At loggerheads over state aid: Why the Commission rejects aid and governments comply
| Date | 01 September 2020 |
| Author | Daniel Finke |
| DOI | 10.1177/1465116520916248 |
| Published date | 01 September 2020 |
| Subject Matter | Articles |
Article
At loggerheads over
state aid: Why the
Commission rejects aid
and governments comply
Daniel Finke
Department of Political Science, Aarhus University, Aarhus, Denmark
Abstract
State aid is of significant importance to EU economies. The Commission is responsible
for monitoring that all aid instruments comply with EU law. The present article analyses
two questions: Why does the Commission reject aid instruments? How do national
governments respond to such rejections? I argue that national governments are more
willing to risk conflict with the Commission if perceived corruption and Euroscepticism
are high. The Commission anticipates the likelihood of non-compliance when ruling on
proposed aid instruments. If it expects non-compliance, the Commission is more likely
to reject an aid instrument where its public trust ratings are high. If non-compliance is
unlikely, the Commission can focus exclusively on the legal consistency of its ruling.
On the empirical side, I test my arguments by analysing all state aid decisions between
2000 and 2018. Most importantly, the results show that state aid is more likely to be
rejected, where public trust in the Commission is high.
Keywords
Compliance, enforcement, EU Commission, state aid
The main objective of state aid is to enhance the competitiveness of ‘local’ busi-
nesses. Consequently, elected governments around the globe are tempted to grant
aid to buy support from their local electorate (Dewatripont and Seabright, 2006).
To avoid such inefficient interventions in the market, state aid is illegal under
Corresponding author:
Daniel Finke, Department of Political Science, Aarhus University, Bartholinsallee 9, 8000 Aarhus C, Denmark.
Email: finke@ps.au.dk
European Union Politics
2020, Vol. 21(3) 474–496
!The Author(s) 2020
Article reuse guidelines:
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DOI: 10.1177/1465116520916248
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European Union (EU) law. As a result, European governments seem to enjoy less
discretion in handing out state aid than governments elsewhere (Jensen and
Malesky, 2018: 12). Nevertheless, the state aid awarded by all EU member
states in 2017 corresponds to approximately 0.8% of their collective gross domestic
product (GDP), ranging from ca. 0.3% in Ireland, Spain, Italy and Slovakia to
2.7% in Hungary. For this reason, it is highly relevant to analyse member states’
compliance with EU state aid regulation.
The EU Commission monitors and enforces that member states’ aid policies
comply with EU law. The present article explains the state aid endgame in the EU,
i.e. the Commission’s final decision on whether to approve an aid measure and the
member state’s reaction in the event of a negative Commission decision.
Importantly, I do not study the government’s decision to grant aid in the first
place or the Commission’s decision to initiate a formal investigation, both of which
are taken under highly imperfect information (see below). The article instead
focuses on those aid measures formally investigated by the Commission, where
the following three outcomes are possible. First, the Commission approves the aid
measure. Second, the Commission disapproves of the aid measure and the member
state complies with this negative ruling. Third, the Commission disapproves of the
aid measure, and the member state does not comply with this negative ruling.
Multi-stage procedures in law enforcement (e.g. Carrubba, 2009; Fjelstul and
Carrubba, 2018; K€
onig and M€
ader, 2014; Vanberg, 2004) as well as law making
(e.g. Manow and Burkhart, 2007; Shepsle, 1985; Thomson et al., 2006) are known
to produce strategic behaviour. Therefore, it is not surprising that the Commission
disapproves of only one third of all investigated aid measures, and that member
states comply with more than 90% of disapprovals. Tying in with this literature, I
make the following substantive arguments.
1. About 40% of European voters have heard about prominent state aid cases
(Special Eurobarometer 448, 2016). In many of those cases, the opposition tried
to pressure the government to stand up against a negative decision from
Brussels. Eurosceptic parties are especially prone to apply this strategy and,
therefore, a strong Eurosceptic opposition party causes a higher likelihood
for non-compliance with a negative Commission ruling. For example, the
Five Star Movement pressured the Italian government successfully into a
legal conflict with the Commission over financial aid for the Tercas bank.
1
2. Recent accusat ions of illegal use of state aid in Hungary illustrate that populist
governments have an inclination for corruption (Agerberg, 2017). In states suf-
fering from high levels of corruption, governments are less concerned about the
general public than about special interests, i.e. the direct recipients of the pro-
posed subsidies. Consequently, they are more likely to risk open conflict with
the Commission in order to demonstrate their commitment.
3. The Commission is motivated to increase its institutional autonomy, i.e. its
discretion in implementing the EU treaties and in enforcing EU law. This
Finke 475
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