable andinclusive economy in the European Union

Some of the chapters are revised versions of papers presented at a conference on

“The modernization of State aid”, held at the University of Milan on 26 November

2014 The conference was organized by the Jean Monnet Centre of Excellence at theUniversity of Milan and Assonime (the association between the Italian joint stockcompanies),30as part of the cultural initiatives on European issues held during theItalian Presidency of the EU Council

The volume is divided in two parts—one focused on the new institutionalframework and the other one on its impact on the different policy areas—that will

be briefly introduced in the next two sections

4.1 A New Institutional Framework for State Aid Control

Part I of the volume is devoted to the analysis of the general features of the newframework for State aid control, from both an institutional and an economicperspective

a) In the second chapter,31Nicola Pesaresi (Head of Unit State aid at the EuropeanCommission, DG COMP) highlights that the State aid modernization reformcannot be understood in isolation from the overall Europe 2020 strategy aimed

at making Europe a smart, sustainable and inclusive economy He explains thatthe reform is based on three priorities: fostering ‘good’ aid, which promotesgrowth and quality of public spending; increasing the efficiency of State aidcontrol through broad block exemptions, speedier procedures and a prioritiza-tion of the Commission’s efforts; improving consistency across the State aidframework and the Commission’s ability to tackle illegal aid by means of newinstruments such as market investigations and sector inquiries The author

29 See, inter alia: Derenne and Merola ( 2007 ); Friederiszick et al ( 2008 ), p 625.

30 ‘Associazione fra le Società Italiane per Azioni’.

31 See the chapter by Pesaresi and Peduzzi, this volume.

Introduction: The Modernization of State Aid Regulation 7

describes the milestones of the modernization package (regulations, guidelinesand other notices) and illustrates the new role played by the European Commis-sion in the modernized framework Compared to the past, this role is more based

on priority setting and providing guidance to Member States and national courts

on the application of Article 107 TFEU Moreover, the Commission has taken to establish a new partnership approach with the authorities of MemberStates

under-b) The third chapter,32by Andrea Biondi (King’s College, London) focuses on thescope of application of EU rules on State aid, and in particular on the notion ofState aid In the new system, the Commission retains the exclusive power toassess whether State aid is compatible with the Treaty Therefore, the freedom ofMember States to decide how to use their public resources to support undertak-ings closely depends on the scope of State aid control (Article 107(1) TFEU).33The modernization project led to the adoption of a notice by the Commissionconcerning this notion of State aid.34In addition, Member States and nationalcourts have to refer to the case law of the European Court of Justice The authordiscusses the relevant issues concerning the interpretation of the notion of Stateaid (notion of public resources, selective aid, impact on trade) and illustrates thereasons why a work of ‘codification’ through an act of soft law appearsparticularly complex On the other hand, the interpretation of Article 107(1) TFEU plays a crucial role in the system, especially since national courtsare competent to assess, on a decentralized basis, whether aid has been illegallygranted in violation of the notification obligation established by Article

108 TFEU: in this context, national courts often have to assess whether ameasure is, or is not, State aid under Article 107 TFEU

c) Valerio Vecchietti (Department for European Affairs, Italian Presidency of theCouncil of Ministers) focuses on the challenges of the modernization of State aidfrom the point of view of the Member States and, in particular, of the nationalauthorities.35In a system less based on ex ante notification and more focused ontransparency and ex post control, national authorities have new responsibilities.The modernization package requires Member States to take ownership of theprocess and to ensure an effective governance of the system at the national level.National authorities have to ensure and monitor compliance with EU rules,including at the regional and local level; this task requires both educationaland knowledge-spreading initiatives and a complex coordination activity More-over, national authorities have to organize independent ex post evaluations ofthe economic impact of the most relevant aid schemes when the Commission sorequires Member States also participate in new High Level Forum and working

32 See the chapter by Biondi and Stefan, this volume.

33 See, inter alia: Buts et al ( 2013 ), pp 330 –340.

34 Commission Notice on the notion of State aid as referred to in Article 107(1) of the Treaty on the Functioning of the European Union, 2016/C 262/01.

35 See the chapter by Vecchietti, this volume.

groups set up by the Commission to discuss strategic issues and support theapplication of the new package In this chapter the author also describes theinitiatives undertaken by some Member States to adapt their national institu-tional and administrative set-ups to meet the challenges of the new frameworkfor State aid control, and he considers the exchange of best practice betweenMember States to be essential.

d) Phedon Nicolaides (College of Europe, Bruges and Maastricht University)discusses the issues raised by the underlined‘more economic’ approach to thecontrol of State aid, that is, an effects-based approach, as described in thischapter at the end of Sect.2.36After State aid modernization, the compatibility

of State aid is assessed on the basis of common principles, based on economicnotions (e.g correction of market failures) In addition, for the first time theCommission requires Member States to carry out ex post evaluations of large aidschemes The chapter at hand examines both the economic rationality of thecommon assessment principles and the ex post evaluation methodology It alsoreviews how the assessment principles and the evaluation methodology havebeen applied in practice and whether the practice so far conforms to the initialintentions of the Commission in injecting greater economic rationality in Stateaid rules The author also reviews some of the methods that the Commissionuses in order to verify the existence of an aid and its proportionality with the aimthat it pursued

e) Alberto Heimler (National School of Public Administration, Rome) discussesthe possible synergies between the control of State aid and the competitionimpact assessment of public measures promoted by the Organization for Eco-nomic Co-operation and Development (OECD).37The more economic approachundertaken by the Commission suggests following a number of steps in order toascertain whether an aid measure is an appropriate and effective instrument Acompetition impact analysis would require comparing State aid with other ways

of addressing the identified market failure Member States might usefullycombine the two approaches in order to adopt the most effective and lessdistortive public measures to correct market failures From this perspective,the author suggests that independent national competition authorities, whichhave the institutional task of promoting competition in the Member States, might

be given a formal role in the governance of State aid control at the national level

