Skip to main content
SpringerLink
Log in

Managing the Dilemma of Discretion: The European Commission and the Development of EU State Aid Policy

  • Published:
Journal of Industry, Competition and Trade Aims and scope Submit manuscript

Abstract

This article examines the role played by the European Commission in the development of the European Union’s (EU) state aid policy. It does so through the prism of a “dilemma” that exists at the nexus of the Commission’s delegated authority to administer EU treaty state aid provisions, the discretion conferred on Commission authorities by the imprecise language in which those provisions are written, and the political and institutional control mechanisms EU member governments use to influence the exercise of that discretion. Examining Commission efforts to manage this dilemma over the history of the EU, we provide evidence to illustrate how the Commission’s approach adapted to shifting economic and political conditions.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. Article 107(1) reads: “Save as otherwise provided in this Treaty, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the common market.”

  2. Article 107(2) reads: “The following shall be compatible with the common market:

    1. a.

      aid having a social character, granted to individual consumers, provided that such aid is granted without discrimination related to the origin of the products concerns;

    2. b.

      aid to make good the damage caused by natural disasters or exceptional occurrences;

    3. c.

      aid granted to the economy of certain areas of the Federal republic of Germany affected by the division of Germany, in so far as such aid is required in order to compensate for the economic disadvantages caused by that division.”

  3. Article 107(3) reads: “The following may be considered to be compatible with the common market:

    1. a.

      aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious unemployment;

    2. b.

      aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member States;

    3. c.

      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. However, the aids granted to shipbuilding as of 1 January 1957 shall, in so far as they serve only to compensate for the absence of customs protection, be progressively reduced under the same conditions as apply to the elimination of customs duties, subject to the provisions of this treaty concerning common commercial policy towards third countries;

    4. d.

      aid to promote culture and heritage conservation where such aid does not affect trading conditions and competition in the Community to an extent that is contrary to the common interest**;

    5. e.

      such other categories of aid as may be specified be decision of the Council acting by a qualified majority on a proposal from the Commission.”

    **Subparagraph d is not original to the intergovernmental contract struck at the founding of the European Union. It was added in 1992 with ratification of the Treaty on European Union.

  4. The scope of Commission discretion under Article 107(2) is generally understood to be less than that under Article 107(3). In the former, the Commission is limited to confirming that a measure fulfills one of the objectives. The use of the verb “may” in latter provides more latitude for the Commission to determine what conditions must be met for an aid measure to be granted exemption.

  5. They included “tax exemptions, preferential interest rates, guarantees of loans on especially favorable terms, acquisition of land or buildings either gratuitously or on favorable terms, provisions of goods and services on preferential terms, indemnities against losses and other measures having equivalent effect.” OJ(Special Ed) 1963 at 235.

  6. Council Resolution of 20 October 1971 on General Systems of Regional Aid, OJ C 111/7 of 4 November 1971.

  7. Decision 69/266/EEC of 18 July 1969. OJ L 220/1 of 1 September 1969.

  8. France v. Commission C-47/69 [1970] ECR 487.

  9. Decision 79/743/EEC. OJ L 217, 25.8.1979.

  10. Philip Morris v. Commission (C-730/79) [1980] ECR 2671.

  11. Illustrative of the enhanced interest being paid to public firms was the inclusion in 1975, for the first time, of public undertakings as a category of state aids in the Commission’s annual Report on Competition Policy (CEC 1976).

  12. Commission Directive 80/723 on the Transparency of Financial Relations between Member States and Public Undertakings, OJ L 195 (1980).

  13. France, Italy and the United Kingdom v. Commission (Joined Cases C-188-190/80) [1982] ECR 2545.

  14. Personal calculations from data provided in Reports on Competition Policy.

  15. Community framework for State aid for research and development, OJ C 45/5 (1996); Community guidelines on State aid for small and medium-sized enterprises (SMEs), OJ C 213/2 (1992); Community guidelines on State aid for small and medium-sized enterprises (SMEs), OJ C 213/4 (1996); Community guidelines on aid to employment, OJ C 334/4 (1995) and OJ C 218/4 (1996). Community framework for State aid for research and development, OJ C 83/2 (1986).

  16. Council Regulation (EC) No 994/98 of 7 May 1998 on the application of Articles 92 and 93 (now 87 and 88 respectively) of the Treaty establishing the European Community to certain categories of horizontal State aid, OJ L 142/1 (1998).

