The Current Financial Crisis and State Aid in the EU

Abstract:     
The current financial and economic crisis, the worst since the Great Depression, is a cycle of banking and real economy crisis that can only be stopped by appropriate structural policies to shore-up and deleverage the financial system, supply liquidity through the monetary policy and stimulate demand through fiscal policy. Most of these structural measures of direct intervention fall under the state aid scrutiny of the Commission. Using an effects-based approach within a cost-benefit analysis framework in the line of the recent reform on State Aid, we study the different instruments and policies pursued in the EU, and advice on further strengthening the present guidance note. We conclude that a decisive and transparent approach has to be undertaken, and that although the first wave of measures seemed to be appropriate, further measures and policies have to be undertaken in order to shorten and alleviate the impact of the crisis in the real economy.

Number of Pages in PDF File: 17

Keywords: European Union policies, financial crisis, state aid, economic based approach, benefit-cost analysis

JEL Classification: G18, G2, K2

Accepted Paper Series