36 See the chapter by Nicolaides, this volume.

37 See the chapter by Heimler, this volume.

Introduction: The Modernization of State Aid Regulation 9

4.2 Policy Areas

The second part of the volume focuses on the impact of State aid modernization insome policy areas which are particularly relevant for EU social cohesion andeconomic growth

a) Erika Szysczak (University of Sussex) discusses the new Almunia Package38onthe control of State aid in the area of services of general economic interest(SGEI).39 The ruling by the European Court of Justice in Altmark,40 whichclarified the conditions under which the compensation of public service obliga-tion does not represent State aid, marked the start of the modernization of publicservices in the EU Indeed, it preceded the Commission’s modernization agenda.The author argues that the interpretation of the Altmark ruling, especially by theEuropean Commission, has focused attention on thefinancing of public servicesand away from issues of defining the quality of public services The EuropeanCourts also appear to have embraced an economic approach to the interpretation

of State aid for public services This chapter contains an overview of the recentcase law of the Court of Justice aimed at examining what sort of issues arise andwho the complainants are Moreover, it examines the interaction of procurementlaw and State aid concluding that this may not always be a complementaryexercise

b) Ginevra Bruzzone (Assonime and School of European Political Economy,LUISS Guido Carli) and Marco Boccaccio (University of Perugia andAssonime) analyse how State aid control affects Member States’ choicesconcerning the creation and management of infrastructures.41Fostering invest-ment in infrastructures is a key objective of the EU strategy aimed atre-launching investment and growth In recent years, the case law of theEuropean Court of Justice has clarified that not only the economic exploitation

of an infrastructure, but also the construction of an infrastructure for the purpose

of its later commercial exploitation represents an economic activity and issubject to State aid control In the framework of the modernization of the control

of State aid, the European Commission has provided a number of indications onhow to ensure that the funding of infrastructures is compatible with EU rules.When assessing whether State aid to infrastructures is compatible with theTFEU, the Commission follows general criteria (existence of an objective ofgeneral interest and of a market failure, adequacy, transparency etc.); in specificareas such as airports, energy and broadband, prescriptions for Member Statesare more detailed and articulated In October 2015 the DG COMP published a

38 See note 13 above.

39 See the chapter by Szyszczak, this volume.

40 Case C-280/00 Altmark Trans GmbH and Regierungspräsidium Magdeburg v Nahverkehrsgesellschaft Altmark GmbH [2003] ECR I-7747.

41 See the chapter by Bruzzone and Boccaccio, this volume.

staff working paper explaining its approach to thefinancing of infrastructures inthe different areas (including ports, multiservice centres, highways, concert hallsetc.) The authors discuss how the control of State aid increasingly affects publicchoices in the Member States, also at the local level, and argue that the principlessuggested by State aid control broadly coincide with the principles which should

be followed to ensure an effective use of public resources (for instance, planning

of infrastructures is useful to ensure a rational priority setting) Moreover, theyexplain how the application of State aid rules to infrastructures requires, at thenational level, the coordination of various authorities, including sectorregulators

c) Mario Siragusa (Cleary Gottlieb and College of Europe) and Cesare Rizza(Cleary Gottlieb) address the specific issue of EU State aid policy in the field

of broadband infrastructurefinancing.42The achievement of the Europe 2020strategy objective of smart, sustainable and inclusive growth depends to a greatextent on the development of the digital economy The availability of fast andultrafast Internet access—with smart cities and connecting rural and regionalareas to fast broadband networks as two of the core areas of investment—plays acentral role therein The Digital Agenda for Europe43established the ambitiousobjective to bring broadband subscriptions above 100 Mbps to at least 50% ofEuropeans by 2020 Even where thefinancing of the deployment, operation andmanagement of the broadband network infrastructure primarily comes fromcommercial investors, the goals of coverage and penetration of fast and ultrafastbroadband network cannot be fully achieved in the absence of State interven-tion Pillar IV of the ‘Digital Agenda for Europe’ calls on Member Stategovernments to take proportionate and appropriate steps to deal with the gapbetween private investment and the estimated amount of investment necessary

to roll out fast and ultrafast broadband in the EU The rationale of State aidpolicy in the broad- and ultra-broadband sectors—which represents a develop-ment of the European Commission’s general approach to State aid control ofinfrastructure funding—is as follows: State intervention is compatible with theinternal market as long as the risk of crowding out private investments isminimized This chapter discusses the principles established by CommissionGuidelines on Broadband of September 2009,44as revised in January 2013, with

42 See the chapter by Siragusa and Rizza, this volume.

43 Communication from the Commission of 19 May 2010 to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions —A Digital Agenda for Europe [COM(2010) 245] The Digital Agenda presented by the European Commission forms one of the seven pillars of the Europe 2020 Strategy which sets objectives for the growth of the European Union by 2020 The Digital Agenda proposes to better exploit the potential of Information and Communication Technologies in order to foster innovation, economic growth and progress.

44 Communication from the Commission, Community Guidelines for the application of State aid rules in relation to rapid deployment of broadband networks Text with EEA relevance, OJ C 235 of

30 September 2009, pp 7 –25.

Introduction: The Modernization of State Aid Regulation 11

regard both to the notion of State aid and the compatibility assessment Specialemphasis is placed on precedents concerning Italian State aid schemes as well asthe Italian Strategy for the Next Generation Access (NGA) Network, adopted bythe Italian government in March 2015.

d) Massimo Merola (Bonelli Erede Pappalardo and College of Europe) and OmarDiaz (Bonelli Erede Pappalardo) address another crucial policy area of theEurope 2020 strategy, namely energy and environment.45The implementation

of the State aid modernization communication has led to significant reform inthe assessment of energy and environmental projects It includes an overhaulednotification system with higher notification thresholds, greater emphasis on expost monitoring, and enhanced obligations for national authorities The authorsassess the contribution made by this reform to the Europe 2020 strategy fromthree different standpoints First, they examine the Commission’s initiative toclarify the notion of aid discussing the environmental and energy instrumentsaffected by this interpretative exercise Next, they look at the reform of theGeneral Block Exemption Regulation and address the new exemptions andhigher thresholds applicable to environmental and energy projects as well asthe interplay between a broader notion of aid and a wider notification exemption.Finally, they analyse the assessment framework defined by the Environmentaland Energy State Aid Guidelines46 in light of the growth-enhancing goals ofState aid modernization, discussing the stricter compatibility requirements andnew aid categories for which guidance is provided

e) Thefinal chapter of the volume, Daniele Gallo (Luiss Guido Carli) makes anassessment of the application of the Almunia Package—already discussed from

a general point of view by Erika Szysczak47—and the case law of the EuropeanCourt of Justice to State aid in the area of social services and healthcare.48Theauthorfirstly analyses the concepts of social services and health care in light of

EU (binding and non-binding) secondary law as well as the jurisprudence of theEuropean Court of Justice Then, he highlights the evolving nature of thoseservices and the interplay between State aid, social services, healthcare andsocio-economic development The paper then deals with the Commission Deci-sion of 20 December 2011 on the application of Article 106(2) TFEU to Stateaid in the form of public service compensation granted to certain undertakingsentrusted with the operation of services of general economic interest as part ofthe Almunia Package In the Decision, the Commission not only sets out theconditions under which State aid in the form of public service compensation iscompatible according to Article 106(2) TFEU, but establishes that aid measurescovered by the Decision are exempted from the ex ante notification requirement

45 See the chapter by Merola and Diaz, this volume.

46 Communication from the Commission —Guidelines on State aid for environmental protection and energy 2014 –2020, OJ C 200 of 28 June 2014, pp 1–55.

