Priority 8: Alleviation measures - the case for state aid supports and other measures
19 June 2017
As set out in detail throughout this paper, Brexit involves an unprecedented fracture of the Single Market, with Ireland particularly exposed. As such, it is vital that the EU institutions and national governments recognise the potential for economic disruption and take decisive steps to offset such risks.
In order to support businesses during this difficult period, EU and national government funding should be provided over a three year period to help companies trade through any period of disruption, adapt and succeed into the future. Funds should be targeted at supporting innovation, market diversification, upskilling and capital expenditure in equipment and machinery. The resources required will be in the region of 5% of the value of current annual export sales to the UK.
The accession process for new EU members is structured, takes place over a period of years and supports are put in place for the economies and sectors most affected. A similar adjustment process is required to manage the departure of an EU member state.
The principle underpinning EU state aid rules is that efficient operation of the Single Market is undermined by government interventions, except for clearly defined circumstances such as market failures.
However, Article 107 of the Treaty states that the Commission may declare aid compatible with the Single Market that promotes “the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a member state”.
There is no doubt that Brexit is a serious disturbance in the European economy and that mitigating its impacts is an important project of common EU interest. This serious disturbance will be most acutely felt in Ireland, both from a political and economic perspective and therefore flexibility and support will be needed from our European partners.
A response is needed at European level
In 2009, the European Commission adopted the Communication ‘A European Economic Recovery Plan’. This emphasised providing maximum flexibility in tackling the crisis while maintaining a level playing field and not placing undue restrictions on competition. In this context, the Court of First Instance of the European Communities has ruled that the disturbance must affect the whole of the economy of the Member State(s) concerned, and not merely that of one of its regions or parts of its territory. This, moreover, is in line with the need to interpret strictly any derogating provision such as Article 87(3)(b) of the Treaty.
This was the basis for the introduction, by the Commission, of the Temporary Framework in 2009 which, amongst other things, allowed for an increase in “de minimus” levels (i.e. small amounts of state aid which can’t exceed a certain threshold) and state backed credit insurance.
A Commission staff working paper written in 2011 noted that “The Temporary Framework of aid to the real economy complemented the framework put in place to allow a swift and coordinated response during the crisis.... it has been a useful safety net allowing for an emergency response during the crisis”.
The reaction of the EU states and the Commission to the financial crisis should guide the reaction to what is now a fundamental shift in the future of the Union with the exit of its second largest market. Failure to do so will compound the political, social and economic fallout for the remaining EU member states, most particularly Ireland.