This article examines how the incentive consequence of province assistance is defined and measured.
It besides considers how the usage of the incentive consequence may impact on the behavior of assistance receivers. The handiness of province assistance would of course bring on them to set about riskier undertakings that are non usually included in concern programs which tend to be conservative.
Therefore, if concern programs ( looking into future ) are the benchmark by which the inducement consequence of province assistance is established, so this benchmark may be a excessively easy trial of the being of the inducement consequence.
The article besides argues that the timing of the appraisal of the demand for province assistance has aA decisive impact on the finding of whether assistance has an incentive consequence or non. The timing of the appraisal of the demand for province assistance is critical. Even undertakings that have already started may merit to have province assistance if the assistance can guarantee that they are non abandoned.
This is highlighted by an analysis of the instance of preparation assistance to DHL. The Commission believes that developing assistance should non be used to bring on companies to set about regional investing. Commercial world suggests that companies take into history the entire sum of assistance they expect to have at different locations. The article examines this Commission Decision on the proposed preparation assistance to DHL and suggests that that assistance could hold had an incentive consequence, if it were offered to DHL before it made its determination to set up a logistics Centre in Leipzig[ 1 ].
State assistance must hold an “ incentive consequence ” . But it may bring on donees to set about riskier undertakings and investing in riskier undertakings may non be in the involvement of society at big.
The incentive consequence of province assistance means that projects are expected to make something extra with the assistance. That “ excess ” must travel beyond their normal patterns. This has late been confirmed by the CFI in the Kronoply instance: Case T-162/06, Kronoply GmbH & A ; Co. KG v Commission of the European Communities ( 2009 )[ 2 ].
The Commission has defined how the inducement consequence is to be understood and measured in aA figure of recent policy paperss, most notably the
Commission Regulation ( EC ) No 800/2008 of 6 August 2008 declaring certain classs of assistance compatible with the common market in application of Articles 87 and 88 of the Treaty ( General block freedom Regulation ) – Recital 28, Article 8 ;
Model on Research and Innovation ( the R & A ; D & A ; I Framework ) : Community model for province assistance for research and development and invention ( OJ C 323, 30/12/2006, p. 0001 – 0026 ) – 1.3.4. ;
Guidelines on Risk Capital: Community guidelines on province assistance to advance hazard capital investings in little and moderate-sized endeavors ( OJ C 194, 18/8/2006, p. 0002 – 0021 ) – 1.3.4. ;
Guidelines on Environmental Protection: Community guidelines on province assistance for environmental protection ( OJ C 082, 01/04/2008, p. 0001 – 0033 ) – Recitals 27, 28 ;
Guidelines on the Assessment of Large Regional Projects: Commission Communication standards for an in-depth appraisal of regional assistance to big investing undertakings, 24/6/2009 [ non yet published in OJ ] ,
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The inducement consequence is established at three degrees of appraisal that may be termed “ standard ” , “ extra ” and “ detailed ” ( note that all guidelines use these three degrees ) :
at the “ standard ” degree which applies to all instances, province assistance lacks an inducement consequence and it is hence unneeded when it is granted after a undertaking or investing has been initiated. [ see Art 8 ( 2 ) of the block freedom Regulation, chapter 6 of the R & A ; D & A ; I Framework, chapter 3 of Environmental Guidelines, point 17 of the Guidelines on the Individual Assessment of Large Regional Projects ] ;
at the “ extra ” degree of appraisal, undertakings [ chiefly big ] which apply for assistance before they start a undertaking or investing, must besides show that they do something extra by demoing that they go beyond their normal pattern as defined by their one-year studies, or concern programs OR other typical or benchmark behavior for the industry in inquiry in footings of end product, outgo, occupations, etc. [ see chapter 6 of the R & A ; D & A ; I Framework, chapter 3 of Environmental Guidelines, point 19 of the Guidelines on the Individual Assessment of Large Regional Projects ] .
at the “ elaborate ” degree of assessment [ for assistance sums above certain thresholds ] , projects [ chiefly big ] must foster show that in the absence of assistance they would non transport out the undertaking or investing. They must besides show that the undertaking or investing itself is uneconomic or excessively hazardous. [ see chapter 7 of the R & A ; D & A ; I Framework, chapter 5 of the Environmental Guidelines and point 23 of the Guidelines on the Individual Assessment of Large Regional Projects ] .
Phedon Nicolaides, Michael Kekelekis: An Economic Analysis of EC Guidelines on State Aid for the Rescue and Restructuring of Companies in Difficulty, Intereconomics, July/August 2004, 9p.
