Concerns Raised Over State Aid Schemes Post-Pandemic
The European Commission has faced criticism for its inadequate assessment of the market effects stemming from various temporary state aid schemes that were introduced in response to the COVID-19 pandemic. As highlighted in a recent report by the European Court of Auditors (ECA), the implications of these financial aids on competition within the EU remain uncertain due to a notable lack of transparency regarding expenditure.
In light of the pandemic and the subsequent economic challenges posed by the Ukraine conflict, EU member states have injected substantial financial resources into their economies through state aid. The expenditure surged dramatically from approximately €120 billion before the pandemic, reaching peaks of €320 billion in both 2020 and 2021, before tapering to nearly €230 billion in 2022. According to ECA member Marius Hyzler, during a press conference, “We don’t have concrete evidence to ascertain whether the single market has been adversely affected by these aid packages.”
Traditionally, the European Commission closely monitors state aid spending to mitigate any potential negative impacts on competition within the single market. However, in response to both the pandemic and the geopolitical ramifications of Russia’s invasion of Ukraine, the Commission has relaxed state aid regulations multiple times. Additionally, it has introduced new guidelines to facilitate the provision of subsidies in reaction to the American Inflation Reduction Act, which offers substantial fiscal benefits to the domestic green industry in the United States.
The auditors’ report indicates that while the Commission has examined the impact of COVID-19-related state aid on business turnover and the likelihood of corporate defaults, it has neglected to investigate the broader effects on competition. The Commission’s findings primarily acknowledged that state aid significantly assisted firms during the crisis, but this assessment fell short of a comprehensive analysis.
Furthermore, the report noted that due to a lack of reliable data from member states, the Commission’s study was confined to just three countries—Spain, Italy, and Poland—thus excluding those member states that incurred the highest levels of state aid expenditure. The auditors also pointed out that the Commission has yet to outline a plan for evaluating the impact of the framework established in response to the Ukraine crisis.
Another critical finding of the report was the Commission’s failure to scrutinize unnotified state aid, which raises concerns about accountability. Moreover, the auditors emphasized that because of the opaque nature of how these funds were allocated, they were unable to assess potential inequalities that may exist between larger and smaller EU countries.
