Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.5.3:3.5.3 The principles governing the State aid assessment

Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.5.3

3.5.3 The principles governing the State aid assessment

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Following the 2005 State Aid Action Plan, the Commission published a State Aid Modernization Communication in 2012. The aim was to focus State aid control on measures which genuinely affect competition in the internal market while at the same time simplifying and streamlining rules and procedures. One of the actions taken in that respect was the identification and definition of ‘common assessment principles’ applicable to the assessment of compatibility of all the aid measures carried out by the Commission.1 The common assessment principles maintain the criteria developed in the balancing test introduced in the State Aid Action Plan.2

The common assessment principles include the following:

1.

contribution to a well-defined objective of common interest: a State aid measure must have an objective of common interest in accordance with Article 107(3) TFEU;

2.

need for State intervention: a State aid measure must be targeted towards a situation where aid can bring about a material improvement that the market cannot deliver itself, for example by remedying a market failure or addressing an equity or cohesion concern;

3.

appropriateness of the aid measure: the aid measure must be an appropriate policy instrument to address the objective of common interest;

4.

incentive effect: the aid must change the behaviour of the undertakings concerned in such a way that they engage in additional activity which they would not carry out without the aid or they would carry out in a restricted or different manner or location;

5.

proportionality of the aid (aid limited to the minimum): the aid amount must be limited to the minimum needed to induce the additional investment or activity in the area concerned;

6.

avoidance of undue negative effects on competition and trade between Member States: the negative effects of the aid must be sufficiently limited, so that the overall balance of the measure is positive;

7.

transparency of aid: Member States, the Commission, economic operators, and the interested public, must have easy access to all relevant acts and to pertinent information about the aid awarded thereunder.

The common assessment principles were introduced in revised versions of various guidelines, including the 2014 R&R Guidelines; these, however do not apply to banks. The common assessment principles were not included in the 2013 Banking Communication. It can be derived from a Discussion Paper published by the Commission in relation to the common assessment principles that if a given aid measure, by nature of its objective, falls within the scope of existing guidelines and therefore has to be notified under these guidelines, only the principles as formulated in those guidelines apply.3 It is therefore the author’s understanding that the common assessment principles do not apply to the State aid regime for the banking sector, but, instead, the principles set out in the 2013 Banking Communication apply.4 These are the principles of appropriateness, necessity and proportionality.

The observance of these principles in compliance with the State aid rules and the fundamental freedoms enshrined in the TFEU, including the principle of non-discrimination,5 is deemed necessary by the Commission for the preservation of the proper functioning of the internal market.6

3.5.3.1 Appropriateness3.5.3.2 Necessity3.5.3.3 Proportionality

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