The Rescue and Restructuring State Aid Guidelines 1999 to run out on 9 October 2004.
This article mentions certain incompatibilities and proposes how to better the following guidelines.
COM itself was cognizant of certain jobs, viz. :
What is the definition of “ house in troubles ” ?
How to measure group of companies ( allotment of costs within the group ) ?
Urgency issue: when the province assistance is granted prior to COM blessing.
One clip, last clip principle – deliverance assistance is a one-off operation
Different clip bounds in the current model
What compensatory steps are sufficient?
There are 3 internal incompatibilities in the Guidelines:
99 % of companies are SMEs, but province AIDSs for SMEs are exempted from province AIDSs presentment if lower than 10 mil. EUR + if intent of delivering companies is to forestall their living rivals ruling the market, so SMEs would non necessitate to be rescued ;
why to inquire houses confronting bankruptcy to cut down their end product? ;
if every company that receives reconstituting assistance has more than a just opportunity to go profitable ( return to viability ) , why so make private investors need any province assistance?
ECJ has repeatedly ruled ( e.g. in instance C-730/79 Phillip Morris v. COM, parity. 16-17 ) : “ State assistance is allowed for the intents of bring oning houses to make something they would non otherwise make under free market conditions. ”
The article farther analyses 3 conjectural programs for restructuring ( to cut down work force from 300 to 200, 100 OR 50 ) and assesses how minimising societal cost is taken and should be taken into history by the COM.
60 % of EU awards were for merely 4 MS ( Germany, France, Spain and Italy ) : Are the houses in other states immune from fiscal jobs OR are the authoritiess of these states less willing to bail out houses in fiscal trouble?
It is non for the COM to state MS how to pass their money sagely. However, there must be an upper bound to the sum of authorised assistance – & gt ; the societal costs of allowing the company travel bankrupt. On the other manus, there is cost for proprietors ( redundancy payments ) which can be avoided, if they can salvage the company. It should be up to the beneficiary company to reason the instance and supply converting grounds.
The writers welcome simplified process proposed for the new guidelines for “ urgency AIDSs ” . Urgency AIDSs ( to be repaid in 6 months ) replace “ deliverance AIDSs ” ( to be repaid in 12 months ) . But they are non happy, that no restructuring program is required for SMEs. The money contributed by proprietors must be at least 25 % for little endeavors, 40 % for moderate-sized endeavors and 50 % for big endeavors.
The new guidelines besides do non necessitate MS to allow socially optimal sums of assistance. The assistance per employee varies from 4,000 EUR to 755,000 EUR[ 3 ]. The market portions vary from 0.8 % to 61 % . Number of employees varies from 20 to 64,000.
Phedon Nicolaides: Reintroducing the Market in the “ Market Economy Investor ” Principle, European State Aid Law Quarterly 2003, 5p.
COM invented this rule about 20 old ages ago ( 1983 ) to cover with injections of public capital, which can non be prohibited by virtuousness of Article 295 EC ( Art. 345 TFEU ) to find whether public investings contain province assistance.
The writer considers 3 observations:
the term “ market economic system investor ” is a misnomer ;
ex-post appraisal may sabotage the rule itself ;
it is necessary to “ reintroduce ” market.
First, the COM compares the actions of the public authorization with those of a “ typical ” private investor in a similar state of affairs ( in footings of the size, hazard and footings of investing ) – see landmark instances C-234/84 Belgium v. COM, C-40/85 Belgium v. COM, C-305/89 Italy v. COM, C-278/92 Spain v. COM, T-228/99 WestLB v. COM ) . In some instances ( recovery of debt, rescheduling of debt OR closing of mills ) the ECJ invented term “ private creditor ” ( T-152/99, C-334/99 C-342/99, C-256/97 ) . In these conditions there are no comparable market benchmarks ( every instance is different ) : Creativity and inventiveness are every bit of import as stamina and continuity in dialogues. That is why successful corporate bankers command immense wages. Since public governments are non known for their foresight and investings accomplishments, it is difficult to believe that public functionaries can negociate every bit good as private investors. It is non a instance of comparing agreed rates with market rates.
