State aid in the wake of the pandemic, war and foreign subsidies

Summary:

Over the last 3 years, the European Union has faced major challenges to its economy and societies, including the coronavirus pandemic, Russia's war on Ukraine and the increasingly urgent need for a green economic transition. The EU's response to these exceptional circumstances have included changes to its fiscal, monetary and investment policies, notably through the adaptation of State aid to allow Member States to support their economies by means of more direct intervention. Under competition law – the cornerstone of the EU-defining internal market – State aid measures are illegal, unless covered by the exemptions provided by the Treaties. In charge of implementing State aid rules, the European Commission clarifies and regulates the scope of exemptions. State aid rules allow government assistance to compensate for damage caused by natural disasters and exceptional circumstances, such as pandemic or war. State aid projects are subject to notification and Commission approval, unless exempt under the General Block Exemption Regulation.

The Commission adopted a temporary framework in 2020, setting out permissible State aid measures to help Member States support their coronavirus-stricken economies. After Russia's unprovoked, full-scale invasion in Ukraine in 2022, the Commission published a new, wider temporary framework that allowed Member States to use more State aid intervention to ward off an economic slump, notably caused by skyrocketing energy prices. Finally, last year's US bill granting massive state subsidies for the local development of green technology, and China's long-established similar policy, prompted the Commission to propose yet another State aid rulebook in March 2023 – the temporary crisis and transition framework. Recent State aid rule modifications come against a backdrop of the EU debate on industrial policy. Discussions pit German and French support for more state intervention to create EU industrial champions, against smaller Member States' support for unfettered competition and free trade. The European Parliament stresses that any new State aid measure must not endanger fair competition in the internal market, which is the foundation of the EU. Parliament has called for aid to be extended through the EU budget, rather than in potentially uncoordinated national state aid provisions.

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