The Rescue & Restructuring Aid Guidelines of the European Commission - An Economic Point of View

Abstract

In the context of its ambitious State Aid Modernisation work, the European Commission presented new guidelines on Rescue and Restructuring (R&R) aid in 2014. In this paper the consequences for generic R&R aid and in particular the balancing test for State aid proposed by the guidelines are discussed. Given the severe and pervasive harm of R&R aid explicitly recognized by the guidelines, granting R&R aid can only be justified under the proposed balancing test if the R&R aid contributes strongly to an objective of common interest. This objective of common interest may either be addressing a market failure or increasing social or economic cohesion. As is argued here, R&R aid can, by definition, not address or alleviate a market failure. Regarding social and economic cohesion, while R&R aid may plausibly prevent the increase of unemployment in a particular region or prevent the interruption of a service of general economic interest, it is rather doubtful that R&R aid is an appropriate policy instrument in these circumstances. In summary, in all but possibly two special cases R&R aid would fail the balancing test. To the extent that the economic principles set out in the new guidelines are taken seriously, the guidelines for R&R aid may therefore ultimately mean nothing less than the abolition of R&R aid in practice.

Keywords: State aid, rescue and restructuring aid, 2014 guidelines, balancing test, regional aid, common principles for the assessment of State aid

JEL Classification: K21, K23, L40, L50