Second, as the landmark WestLB opinion clarifies, a private investor will demand a return on his investing that reflects all the benefits obtained by the receiver of his financess and will take into history all foreseeable future eventualities. Private investor ever looks forward: “ water under the bridges are water under the bridges ” . The writer criticizes the opinion T-98/00 Linde v. COM, because a sensible investor would ne’er obliged himself to supply the privatised company with certain ( chemical ) merchandise for a period of 10 old ages at market monetary values. The German governments argued, that when the understanding was made it was hoped that a 2nd user of that chemical would construct a works in the country ( PN: how sensible was that outlook? ) . But the CFI found further payments to forestall much larger cost justified. The writer agrees with the opinion C-334/99 Germany v. COM: “ public governments may non make costs for themselves which can warrant the granting of extra province assistance later on ” , because ECJ right observed that Germany has included in the cost of closing the refund of province assistance that had been granted earlier.
Third, private money is non the same as public money. Private investor is willing to digest less. There are 3 solutions:
the MS should hold independent investor adviser to measure the trade ;
the MS should utilize private mediator for dialogues ;
to set upwards the rate of return demanded for public support ( in comparing to private investor ) .
The proposed steps are non prejudiced ( Art. 345 TFEU ) , because public investing is non the same as private investing. The functionaries are non covering with their ain money, so the due diligence is non the same.
The “ market economic system investor ” rule has been narrowed to merely “ private investor ” rule. Once the “ market ” drops out, it is hard to place any concealed province assistance.
R. Meiklejohn ( ed. ) : State assistance and the individual market, 1999, European Commission, 206 P.[ 4 ]( in the course of study from the first semester merely Synopsis and Chapter 1: The Economicss of State Aid were present: p.7-32 )
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This publication contains 7 surveies by several writers on several issues. Because the paperss is rather old, I will sum up merely briefly the outline:
Economicss of State Aid ( Meiklejohn )
State assistance should forestall market failures. Perfect competition is based on extremist premises ( perfect information and foresight, perfect factor mobility, no economic systems of graduated table, no outwardnesss ) . In existent universe authorities intercession may increase entire public assistance.
We consider 8 market failures: public goods ; merit goods ; increasing returns to scale ; outwardnesss ( positive and negative ) ; progressive or asymmetric information ( SMEs and advanced houses looking for capital on capital markets ) ; institutional rigidnesss ( e.g. labour market ) ; imperfect factor mobility ; subsidization of foreign rivals. Income redistribution constitutes an extra ground for authorities intercession.
Intervention must be carefully considered to understate deformations of competition, equivocation, maltreatment OR the creative activity of perverse inducements. Government outgo has to be financed, which is likely to take to some loss of efficiency in other parts of the economic system.
The instrument can be chosen from broad panoply including: ordinance ; direct authorities proviso of certain goods or services ; revenue enhancement OR province AIDSs. ( effectivity )
Tendencies and Forms
Recent developments
Market definition ( Fingleton, Ruane, Ryan )
The Treaties expressly demand geographical extent of the market ( “ trade between MS ” ) . In antimonopoly we analyse: demand side replaceability, provide side replaceability, temporal facets ( merchandise market definition ) AND geographic boundaries ( geographic market definition ) . The narrower the market definition the more likely it is that a house will be found to be dominant. We can compare features of different merchandises, own-price snap of demand, cross-price snaps, ability of houses to exchange production ( clip necessary to make that and drop costs ) .
For geographic market definition conveyance cost and trade barriers are taken into history. Elzinga-Hogarty trial and survey of correlativities of monetary values and monetary value motions in different countries have both of import drawbacks.
Harmonizing to the writers it is necessary to separate between inputs and concluding merchandises. The state of affairs differs harmonizing to whether end product market and input market are national or international ( 4 combinations ) . Therefore it is necessary to specify the geographic relevant market besides for upstream market ( where it buys its inputs ) and neighboring markets.
Taxonomy of AIDSs: activity-specific ; firm-specific ; industry-specific ; region/area-specific.
In province AIDSs methodological analysis, greater weight should be given to possible competition. The receiver of assistance can besides alter its geographic market scheme. If a receiver can easy exchange its production, spill-over into other markets is possible ( even for activity-specific AIDSs ) . Input and end product markets must be defined, even if the receiver is vertically integrated. The potency of widening the geographic market ( cf. internal market ) must be taken into history. Besides we must measure how costs and benefits are distributed = the grade of monetary value competition can be a usher to the distribution between manufacturer excess and consumer excess.
Restructuring and Denationalization
The instance of new German Lander
The international context
Further paperss to look at:
State Aid Action Plan 2005-2009 ( SAAP ) – quoted in the presentation
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Commission Regulation ( EC ) No 800/2008 of 6 August 2008 declaring certain classs of assistance compatible with the common market in application of Articles 87 and 88 of the Treaty ( General block freedom Regulation ) ( Text with EEA relevancy )
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State Aid Reform
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State Aid Scoreboard, Reports + Surveies
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