47 See note 14 above.

48 See the chapter by Gallo, this volume.

Therefore, the Decision aims to simplify the law, and thus it provides a moreflexible approach for local and social services than was previously the case Theauthor addresses a number of open issues relating to the application of theDecision, including its relationship with the Altmark conditions49 and theother measures which constitute the Almunia Package; the exhaustive character

of the exemption; the notions of hospitals; the concept of entrustment; the localnature of the service provided; and the calculation of both compensation andovercompensation Overall, in the author’s view, the approach followed by theCommission in the Almunia Package has made considerable progress inupdating, modernizing and simplifying the legal framework and may eventuallylead to a convergence of national policies relating to the provision of socialservices of general economic interest By providing and extending a specialtreatment for welfare services, the Commission seems to have successfullyconsolidated the social market economy principles in the EU In other words,the approach adopted by the Commission may represent the right way to reach afair balance between economic and social development

5 Concluding Remarks

The main goal pursued by the editors of this volume, after having organized theconference already mentioned in Sect.4 above, is to provide scholars and practi-tioners with a useful tool to better understand the State aid modernization process.Indeed, the topics analysed in this volume are of great interest for both scholars andpractitioners, given that they concern one of the most controversial aspects of therelationship between the EU and the Member States

Buts C, Joris T, Jegers M (2013) State aid policy in the EU Member States: it ’s a different game they play Eur State Aid Law Q (ESTAL), pp 330 –340

Crocioni P (2006) Can state aid policy become more economic-friendly? World Competition 29:89 –108

De Burca G (2002) Unpacking the concept of discrimination in EC and international trade law In: Barnard C, Scott J (eds) The law of the single European market Hart

49 See note 38 above.

Introduction: The Modernization of State Aid Regulation 13

Derenne J, Merola M (2007) Economic analysis of state aid rules – contributions and limits Lexxion

Doleys T (2009) Fifty years of molding Article 87: the European Commission and the development

of EU State Aid Policy (1958 –2008) Paper prepared for presentation at the 11th Biennial international conference of the European Union Studies Association, Marina Del Rey Ehlermann CL (1994) State aid control in the European Union: success or failure? Fordham Int Law

Neven D, Verouden V (2008) Towards a more re fined economic approach in state aid control In: Mederer W, Pesaresi N, Van Hoof M (eds) EU competition law, vol IV: State aid, book one Claeys & Casteels

Nitsche R, Heidhues P (2005) Study on methods to analyse the impact of state aid on competition Report prepared for the European Commission, Directorate General for Economics and Finan- cial Affairs (Final Report ECFIN/R/2004/004)

Piernas Lopez JJ (2015) The concept of state aid under EU law: from internal market to competition and beyond Oxford Scholarship Online, October 2015

Schepisi C (2011) L ’Action Plan della Commissione europea In: Schepisi C (ed) La

“modernizzazione” della disciplina sugli aiuti di Stato, Il nuovo approccio della Commissione europea e i recenti sviluppi in materia di public e private enforcement Giappichelli Editore Tesauro G (2011) Introduzione In: Schepisi C (ed) La “modernizzazione” della disciplina sugli aiuti di Stato, Il nuovo approccio della Commissione europea e i recenti sviluppi in materia di public e private enforcement Giappichelli Editore

Tosato G (2011) L ’evoluzione della disciplina sugli aiuti di Stato In: Schepisi C (ed) La

“modernizzazione” della disciplina sugli aiuti di Stato Giappichelli Editore, pp 3 et seq von Wendland B (2015) New rules for state aid for research, development and innovation Eur State Aid Law Q (ESTAL), pp 25 –50

Walter M (2013) One year into the state aid modernisation initiative Eur State Aid Law Q (ESTAL), pp 757 –772

Weiler JHH (1991) The transformation of Europe Yale Law J 100:2403 –2483

Wesseling R (2000) The modernisation of EC antitrust law Hart

Part I

A New Institutional Framework for State

Aid Control

State Aid Modernization

Nicola Pesaresi and Rodrigo Peduzzi

1 Introductory Remarks

The European Commission launched State Aid Modernization (SAM) in 2012 with aCommission Communication,1carried out a review of a large number of regulatorytexts over the following years and recently completed it with the adoption of theCommission Notice on the Notion of Aid (May 2016) SAM should be seen in thecontext of the Europe 2020 Strategy, which aims to deliver a“smart, sustainable andinclusive economy” The internal market is a key tool for stimulating economicgrowth, and a robust competition policy is required in order for the internal market toflourish Competition is a major driver of growth as it puts pressure on enterprises toinnovate, improve productivity and become more competitive globally State aidcontrol is an essential element of competition policy given that State aid distortscompetition SAM represents an attempt to bring State aid control more in line withthe Europe 2020 Strategy, strengthening the Commission’s scrutiny to ensure thesound use of growth-orientated policies and to prevent undue distortions of compe-tition arising from State aid measures Specifically, SAM has three main objectives:first, to foster smart, sustainable and inclusive growth in a strengthened, dynamic,competitive internal market through encouraging‘good aid’; second, to focus ex

With thanks to Christian Garrard and Cecilia Sarchi (trainees in Unit A3, DG Competition, European Commission) for their contributions The content of this article does not necessarily

re flect the official position of the European Commission Responsibility for the information and views contained therein lies entirely with the authors.

1 “EU State Aid Modernisation (SAM)”, COM (2012) 209 final of 8.5.2012.

N Pesaresi ( * ) · R Peduzzi ( * )

DG Competition, European Commission, Brussels, Belgium

e-mail: nicola.pesaresi@ec.europa.eu ; rodrigo.peduzzi@ec.europa.eu

© Springer Nature Switzerland AG 2018

B Nascimbene, A D Pascale (eds.), The Modernisation of State Aid for Economic

and Social Development, Studies in European Economic Law and Regulation 14,

https://doi.org/10.1007/978-3-319-99226-6_2

17

ante control on cases with the biggest impact on the internal market; and third, tostreamline the rules to allow for faster, more efficient decision-making.

1.1 Foster ‘Good Aid’

In the SAM Communication, ‘good aid’ is described as an aid “well designed,targeted at identified market failures and objectives of common interest, and leastdistortive”.2

This concept is not a novelty brought about by SAM In fact, the StateAid Action Plan of 20053already introduced a‘balancing test’ in order to assess in aconsistent manner the balancing exercise required by the Commission betweenpositive effects of aid measures (i.e contributing to a common European interest)and negative ones (i.e distorting competition and trade) However, SAM is clearerabout exactly what kind of aid is to be considered as‘good aid’ for the role it plays insupporting, for example, green technologies, human capital development, employ-ment and competitiveness

There are a number of common principles of compatibility running throughoutSAM as a unifying theme These horizontal principles clarify how the Commissionassesses common features which, up until SAM, had not been treated in the sameway in the different State aid guidelines and frameworks The intention behind thesecommon principles is to lay down a solid and consistent basis to ascertain thecompatibility of aid measures across the different policy instruments and theiralignment with strategic EU objectives as enshrined in the Europe 2020 Strategy

