Chapter 4: The Role of Economics in State Aid Analysis and the Balancing Test
4 The role of economics in State aid analysis and the balancing test Lorenzo Coppi Economics did not suddenly drop out of the sky in 2005 like the famous apple which hit Isaac Newton on the head. Like gravity, economics have always been there, playing a part in determining whether a measure constitutes state aid or not, and whether or not it should be allowed. But if truth be told, even if we knew economic analysis was useful, we did not always make systematic use of it. With the State Aid Action Plan, we therefore set out to refine our thinking, and to develop a single methodology to assess the effects of aid – the so-called ‘balancing test’. Neelie Kroes 2007. Article 107(1) TFEU states: ‘Save as otherwise provided in the Treaties, any aid granted by a Member state or through state resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market’ (emphasis added). Articles 107(2) and 107(3) lay out several exceptions, that is, circumstances in which the aid may be considered compatible with the Treaty. The concepts of distortion of competition and effects on trade in the general prohibition of State aid are eminently economic concepts, suggesting that an economic analysis should be required in order to determine whether aid would be in violation of Article 107(1)...
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