  17. Community guidelines on state aid to promote risk capital investments in small and medium-sized enterprises, OJ C 194/2 (2006). Community framework for State aid for research and development and innovation, OJ C 323/1 (2006). Community guidelines on State aid for environmental protection, OJ C 82/1 (2008)

  18. Commission Notice on the application of articles 87 and 88 to State aid in the form of guarantees, OJ C 155/10 (2008). Commission Regulation (EC) No. 800/2008 of 6 August 2008 on the application of Articles 87 and 88 of the Treaty declaring certain categories of aid compatible with the Common Market. OJ L 214/3 (2008).

  19. Personal calculations from data provided in Reports on Competition Policy (various years).

  20. Communication from the Commission—The Application of State Aid Rules to Measures Taken in Relation to Financial Institutions in the Context of the Current Global Financial Crisis, OJ C 270/02 of 25 October 2008; Communication from the Commission—The Recapitalisation of Financial Institutions in the Current Financial Crisis: Limitation of Aid to the Minimum Necessary and Safeguards Against Undue Distortions of Competition, OJ C 10/03 of 15 January 2009; Communication from the Commission on the Treatment of Impaired Asses in the Community Banking Sector, OJ C 72/01 of 26 March 2009; Commission Communication on the Return to Viability and the Assessment of Restructuring Measures in the Financial Sector in the Current Crisis Under the State Aid Rules, OJ C 195/9 of 19 August 2009.

  21. Communication from the Commission—Temporary Community Framework for State aid measures to support access to finance in the current financial and economic crisis, OJ C 16/1 of 22 January 2009.

References

  • Andriessen F (1983) The role of anti-trust in the face of economic recession: state aids in the EEC. Eur Comp Law Rev 4:286–296

    Google Scholar 

  • Blauberger (2009) Of ‘good’ and ‘bad’ subsidies: European state aid control through soft and hard law. W Eur Pol 32(4):719–737

    Article  Google Scholar 

  • Caspari M (1988) The aid rules of the EEC Treaty and their application. In: Schwarze J (ed) Discretionary powers of the Member States in the field of economic policies and the limits under the EEC Treaty. Baden-Baden, Nomos, pp 37–52

    Google Scholar 

  • Cini M (2001) The soft law approach: commission rule-making in the EU’s state aid regime. J Eur Public Policy 8(2):192–207

    Article  Google Scholar 

  • Commission of the European Community (CEC) (1960) Second general report on the activities of the European Economic Community. European Commission, Brussels

    Google Scholar 

  • CEC (1969) Second general report on the activities of the European Communities. European Commission, Brussels

    Google Scholar 

  • CEC (1972) First report on competition policy. European Commission, Brussels

    Google Scholar 

  • CEC (1976) Fifth report on competition policy. European Commission, Brussels

    Google Scholar 

  • CEC (1977) Sixth report on competition policy. European Commission, Brussels

    Google Scholar 

  • CEC (1980) Ninth report on competition policy. European Commission, Brussels

    Google Scholar 

  • CEC (1982) Eleventh report on competition policy. European Commission, Brussels

    Google Scholar 

  • CEC (1988) First survey on state aids in the European Community. SEC(88)1981

  • CEC (2005) State aid action plan—Less and better targeted state aid: a roadmap for state aid reform 2005–2009. COM(2005) 107 final

  • CEC (2008) State aid scoreboard: autumn update. COM(2008) 751 final

  • CEC (2009) Report on competition policy. COM(2009) 374 final

  • CEC (2011) State aid scoreboard: report on state aid granted by the EU member states. COM(2011) 848 of 1.12.2011

  • Cownie F (1986) State aids in the eighties. Eur L Rev 11(4):247–267, London, Sweet & Maxwell

    Google Scholar 

  • de Jong HW (1982) Reflections on the economic crisis: markets, competition and welfare. In: O’Keefe D, Shermers HG (eds) Essays in European law and integration. Kluwer Law and Taxation, Deventer

    Google Scholar 

  • Della Cananea G (1993) Administration by guidelines: the policy guidelines of the Commission in the field of state aids. In: Hardin I (ed) State aid: community law and policy

  • Doleys T (2000) Member states and the European Commission: insights from the new economics of organization. J Eur Public Policy 7(4):532–553

    Article  Google Scholar 

  • D’Sa R (2009) ‘Instant’ state aid law in a financial crisis—a U-turn? Eur State Aid L R 2:139–144

    Google Scholar 

  • Ehlermann CD (1992) The contribution of EC competition policy to the single market. CMLR 29:257–282