In addition to focusing State intervention where it can have the maximum positiveimpact in terms of economic and social development and competitiveness, theSAM’s emphasis on the quality of public expenditure and efficiency of aid measuresmay have the effect of helping the Member States to strengthen budgetary discipline,

as the better the design of the aid, the better the use of taxpayer’s money Therefore,State aid control and its modernization, alongside its primary function, couldcontribute towards Member States targeting public spending correctly to promotegrowth within the confines of prudent use of public budgets Nonetheless, it must bestressed that this is merely a possible positive side effect of State aid control, as theoverriding criterion for the assessment of State aid remains its impact, the potentialdistortion of competition and the necessity and proportionality of the aid measures

1.2 Focusing Enforcement on Cases with the Biggest Impact

on the Internal Market

Carrying out effective and efficient State aid control in a European Union of

28 Member States is not an easy task The Treaty gives the Commission theexclusive responsibility for deciding upon the compatibility with the internal market

of all State aid measures, either those that Member States notify or those that theCommission is made aware of, notably through the complaints it receives

As part of SAM’s drive to make the control of State aid more efficient, and toensure greater prioritization in the enforcement action by the Commission, greaterresponsibility was given to Member States

Before SAM, it was already possible for Member States to grant aid withoutbeing subject to the notification obligation set in the Treaty, thanks to a set ofsectorial block exemption regulations introduced over time and then extended andconsolidated in the 2008 General Block Exemption Regulation (henceforth GBER).However, the 2008 GBER4still did not apply to several policy areas and types of aidand had relatively low notification thresholds

SAM has expanded the scope of these exemptions both horizontally, by includingnew types of measures and policy areas, and vertically, through the increase of theaid threshold which could fall within an exemption At the time of the reform, theCommission estimated that 75% of aid measures would be exempted and up to 90%5

of aid measures would be so if Member States proactively designed their aidmeasures in conformity with the new GBER, adopted in 2014.6 Guidance wasprovided on how to follow the GBER’s general conditions and ensure that aidremained within its limits.7 SAM thus meant a “Copernican revolution” in thatblock-exempted aid has now become the norm and notification the exception:indeed, the ex ante compliance check is performed by the granting authoritiesthemselves in the vast majority of cases, while it is reserved to the Commissionfor the largest and potentially most distortive cases

It is fair to say that the State aid control system has always been based on jointresponsibility with the Member States The latter share the responsibility to ensurethat aid fulfils the legality conditions (in respect of the GBER conditions onnotification of the aid) and the correct implementation of the compatibility

4 Commission Regulation No 800/2008 of 6 August 2008 declaring certain categories of aid compatible with the common market in application of Articles 87 and 88 of the Treaty (General block exemption Regulation), OJ L 214/3 of 9.8.2008.

5 Actually, according to the 2016 State aid Scoreboard, around 95% of new aid measures for which expenditure was reported in 2015 was granted under the GBER In particular, about 43% of all State aid spending for SMEs, 46% for research, development and innovation, 55% for regional devel- opment, 69% for employment and 96% for training was granted under the GBER.

6 Commission Regulation No 651/2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty, OJ L 187/1.

7 Commission MEMO/14/369 Commission adopts new General Block Exemption Regulation (GBER), 21.05.2014.

State Aid Modernization 19

conditions set by the Commission For instance, the approval of an aid scheme by theCommission implies that Member States carry out ex ante and ex post controls toensure that the conditions set in the notification and in the Commission decision arefollowed by the undertakings and the granting authorities.

The Commission expects Member States to take this responsibility seriously andregularly review the way aid is granted With the extension of the exemptions fromnotifications, Member States’ responsibility and accountability in the design and inthe implementation of the schemes has increased and with it the role for monitoring

to ensure that the rules are respected

To balance the expansion of the GBER, the SAM includes additional safeguards,such as the evaluation of a selection of large aid schemes and the transparency of theaid awards (publication of the beneficiaries and amounts) State aid control hasevolved towards more ex ante checks carried out by the Member States on thebasis of simplified criteria and more ex post controls executed by the Commission

On the one hand, this new modus operandi responds to the call for more action onthe Member States’ side; on the other hand, it seeks to design more appropriatemechanisms on the Commission’s side to control compliance and favour bestpractices and efficient control at national level

This shift to a broader scope for exempted aid has allowed the Commission toprioritize its enforcement activity by focusing on the cases with the biggest impact

on the internal market (such as cases with large individual amounts exceeding theGBER notification thresholds) and cases where the market failure, the appropriatesupport mechanism or the impact on competition need to be carefully assessed;essentially, the cases that create the most substantial competitive concerns

This is, for instance, the case for the investigations the Commission is currentlyundertaking in relation to the selective fiscal treatment of undertakings for thepurpose of their corporate taxes The Commission is currently reviewing a number

of tax rulings that fiscal authorities have signed with large multinationals whichappear to make aggressive tax planning possible, with the result of attractingfirms injurisdictions where the tax burden is the lowest at the expenses of otherfirms Sometax rulings, for instance, where they do not respect the arm’s length principle forintra-group transactions, may confer an undue advantage and distort competitionwhere a multinational company receives preferential tax treatment that other com-panies do not enjoy

1.3 Streamlined Rules and Faster Decisions

Although not explicitly mentioned in the SAM Communication, an important reasonfor simplifying and harmonizing the rules on State aid control is the need tostreamline the system in response to the enlargement of the European Union Indeed,

a Union of 28 Member States requires a State aid control system that is both moreproportionate and more effective

20 N Pesaresi and R Peduzzi

In addition to the challenges of having an increased number of Member States,the different rules on State aid had developed into a complex legal framework, with aconsiderable number of regulations, guidelines and other guidance documents,which sometimes lacked consistency In this respect, SAM has also constituted anopportunity to consolidate several State aid guidelines into an overall more consis-tent and coherent State aid framework The development of the common principlesfor the assessment of aid, applicable to the compatibility analysis of all measures,was instrumental to this outcome.

2 Common Compatibility Principles

A key element of SAM is the attempt to put more emphasis on the quality and the

efficiency of the State aid system by developing a pool of “common principles” ofcompatibility, which consolidate the many regulations, guidelines and the guidance

on the compatibility of aid into a consistent conceptual framework As a result, thenew guidelines set out common compatibility criteria that make the practice of theCommission more predictable as to how the aid measure will be assessed to thebenefit of the expectations of the granting authorities and beneficiaries There areseven common principles which must be met cumulatively for aid to be consideredcompatible

2.1 Contribution to a Well-De fined Objective of Common

Interest

A State aid measure must aim at an objective of common interest in accordance withArticle 107(3) of the Treaty In particular, the objectives of common interest havebeen aligned with the policy priorities advocated in the Europe 2020 Strategy and itsflagship initiatives of fostering smart, sustainable, inclusive growth, resulting inmore actions targeting, among others, the promotion of research and developmentand innovation or thefight against climate change Other goals worth mentioninginclude improving access tofinance and encouraging a more sustainable economy,alongside boosting social and territorial cohesion

2.2 Need for State Intervention

A State aid measure must be targeted towards a situation where aid can bring about amaterial improvement that the market cannot deliver itself, for example by remedy-ing a market failure or addressing equity considerations or cohesion concerns In

State Aid Modernization 21

order to meet this condition it must be proven, in an ex ante assessment, that a marketfailure does exist.

