The new restructuring state aid guidelines- an economic and legal assessment

Law & Economics Workshop organized by Concurrences in partnership with Hogan Lovells and NERA


Nicola Pesaresi and Geoffrey Mamdani (DG COMP)

The issue of State Aid

Mr. Pesaresi began by noting that European Union productivity compared to US productivity was signifi cantly down, and that one of the reasons for this was state support of failing undertakings. He acknowledged that state support could be tempting for several reasons. It could help to prevent unemployment and loss of output; loss of technical knowhow and expertise; and systemic risks and disruption to important services, including those of general economic interest. But Mr. Pesaresi emphasised that state aid needed to be used with caution. By preventing the exit of the recipient fi rm from the market, state aid maintained an ineffi cient allocation of resources and reduced “churn”. He noted that exit, entry and market share change accounted for 50% of labour productivity and 80-90% of total productivity growth. It also reallocated resources towards more productive uses and was a key driver of innovation. He noted that in the context of the recent fi nancial crisis and its on-going consequences in Europe, all of this was more important than ever as Europe looked to fi nd new sources of growth to recover from its losses. He observed that even the perception that a particular fi rm or sector was likely to receive aid in the case of fi nancial distress could draw capital away from other, more productive uses. In addition, such a perception created “moral hazard”: fi rms that anticipated that they would receive aid if they encountered fi nancial distress would be willing to take an excessive level of risk. Finally, Mr. Pesaresi noted that state aid could also undermine the single market when it was used to protect national firms.

Photos © Emilie Gomez

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