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Block exemption of new financial instruments.

 

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Introduction

The Commission has recently published a proposal for amendment of Council Regulation 2015/1588[1] which authorises the Commission to adopt block exemption regulations. The purpose of the Commission’s proposal is to expand Article 1 of Regulation 2015/1588. This Article lists the categories of aid that may be declared compatible with the internal market.

The Commission wants the following to be added to that list:

  1. “financing channelled through or supported by EU centrally-managed financial instruments or budgetary guarantees, where the aid consists in the form of additional funding provided through State resources”, and
  2. “projects supported by EU European Territorial Cooperation programmes”.

 

After the proposal is adopted, the scope of the GBER will be widened to include additional categories of aid covering projects that are partly financed by EU funds managed at EU level. Unlike the current co-financing of Member State projects by EU structural and investment funds (ESIF) which are considered to be state resource because they are channelled through national authorities, the new rules will apply to national money that will accompany financing that is granted directly by an EU body. This is unusual and, therefore, it is worth understanding the Commission’s motivation.

 

 

The purpose of the revision

The proposal comes with an explanatory memorandum. In its own words, the aim of the revision is to “improve the interplay of […] EU funding programmes with State aid rules. It will enable the Commission to make targeted modifications of current State aid rules so that national money – including from the European Structural and Investment Funds managed at national level – and EU funds managed centrally by the Commission can be combined as seamlessly as possible, without distorting competition in the EU's Single market.”

The memorandum also reiterates that “EU funds managed centrally by the Commission that are not subject to any discretion by Member States (such as COSME, Horizon Europe or the Digital Europe Programme), are not State aid within the meaning of Article 107(1) Treaty on the Functioning of the European Union (TFEU).”

However, the memorandum also points out that “where Member States provide additional national funding to a project, a financial instrument supported by a centrally managed EU fund or contribute resources over which they retain a certain degree of discretion to a centrally managed fund, State aid rules apply to the part of the funding under discretion by a Member State.”

“Similarly, Member States have greater control over EU money under shared management, as is the case for the European Structural and Investment Funds (ESIF), including the European Regional Development Fund (ERDF) as well as the European Agricultural Fund for Rural Development (EAFRD). This type of funding therefore represents State resources within the meaning of Article 107(1) TFEU and is subject to State aid control.”

Despite these well-known differences in the legal status of EU money directly paid to final beneficiaries and EU money indirectly paid via national authorities, the reality is that at national or regional level there is often no appreciation of the fact that EU money is not automatically excluded from State aid rules, nor does it automatically count as State aid. There is confusion because EU money falls within the scope of Article 107(1) TFEU only if a public authority can exercise control over it.

As a consequence, the Commission goes on to observe that “the right articulation between EU funds rules and State aid rules is important to guarantee the best possible impact of the MFF and to avoid unnecessary complexities. This is especially important for situations in which a project is funded both by EU funds managed centrally by the Commission as well as by funds under the control of Member States.”

Therefore, “to simplify the treatment of such situations for Member States, financial intermediaries and project developers EU funds rules and State aid rules should be consistent.”

(In my opinion it would have been legally and administratively simpler to exclude from the scope of State aid rules, rather than block exempt, projects co-financed by funds managed directly at EU level. This is because the EU institution responsible for managing the funds would ensure that the whole public support (by the EU and Member State) would be compatible with the internal market.)

 

 

The targets of the amendments

The proposal identifies “three areas in which modifications of the GBER could improve the interplay of EU funding programmes with State aid rules.”

(a) National financing combined with instruments from the new InvestEU Fund

The Commission has also proposed the establishment of a new “InvestEU Fund”. The relevant document (COM(2018)439) explains that “the InvestEU Programme's actions should be used to address market failures or sub-optimal investment situations, in a proportionate manner, without duplicating or crowding out private financing and have a clear European added value. This will ensure consistency between the actions of the Programme and EU State aid rules, avoiding undue distortions of competition in the internal market.”

It should be mentioned, however, that that document contains no other reference to State aid. This is not surprising because the funding will be controlled at EU level. What the Commission really wants to do is to ensure consistency in EU and national funding for the same projects.

Indeed, the Commission proposal for the modification of the GBER reveals that consistency is what the Commission has in mind. “The relevant State aid requirements could be laid down in the GBER, to accompany an InvestEU Fund Regulation and the InvestEU Fund’s Investment Guidelines that contains the necessary safeguards. Such a modification of the GBER could exempt Member State money that is channelled through the InvestEU Fund or supported by the InvestEU Fund from prior notification to the Commission under State aid rules, thereby ensuring a streamlined and efficient implementation of the InvestEU Fund.”

(b) Research, development and innovation

The Commission has also presented its ideas for “Horizon Europe”. RDI projects evaluated and selected in line with the rules applicable to Horizon Europe and jointly funded by Horizon Europe and Member States (including from structural funds), where at least three Member States participate, “could be allowed to be implemented without an additional State aid assessment for the Member States' part of the funding. This would be possible because the rules for projects to qualify for support from Horizon Europe remove any competition concerns, in particular by requiring projects to meet common EU interest objectives and to address well-defined market failures.”

(c) European Territorial Cooperation

Under the current State aid rules, ETC projects can be supported through national public money. Aid to SMEs for costs incurred in ETC projects is already covered by the GBER. The Commission proposal mentions that the “the Commission has gained significant experience in relation to aid measures aimed at the promotion of ETC projects. A further extension of the scope of aid measures allowed under the GBER could therefore be considered.”

 

 

Conclusions

It is fair to infer that this revision of Regulation 2015/1588 and the consequent amendment of the GBER will not change anything substantive. However, it will contribute to administrative simplification. Projects and funding approved by the Commission on the basis of other rules, which also aim to avoid distortions of competition in the internal market, will not be subject to additional checks under State aid rules. This makes sense and their block-exemption should be welcome.

 

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[1] The full text of the proposal can be accessed at: http://ec.europa.eu/competition/state_aid/legislation/enabling_regulation_targeted_amendment_en.pdf.



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