For example, in the context of riskfinance, the ex ante assessment must provideevidence of the fact that that there is a funding gap for an SME that the market cannotfill due to an information asymmetry or another market failure

2.3 Appropriateness of the Aid Measure

The proposed aid measure must be an appropriate policy instrument to address theobjective of common interest An aid measure will not be considered compatiblewith the internal market if the same positive contribution to the common objective isachievable through other less distortive policy tools (e.g regulations) or other lessdistortive types of aid instruments (e.g a loan rather than a grant)

For example, in the Guidelines on State aid for environmental protection andenergy, the Commission explains that State aid is not always the most appropriatemeasure to address a market failure such as the negative externality of pollution.Indeed, when the reduction of contaminated emissions is at stake, an effective use ofthe Polluter Pays Principle (PPP) through environmental legislation, which commits

to holding the polluter liable under national or Union law, might be preferred overthe granting of State aid

2.4 Incentive Effect of the Aid

The aid must induce the recipient to change its behaviour in line with the commonobjectives, for instance by pushing it to engage in additional activity that it would notcarry out in the absence of the aid or that it would carry out in a restricted or differentmanner or location In other words, it must be the case that the aid alters the“natural”course of action and that, in absence of the aid, the same policy objective would nothave been reached

An example of a concrete reinforced application of this common principle can befound in the new Regional Aid Guidelines, which have adopted a stricter approach toassess the incentive effect based on the notion of“added value of aid” According to

it, the granting authorities will have to provide sufficient economic evidence that theaid granted to large undertakings provides a real incentive to invest and set upoperations in an assisted area and, hence, that it truly makes a difference in themarket

22 N Pesaresi and R Peduzzi

2.5 Proportionality of the Aid and Keeping Aid to a Minimum

The amount and intensity of the aid must be limited to the minimum needed toinduce the additional investment or activity by the undertaking(s) concerned, wherelimits are expressed as caps on aid amount (e.g net extra cost to achieve objective)and/or aid intensity (proportion of eligible costs)

For example, in the new Rescue and Restructuring Guidelines, the sharing’ principle has been reinforced, so as to require that losses that a firm indifficulty has accumulated before the public intervention are apportioned to thecompany’s shareholders and investors before any State aid is granted

‘burden-2.6 Avoidance of Undue Negative Effects on Competition

and Trade Between Member States

The negative effects of aid must be sufficiently limited, so that the overall balance ofthe measure is positive and undue negative effects on competition and trade betweenMember States are neutralized

For example, in the Framework for aid to Research and Development andInnovation (R&D&I), the Commission identifies two main potential distortions ofcompetition, namely product market distortions and location effects State aid forR&D&I can hamper competition in the innovation processes in several ways, forinstance by distorting dynamic incentives to invest in innovation State aid increasesthe likelihood of successful R&D&I activities and strengthens the beneficiary’smarket position This may lead competitors to reduce the scope of their originalinvestment plans (crowding-out effect) Only when these negative effects are kept to

a minimum and below the expected positive effects in terms of contribution to theobjective of common interest can the aid be found compatible

2.7 Transparency of Aid

Member States, the Commission, economic operators, and the general public musthave easy access to all relevant acts and to pertinent information about aid awarded.This new principle, which is one of the major innovations brought about by SAM, isdescribed further below

State Aid Modernization 23

3 SAM: The Instruments

SAM covered both substantive and procedural rules, as summarised in Fig 1.Moreover, for thefirst time ever, the Commission has issued a Notice on the Notion

of Aid (NoA) The preparation and publication of such a document, the content ofwhich is discussed below, required time and intense discussions

3.1 The Notice on the Notion of Aid

In May 2016, the Commission published thefinal key element of SAM, namely theNotice on the Notion of Aid, as referred to in Article 107(1) of the Treaty.8The NoA

is an objective concept defined by the Treaty and interpreted by the Court of Justice

of the European Union, and the Commission’s Notice on the NoA merely clarifiesthe Commission’s understanding of Article 107(1) of the Treaty Furthermore, theNotice on the NoA covers areas where the Court of Justice has not yet ruled andwhere there is therefore no case law to provide assistance in interpreting the rules Inthese cases, the Notice on the NoA describes how the Commission interprets its role

in that particular area, albeit without prejudice to the interpretation that the Court ofJustice may make in the future

It should be underlined that the Commission has no control over this objectivenotion of aid, as defined by the Treaties, and has a limited margin of discretion inapplying it, specifically when an appraisal requires technical and complex assess-ment, such as those involving specific economic analysis and expertise

The Notice identifies and clarifies the different constituent elements of the notion

of State aid: the existence of an undertaking engaged in economic activity, theimputability of the measure to the State, itsfinancing through State resources, thegranting of an advantage, the selectivity of the measure and its effect on competition

Fig 1 The SAM Instruments

8 Commission Notice on the notion of State aid as referred to in Article 107(1) of the Treaty on the Functioning of the European Union, OJ C 262/1, 19.7.2016.

24 N Pesaresi and R Peduzzi

and trade between Member States In addition, the Notice provides specific cation of the Commission’s position with regard to the public funding ofinfrastructures.

clarifi-Furthermore, the Notice outlines specific situations where the activity may or maynot have an economic nature For instance, it explains that social security solidarity-based schemes often do not involve an economic activity and therefore fall outsidethe scope for State aid control Similarly, it also explains when an activity in the area

of healthcare, education, research, culture or heritage conservation can be defined aseconomic

The Notice provides guidance on the notion of‘State origin’, and gives examples

of situations where the criteria‘imputability’ and ‘State resources’ are met Under itsclarification of ‘advantage’, it provides guidance on the market economy operator(MEO) test and specifies when an indirect advantage occurs In order to clarify theCommission’s position on the meaning of ‘selectivity of a measure’, it discusses dejure and de facto selectivity, selectivity stemming from discretionary administrativepractices, specific issues on taxation, cooperatives and many more It providesfurther clarity concerning the Commission’s interpretation of ‘effect on trade andcompetition’ In particular, it gives a number of examples where the Commissionconsidered that there was no effect on trade between Member States

The overall purpose of the Notice is to provide guidance and legal certainty forpublic authorities and companies, so as to facilitate speedy investments In this vein,the Notice provides important clarifications on public investment in infrastructure,namely that“public investment for the construction or upgrade of infrastructure isfree of State aid, if it does not directly compete with other infrastructure of the samekind”.9

Similarly, the Notice states that“[e]ven if infrastructure is built with the help ofState aid, there is no aid to its operator and users if they pay a market price”.10

Forexample, if a Member State builds an airport with the use of public funds inaccordance with the Commission Aviation guidelines discussed below, there will

be no State aid, provided that the operator of the airport is selected through acompetitive procedure that awards the contract to the most economically advanta-geous offer

The Commission’s guidance on public financing of infrastructures represents awelcome and long-awaited clarification on how State aid control applies to an areaoften considered exempt from the application of competition law State aid controlshence contribute to increasing legal certainty, to a level playing field and to theintegrity of the internal market

9 Commission Press Release IP/16/1782.

10

Ibid.

