III-3.2 : Speech of Joachim Almunia, the new competition commissioner, 9th Global Forum on Competition, OECD, Paris, February 18th 2010. Subsidies could be useful to avoid catastrophes in many sectors; the major difficulty being distorsions between different levels of regulation.

In this important speech, “the 9th Global Forum on Competition,” organised by the OECD in Paris February 18th, 2010, the new European Commissioner for Competition, Mr. Joaquim Almunia, of course recalled, as he had done during his inauguration, the importance of the fight against anti-competitive behaviour. But the most important part of his speech was devoted to state aid, in the form of subsidies provided by governments, over the last 18 months, to the financial sector and other sectors of the economy, in order to prevent a catastrophic banking collapse.

The Competition Commissioner, regardless of the current crisis situation, admits furthermore that, in normal times, aids or investments can remedy market failures, promote investment in environmentally friendly technologies, or foster economic and social development in a particularly economically distressed region. Mr Joaquim Almunia stressed that public policies are very important and that governments must have the most appropriate tools at their disposal to achieve these goals.

Thus, in the second part of his speech, European Union Commissioner Joaquim Almunia gives a historical perspective on the European Commission’s position on state aids, for the time when it was necessary to radically combat them in order to build a single market must now be put into context. He insists that the Commission must take into account whether or not an aid is granted in response to a market failure. He takes the example of the difficulty for small business to access risk capital, due to high transaction costs, which makes this an appropriate situation for state aid. Similarly, he stresses that state aids are justified to support research costs, which markets are not ready to finance, because the risk of research is too important compared to the very long-term return-on-investment horizons.

Thus, specifically mentioning incentive techniques, the European Union Commissioner said that state aid is justified when it is proportionate, or when it causes proper adjustments in corporate behaviour that serve public policy objectives not spontaneously fulfilled by the market. This proportionality is checked by a calculation, that ensures competition is not more damaged than necessary and that the incentive system functions.

Secondly, European Commissioner Joachim Almunia returns to the role of State aids in the global financial crisis. He reminds how the European Commission, in a coordinated way, supervised state aids granted by Member States to their individual finance sectors, by taking into account their respective market situation, and the type of aid granted (guarantee schemes, recapitalisation measures, etc.).

He stressed that such measures must always be congruent with certain fundamental principles such as non-discriminatory access for all establishments to state-sponsored schemes, and appropriate measures taken by the providing state to prevent beneficiary financial institutions from abusing the aid received. The orator stresses that this helped to maintain minimum distortion between Member States’ financial institutions. Going further, this European Community policy is now helping to rebuild viable financial institutions, capable of fulfilling their role in the real economy.

In the third part of his speech, the Commissioner addresses the issue of state aids in a national, supranational and international perspective. Indeed, the European Union itself is a subject of international law, pursuing common European objectives on the international stage. But the principle of implied prohibition of state aids, because they create a distortion of competition between firms that no longer compete with each other on their own merits, is not valid between member states of the EU. He stresses that creating a "national champion" creates "domestic damages" to firms that do not enjoy the government’s favours.

Some member States have a review system for state aids, such as Spain, a system that is required for countries wishing to join the European Union.

As regards the international level, state aid can be an instrument of protectionism, as addressed by the WTO system.

The Commissioner concluded that State Aid is a key element of European policy on competition, in that they help to maintain European Companies at an equal level of competition. They have shown their usefulness in the current context of economic and financial crisis, avoiding a damaging subsidy race between member states and minimizing distortions of competition, which could result from broad state aid distribution programmes by Member States.

But state aids are not solely a European problem. This is also a question of competitive equality at national, supranational and international levels.

Moreover, these rules help governments to use funds where they are most needed and where it is most useful to use them. Finally, these measures help States to best use taxpayers' money where it is most useful.

This speech is important not only because the first speeches of a new commissioner always set the ‘tone’, but also because it clearly shows the role of regulation in competition law when state aids are part of the management of a financial and banking crisis. Indeed, the Commissioner shows that State aids and subventions are legitimate and appropriate tools for States to avoid disasters in these areas. Simply, they raise legitimate concerns as to the use of such tools. Therefore, he posits that the Commission is entitled to calculate the adequacy of their use in relation to the gravity of the crisis, by calculating the magnitude of the means employed, so that we find ourselves at the heart of the meaning of Regulation. The second part of his remarkable speech is on a major problem: the level of regulation and the distortions that this level then implies, while regulatory phenomena are present in both domains. Thus he laments the absence of a regulation for state aids (for hereforth there will be more a regulation rather than a prohibition of state aids) despite the European character of the market, just as his remarks on the existence of an international policy on the subject are simply prospective, although such a regulation would be necessary in order to prevent a rupture in competitive equality.

Finally, the last sentence of his speech, « Ultimately, they help governments assess the effectiveness of proposal subsidy measures, and help channel funds to where they are most necessary and can deliver the most benefit to taxpayers » shows that the theory of regulation fundamentally refers to economic rationality, by correctly using taxpayer money, for example, and is thereby opposed to the traditional theory of the State, concerned with the sovereign will in reference to the mandate given by voters. That is the Gordian knot.