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Pandora's box and the delphic oracle : EU cohesion policy and state aid compliance

Wishlade, F.G. and Michie, R. (2009) Pandora's box and the delphic oracle : EU cohesion policy and state aid compliance. [Report]

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The relationship between EU Competition policy and EU Cohesion policy is at best one of ambiguity and at worst one of direct conflict. While EU Cohesion policy explicitly intervenes to alter economic outcomes, EU Competition policy aims to ensure that State intervention does not interfere with the smooth functioning of the internal market or distort competition to an extent contrary to the common interest. EU Competition policy predates EU Cohesion policy by several decades. EU Cohesion policy in its current form dates back to the end of the 1980s, which saw the radical restructuring and upgrading of a policy that had until then largely been an adjunct to national regional policies. By contrast, EU Competition policy was enshrined in the Treaty from the outset. It is clear that, back in the 1950s, the authors of the Treaty perceived the risks to the common market that lay in allowing Member States unfettered use of subsidies. Moreover, although the original provisions have been subject to extensive interpretation, the fundamental principle has remained unchanged since the outset: State aid which distorts or threatens to distort competition in the EU is prohibited, subject to certain exceptions. Given this context, EU-sponsored intervention in the form of the Structural Funds arguably sits uneasily with the precepts of State aid control, and there remain significant conceptual and practical difficulties in reconciling EU Cohesion and Competition policies, especially given that the Structural Funds Regulations impose specific requirements on the Member States which make State aid compliance issues of particular relevance to Structural Fund Managing Authorities. The aim of this article is to explore those issues and examine how they have been addressed in practice. It draws on a mix of desk research and interviews with staff working on the implementation of Structural Funds programmes and in State aid compliance. The article starts with an examination of definitional issues associated with State aid and briefly reviews the scope of admissible aid. It then covers the institutional and procedural arrangements for ensuring compliance with the State aid rules, and concludes by highlighting some key areas of difficulty where tensions remain unresolved.