State Aid Modernization 25

3.2 The Revised and New State Aid Guidelines

As part of SAM, most of the State aid guidelines have been thoroughly revised, inline with the seven common principles discussed above A new Communication forprojects of common European interest was also introduced These nine texts will bebriefly presented in the order of their adoption by the Commission, between 2012and 2014 We do not cover the Guidelines’ content in detail, but rather focus on:outlining the objective the Guidelines pursue in each area; briefly describing theirscope of application; and highlighting selected major changes compared to thepre-SAM rules

3.2.1 Broadband

The revised guidelines on broadband were adopted by the Commission in December

2012.11 Better broadband connectivity is a flagship priority in the Europe 2020Strategy (Digital Agenda for Europe), making an update of the rules on publicfunding for broadband a necessity

The Commission acknowledges the strategic importance of the broadband nectivity development and deployment in boosting competitiveness and innovation,creating employment and network opportunities, preventing relocation of economicactivity and attracting inward investments across all sectors Indeed, welfareimprovement, social inclusion and territorial cohesion do premise on large-scaleinvestments in high-speed internet infrastructures and technology platforms that aim

con-to promote widespread, affordable and enhanced access con-to online resources andservices

The Guidelines distinguish between different areas that may be targeted MemberStates are required to identify geographical areas as “white”, “grey” or “black”,taking into account whether broadband infrastructures exist in the targeted area Inparticular:‘white’ areas are those where no relevant broadband operator exists yetand‘white NGA (next generation access)’ areas are those where no relevant broad-band operator is expected to invest at any time in the following 3 years.‘Grey’ or

‘grey NGA areas’ are those where potential competition concerns do exist and, thus,need to be analysed very carefully Finally,‘black’ and ‘black NGA’ areas are thosewhere there will, in the near future, be at least two basic broadband networks withdifferent operators and broadband services are provided under competitive condi-tions, thus removing the need for State intervention

The main changes compared to the pre-SAM rules can be divided intofive keyareas First, the new guidelines take into account the fact that super-fast networks can

be based on different technological platforms, ensuring a principle of technologicalneutrality Second, public funding will now be permitted in urban areas as part of the

11 EU Guidelines for the application of State aid rules in relation to the rapid deployment of broadband networks, OJ C 25/1, 26.1.2013.

26 N Pesaresi and R Peduzzi

Digital Agenda’s plan of having access speeds of 100 Mbps or more for at least 50%

of the population, although it will be subject to very strict conditions to ensurecompetitive outcomes Third, to better protect private investors, the guidelinesrequire that any public investment must fulfil a so-called “step change”: publiclyfinanced infrastructure is only allowed if it provides a substantial improvement overexisting networks and not only a marginal improvement in citizens’ connectivity.Fourth, when public funding is used to build a network, it must ensure open access.Finally, the guidelines encourage the use of existing infrastructure to reduce costsand push Member States to set up a national database on the availability of existinginfrastructures

3.2.2 Regional Aid

Adopted by the Commission in June 2013,12 the Regional Aid Guidelines for

2014–2020 set out the rules under which Member States can grant State aid toundertakings to support investments in the less advantaged regions of the EU, theso-called “Assisted Areas” The Guidelines establish rules on the basis of whichMember States can draw up regional aid maps to identify in which geographicalareas companies are entitled to receive investment aid (aid to compensate the costs ofinvestments in assets and wages for newly created jobs) or operating aid (aid to covertransportation and operating costs) and at what level

The Treaty provides for the possibility of granting aid for two types of regions.First, Article 107(3)(a) refers to regions where the economic situation is extremelyunfavourable compared to the Community as a whole These regions are defined onthe basis of strict EU-wide criteria They include NUTS 2 regions that have a GDPper capita lower than 75% of the EU average, and outermost regions as defined inArticle 349 of the Treaty Second, Article 107(3)(c) refers to regions that aredisadvantaged in relation to the national average These regions are defined on thebasis of a wider range of criteria, including criteria that reflect socioeconomic,geographical and structural problems at national level These include sparselypopulated regions, former Article 107(3)(a) regions and other regions in difficulty

as proposed by Member States

Under the 2014–2020 guidelines, a shift between ‘a’ and ‘c’ regions is evident.Indeed, while in the previous period the poorest regions (‘a’ regions) covered 33% ofEurope, their proportion has shrunk to 26% Correspondingly, the number of lessdisadvantaged (‘c’ regions) has increased from 13.6% to roughly 21.8%

In response to the concern that there was insufficient incentive effect in the moredeveloped assisted areas, aid in such areas faces closer scrutiny In addition, anti-relocation provisions were strengthened in order to prevent a beneficiary fromclosing down the same or a similar activity in another EU region

12 Guidelines on regional State aid for 2014 –2020, OJ C 209/1, 23.7.2013.

State Aid Modernization 27

3.2.3 Audiovisual Production

The objective of the new audiovisual production guidelines, adopted in November

2013,13is to allow aid for a wider scope of activities, giving Member States morediscretion with regard to identifying cultural products worthy of public support andintroducing the possibility of granting more aid to support cross-border productionsand to promotefilm heritage

The European Commission directs attention to the promotion of audiovisualworks, since they have both an economic role in creating employment and wealthand a cultural nature in celebrating European cultural and linguistic diversity Themedium to long-term public support to the production offilms, TV programmes andother related activities (scriptwriting,film distribution, film promotion, transmediastorytelling) aims to overcome a number of shortcomings from which the industry iscurrently suffering

The expanded scope includes all aspects of audiovisual work creation, rangingfrom story concept to delivery to audience Moreover, co-productions funded bymore than one Member State may now receive higher aid intensity In a further move

to safeguard Member States’ discretion over cultural aid, the new guidelines set nolimits on aid for script writing, project development and difficult audiovisual works

as defined by the Member State (although they will ultimately be part of theproduction costs, which do have a limit)

Member States can impose territorial spending conditions, especially those loring the preservation of the local know-how and resources, as they are deemed to

tai-be essential for the promotion of cultural diversity, yet the revised guidelines aim toensure that the restriction is proportionate For instance, Member States can stipulatethat a minimum level of production activity is carried out in their territory as acondition of the aid, but its size is constrained not to exceed the 50% of theproduction budget

3.2.4 Risk Finance

Adopted in January 2014,14the new riskfinance guidelines provide the conditionsunder which Member States can grant aid to facilitate more rapid and generousaccess to the necessaryfinance by European SMEs (especially for the innovativeR&D intensive companies and high-growth companies in industries with highupfront investment costs) and companies with a medium capitalization (midcaps)

at each stage of their development

13 Communication from the Commission on State aid for films and other audiovisual works, OJ C 332/1, 15.11.2013.

14 Communication from the Commission, Guidelines on State aid to promote risk finance ments, OJ C 13/4, 22.1.2014.

invest-28 N Pesaresi and R Peduzzi

Market failures may indeed justify the public supply of financial measures(deployed throughfinancial intermediaries or trade platforms) and fiscal incentives(deployed on direct investments in eligible undertakings), which aim at leveragingand channelling private investors’ funding into SMEs If properly directed, Statesupport measures may be essential to cope with the acknowledged problem of thefunding gap/liquidity constraints SMEs face, while maintaining profit-driven financ-ing decisions.