    Google Scholar 

  • Ehlermann CD (1994) State aids under European Community competition law. Fordham Int Law J 18(2):410–436

    Google Scholar 

  • Fisher R (1981) Improving compliance with international law. University of Virginia Press, Charlottesville

    Google Scholar 

  • Hancher L, Slot PJ, Ottervanger T (2006) EC state aids, 3rd edn. Sweet and Maxwell, London

    Google Scholar 

  • Jenny F (2006) The state aid action plan: a bold move or a timid step in the right direction? Compet Pol Int 2(2):79–91

    Google Scholar 

  • Kleiner T (2006) State aid reform. In: Sanchez Rydelski MS (ed) The EC state aid regime: distortive effects of state aid on competition and trade. Cameron May, London, pp 827–848

    Google Scholar 

  • Lavdas K, Mendrinou M (1999) Politics, subsidies and competition: the new politics of state intervention in the European Union. Edward Elgar, Cheltenham

    Google Scholar 

  • Majone G (1996) Regulating Europe. Routledge, New York

    Book  Google Scholar 

  • Maskin E (2002) On indescribable contingencies and incomplete contracts. Eur Econ Rev 46(4–5):725–733

    Article  Google Scholar 

  • McCubbins M, Noll R, Weingast B (1987) Administrative procedures as instruments of political control. J Law Econ Organ 3(2):243–277

    Google Scholar 

  • MacNeil I (1974) The many futures of contracts. South Calif Law Rev 47:691–816

    Google Scholar 

  • Milgrom P, North D, Weingast B (1990) The role of institutions in the revival of trade: the law merchant, private judges, and the champagne fairs. Econ Polit 2(1):1–23

    Article  Google Scholar 

  • Moe T (1984) The new economics of organization. Am J Pol Sci 28:739–777

    Article  Google Scholar 

  • Moe T (1990a) Political institutions: the neglected side of the story. J Law Econ Organ 6:213–253

    Article  Google Scholar 

  • Moe T (1990b) The politics of structural choice: toward a theory of public bureaucracy, In: Williamson O (ed) Organization theory: from Chester Barnard to the present and beyond. Oxford University Press, New York

    Google Scholar 

  • Mortelmans K (1984) The compensatory justification criterion in the practice of the commission in decisions on state aid. C M L Rev 21

  • Nicolaides P, Kekelekis M, Kleis M (2008) State aid policy in the European Community: principles and practice, 2nd edn. Wolters Kluwer, Alphen aan den Rijn

    Google Scholar 

  • North D (1990) Institutions, institutional chance and economic performance. Cambridge University Press, New York

    Book  Google Scholar 

  • Pollack M (2003) The engines of European integration: delegation, agency, and agenda-setting in the EU. Oxford University Press, New York

    Google Scholar 

  • Rawlinson F (1993) The role of policy frameworks, codes and guidelines in the control of state aid. In: Hardin I (ed) State aid: community law and policy

  • Schina D (1987) State aids under the EEC Treaty articles 92 to 94. ESC Publishing Limited, Oxford

    Google Scholar 

  • Schrans G (1973) National and regional aid to industry under the EEC treaty. Common Market Law Review 10

  • Smith M (1996) Integration in small steps: the European Commission and member state aid to industry. W Eur Polit 19(3):563–582

    Article  Google Scholar 

  • Smith M (1998) Autonomy by the rules: the European Commission and the development of state aid policy. J Common Mark Stud 36(1):55–78

    Article  Google Scholar 

  • Von der Groeben H (1985) The European Community: the formative years. Commission of the European Communities, Brussels

    Google Scholar 

  • Wilks A (1993) The metamorphosis of European competition policy. In: Snyder F (ed) European community law: volume I. New York University Press, New York

    Google Scholar 

  • Williamson O (1985) The economic institutions of capitalism. Free Press, New York

    Google Scholar 

  • Zahariadis N (2010) State aid and partisan government in the European Union. Soc Sci Q 91(2):436–454

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Political Science & International Affairs, Kennesaw State University, MD 2205, Social Sciences, 1000 Chastain Road, Kennesaw, GA, 30144, USA

    Thomas J. Doleys

Authors
  1. Thomas J. Doleys
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Thomas J. Doleys.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Doleys, T.J. Managing the Dilemma of Discretion: The European Commission and the Development of EU State Aid Policy. J Ind Compet Trade 13, 23–38 (2013). https://doi.org/10.1007/s10842-012-0140-y

Download citation

  • Received:

  • Revised:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10842-012-0140-y

Keywords

JEL classification

Search

Navigation