The types of aid instruments encompassed in the guidelines have been broadened

so as to cover equity, quasi-equity, loans and guarantees, which better reflectsexisting market practices

In order to ensure that aid complements, attracts and fuels private funding ratherthan replacing it (risk of‘crowding out’), the risk finance guidelines have set rules onminimum private investor participation (i.e a private participation rate of at least50% in non-assisted areas and 30% in assisted areas)

3.2.5 Aviation

The new guidelines on aviation were adopted in February 2014.15 Their primarygoal is to ensure good connectivity between regions and foster European citizens’mobility while minimizing the distortions to competition in the internal market.Upgrading the airports system and infrastructure means improving access toregions, easing market access for businesses, sustaining regional development andsignificantly contributing to employment and GDP at a local, national and Unionlevel

However, if not properly disciplined, public support has proven to result induplications of airports in the same catchment area (i.e an area within 2 h of anairport by bus, car or train), in overcapacity at regional airports and thus in theunderutilization and unprofitability of many regional airports Also, it appears thatthe vast majority of regional airports do not generate sufficient revenues to covertheir massivefixed and operating costs

The guidelines stress that aid for investments in airport infrastructure must bebetter targeted, which means that it is allowed provided that there is a genuinetransport need and that public support is vital to ensure accessibility for the region.Moreover, operating aid is available for airports (with less than three millionpassengers per year) for a transitional period of 10 years under certain conditions,

in order to give unprofitable airports time to adjust their business model to changingmarkets In order to be eligible for receiving an operating aid, airports are requested

to develop an ex ante business plan that proves they will be able to cover alloperating costs with their own resources and may no longer receive operating aid

by the end of the 10-year transitional period

15 Communication from the Commission, Guidelines on State aid to airports and airlines, OJ C 99/3, 4.4.2014.

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The aviation guidelines also set special rules tailored to the smaller-size airports(less than 700,000 passengers per year), as they are expected to have greaterdifficulty in achieving full cost coverage The reform also allows for simplifiedrules for start-up aid (permitted for a limited time) to new routes, to induce airlines to

fly to new destinations and start taking advantage of these smaller airports Finally,clear rules for the assessment of agreements between airports and airlines areestablished in order to make sure they are aid-free and beneficial to the profitability

of the concerned airport

3.2.6 Environmental Protection and Energy

The environmental protection and energy guidelines16were adopted in April 2014for the purpose of supporting Member States in reaching their 2020 climate changeand energy sustainability targets (increased environmental protection, higher energysavings and resource efficiency, more widespread renewable energy technologies,lower environmental impact on the use of resources, a competitive and secure energysystem), while addressing the market distortions that may result, notably in thefield

of renewable energies

Under the new Guidelines, State aid measures that are deemed to contribute to thetwo dimensions of“environmental protection” (i.e in favour of actions designed toremedy/prevent damages to physical surroundings or natural resources and topromote efficient use of natural resources) and of “energy-efficiency” (i.e in favour

of plans implementing energy-saving and energy-efficiency improvement measures)can be compatible with the internal market provided that certain conditions are met.The guidelines encompass a large and varied set of aid measures, such as: aid forgoing beyond Union standards or increasing the level of environmental protection inthe absence of Union standards; aid for the remediation of contaminated sites; aid forenergy from renewable sources; aid for energy-efficiency measures; aid for resource

efficiency and for waste management; aid for CO2capture, transport and storage aid

in the form of reductions in or exemptions from environmental taxes; aid in the form

of reductions in funding support for electricity from renewable sources; aid forenergy infrastructure aid for generation adequacy measures; aid in the form oftradable permits

Crucially, the guidelines promote a gradual shift towards a market-basedapproach to renewable energy through the introduction of competitive biddingprocesses for allocating public support Given the significance of the move tocompetitive bidding, it was made gradual and went through a transitional phasebetween 2015 and 2016, where aid granted through a competitive process made up5% of planned Renewable Energy Sources (RES) capacity Since 2017, aid grantedthrough a competitive process amounts to 100% of the planned RES capacity, unless

16 Communication from the Commission, Guidelines on State aid for environmental protection and energy 2014 –2020, OJ C 200/1, 28.6.2014.

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a Member State demonstrates that the result is suboptimal (e.g limited number ofeligible projects/sites, risk of overcompensation or of underbidding) Also aid must

be granted on the basis of a competitive bidding process open to all generators andRES technologies Exemptions from the requirement to involve all types of RES inthe competitive bidding process may be invoked if a suboptimal result is suspected

to materialize (especially in view of the long-term potential of a new technology, theneed to achieve diversification of resources, the grid stability)

Concerning aid in the form of reductions in the funding of support for energyfrom renewable sources, the new Guidelines provide a list of eligible sectors, whichare exposed to a risk to their competitive position given their electro-intensity andtheir exposure to international trade

Furthermore, the area of cross-border energy infrastructure benefits from theintroduction of a new set of criteria devised to stimulate projects targeting improve-ments in cross-border energy flows and advancements in the infrastructure ofEurope’s less developed regions Support to electricity generation also underwent

a significant change In response to a real risk of insufficient electricity generationcapacity, Member States can introduce ‘capacity mechanisms’ to encourage pro-ducers to build new generation capacity or prevent others from shutting down, butunder a set of conditions that aim to foster the integrity of the single market, forinstance by promoting cross-border interconnection

3.2.7 Important Projects of Common European Interest (IPCEI)

Whereas other State aid guidelines mentioned in this section are de facto revisions ofexisting guidelines, the IPCEI Communication, adopted in June 2014, is genuinelynew.17 The Communication sets out the criteria under which Member States cangrant support for large, transnational projects of strategic importance for theEuropean Union and for the achievement of the Europe 2020 objectives of sustain-able economic growth, job creation and competitiveness for the Union industry andeconomy Thanks to their positive spillover effect on the internal market and theircapacity to pool together knowledge, know-how, human and physical capital,financial resources and economic agents throughout the Union, IPCEIs can contrib-ute to addressing the marketflaws, systemic failures, societal or cohesion challengesthat slow the progress of an integrated, dynamic and competitive internal market

17 Communication from the 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, OJ C 188/4, 20.6.2014.

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3.2.8 Research and Development and Innovation

The Research and Development and Innovation (R&D&I) framework was updated

in May 2014.18 It covers projects falling within the categories of fundamentalresearch (experimental or theoretical work undertaken primarily to acquire newknowledge), industrial research (research for devising new or advancing alreadyexisting goods, services, processes), experimental development (intensive andshared use of knowledge to develop new or improved goods, services, processes),feasibility studies (in-depth analysis of the potential of a project)

In this area, the shift to greaterflexibility and responsibility for the Member States

is particularly evident through the parallel GBER expansion Not only have thenotification thresholds been doubled for R&D projects, but the scope of the exemp-tions for notification has been significantly widened to include, for example, pilotprojects, prototypes and innovation clusters

The framework allows aid of up to 70% of the total eligible costs (including thecosts of prototyping and demonstration) for large companies and 90% (of the totaleligible costs) for small companies engaged in applied research

In order to simplify the process of granting aid and avoid duplication of theapplicable administrative procedures, thanks to the new R&D&I framework, R&Dprojects that are co-financed by the EU, such as those under the Horizon 2020programme, are now presumed to constitute necessary and appropriate aid

3.2.9 Rescue and Restructuring

The new Rescue and Restructuring (R&R) Guidelines, adopted in 201419 andreplacing a previous version of 2004, set out the criteria under which Member Statescan grant public funding to all undertakings infinancial difficulty, except to thosethat operate in sectors covered by specific sectorial legislation (i.e coal, steel,financial)

A Member State that wishes to apply these Guidelines must demonstrate onobjective grounds that the undertaking concerned is in difficulty In other words, ithas to furnish evidence that, without the intervention of the State, the beneficiary isdoomed to exit the market in the short to medium term Given that its very continuity

in the business is in danger, the undertaking in difficulty is no longer an appropriatevehicle either for making profits or for pursuing public policy objectives

From an economic perspective, the exit of the less efficient undertakings allowstheir more efficient and technologically advanced competitors to grow There is aconsensus that R&R aids are among the most distortive types of State aid since, by

18 Communication from the Commission, Framework for State aid for research and development and innovation, OJ C 198/1, 27.6.2014.

19 Communication from the Commission, Guidelines on State aid for rescuing and restructuring non- financial undertakings in difficulty, OJ C 249/1, 31.7.2014.

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interfering with this market mechanism, they may substantially hinder and slowdown the productivity and economic growth in the sectors concerned Further, anunconditional State aid support to afirm in difficulty may also harm the internalmarket by encouraging moral hazard behaviour, causing an undue and anticompet-itive drop in its cost of capital, shifting an unfair share of the burden of structuraladjustment to other Member States and generating barriers to entry and to cross-borders activities.

Therefore, undertakings should be eligible for State aid as a very last resort whenthey have unsuccessfully exhausted all market-based restructurings (restructuringthrough agreements with creditors or by means of insolvency or reorganizationproceedings) and only once within 10 years (the‘one time, last time’ principle).Specifically, the guidelines cover three types of aid:

1 rescue aid—urgent temporary assistance to keep an undertaking undergoing asevere deterioration of its financial/liquidity/solvency situation afloat while itengineers a restructuring/liquidation plan;

2 restructuring aid—more permanent assistance to restore the long-term viability ofthe undertaking in difficulty;

3 temporary restructuring support—liquidity assistance to back the restructuringand restore the viability of SMEs and small SOEs in danger

The guidelines provide a simplified and clearer definition of undertakings indifficulty, by substituting subjective qualitative elements with objective quantitativecriteria (for example indices or ratios fromfinancial accounts) to be applied to eachdifferent company status

The guidelines strengthen the test of the beneficial effects of the aid by ing‘filters’, suitable for ensuring that the aid is capable of producing sizable benefits,such as retaining jobs The‘filters’ add objectivity to the cost-benefit analysis bymeans of using benchmarks, such as evaluating whether the insolvency is at the sametime persistent, accompanied by difficulties in creating employment-enhancingopportunities and takes place in a region where the unemployment level is abovethe national or EU average

introduc-To ensure that aid is used to maintain viable economic activity and jobs ratherthan bailing out shareholders, the guidelines require the owners of beneficiarycompanies to contribute to the costs of restructuring (‘burden sharing’) Thismeans that thefirm’s owners will bear any loss first, and that the State—and hencethe taxpayers—will receive a fair share of any future gain

Finally, to simplify the provision of aid for restructuring, while also reducingdistortions of competition, the guidelines introduce a new concept of temporaryrestructuring support for SMEs

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3.3 The Revised State Aid Regulations

Alongside a number of revised guidelines, SAM includes an update on relevantregulations that, broadly speaking, share the ambition of speeding up Commissiondecision-making and the mission to focus enforcement on the most distortive aidmeasures

3.3.1 Procedural Regulation

The Council Procedural Regulation, which governs the State aid procedures ingeneral, was revised in July 2013.20 As far as the handling of complaints isconcerned, a significant amendment was put forward to ensure the Commissionwas provided with all the information necessary to investigate complaints from thevery beginning It also introduces new tools for gathering information directly frommarket participants and conducting sector enquiries

On complaints specifically, notwithstanding the fact that they had usually proven

to be a rich and useful source of information, the Commission has deemed that inseveral cases such complaints were not motivated by genuine competition concernsand sometimes were unsubstantiated As the Commission is legally obliged toaddress every complaint, this led to an excessive, wasteful deployment of limitedresources Two important changes were introduced to solve this issue First, acomplaint may now only befiled by an ‘interested party’ as defined by the Proce-dural Regulation Second, the information must be submitted in a structured mannervia a standard complaint form, which is made available by the Commission

3.3.2 De Minimis Regulation

The de minimis regulation, which deals with the scope of ‘small aid amounts’, wasrevised in December 201321following a public consultation Small aid amounts aredeemed to have no significant impact on competition and trade in the internalmarket: hence, they fall outside the scope of the EU rules as they do not constituteState aid within the meaning of the Treaty The Regulation confirms that aid of lessthan€200,000 per undertaking over a 3-year period is considered to be permissible

It also simplifies the application of the “single undertaking” definition and alsoallows companies infinancial difficulty to receive de minimis aid

20 Council Regulation (EU) No 734/2013 of 22 July 2013 amending Regulation (EC) No 659/1999 laying down detailed rules for the application of Article 93 of the EC Treaty, OJ L 204/15, 31.7.2013.

21 Commission Regulation (EU) No 1407/2013 of 18 December 2013 on the application of Articles

107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid, OJ L 352/1, 24.12.2013.

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