Augustín Reyna and Kati Cseres argue that while state aid may be necessary in the midst of the COVID-19 pandemic to support struggling economic sectors and businesses, it is nonetheless important that businesses comply with existing consumer rules and that Member States protect consumers’ fundamental rights. Ultimately, the authors argue, state aid must internalise the interest of consumers and citizens to make state resources truly beneficial to the society as a whole.
We are living through unprecedented times. Since the outbreak of the pandemic, countries around the globe are facing multiple crises at the same time: a health crisis, a financial crisis, and a collapse in commodity prices. As a reaction governments and policymakers are providing unparalleled economic support to firms, financial markets, and households.
In the European Union such support is mostly given in accordance with the EU’s State aid rules, which allow under certain circumstances Member States to provide support to the private sector in different forms, e.g. direct grants, exceptions to taxes and levies, free-interest loans, etc. In practice, Member States must notify the European Commission about their intention to provide support to a sector or number of companies. The Commission then gives green light or blocks the aid for being incompatible with the rules of the Treaty. As a consequence of the crisis and the harm to Member States’ economies, the EU’s state aid rules have been amended and made more flexible to help national economies and save jobs.
While all this makes sense, the unavoidable question is who will foot the bill? The answer is clear: all of us, as consumers and taxpayers.
In order to prevent the disruption of competition when companies obtain support that is not needed to face the direct effects of the pandemic, the European Commission set out some clear parameters in what is called a “Temporary Framework.” This framework guides Member States in choosing the type of aid that may have to be provided to the private sector as long as the crisis lasts. Examples range from support to develop treatments and infrastructure for COVID-19 patients to financial aid to the tourism sector, heavily impacted due to the mass cancellation of holidays and trips throughout the health crisis. The Commission has already approved over 120 State aid decisions and counting.
When assessing the need for government support, the Commission needs to take into account whether State aid is necessary, appropriate and proportionate to remedy the serious disturbance or disruptions caused by the pandemic. This proportionality test is of extreme importance to avoid Member States providing aid to inefficient companies who were already unviable before the outbreak. With the help of state aid these companies could potentially undercut and push out of business unsupported but viable firms.
Don’t forget consumers
The current crisis, however, has not only had immediate and severe impact on basically all sectors of the economy, but also seriously harmed individual consumers. And while both the EU Commission and the Member States have been fast to provide instant financial support for their undertakings, such a swift reaction to consumers’ financial impairment has been largely absent or late-coming.
Case study: state aid for airlines
As an illustration, consider the massive state support amounting to several billions of Euros given to various airlines across Europe. Some airlines have even been lobbying their governments to relax the consumer rules and their obligations to comply with them. At the same time, how many passengers have seen their flights cancelled and are still waiting to get the refund of the unused tickets?
Consumers, who include us all, are entitled to certain rights as passengers that are protected by EU law. Airlines cannot refuse to honour these rights relying on the crisis and claiming they lack financial reserves to refund consumers. These same airlines are turning to their national governments for financial support.
If Member States help and financially support airlines without guaranteeing the reimbursement of passengers, consumers will end up paying twice: first as passengers who did not get their money back for services they paid for and then as taxpayers whose money is financing the financial support of these airlines. For example, the support to Lufthansa by the German government will cost to German taxpayers 6 billion Euros, while KLM receives about 4 billion Euros support from Dutch government and thus Dutch taxpayers.
State aid and consumer law
Legally speaking state aid law and consumer law are two different areas of the law. But in reality, they are very much connected. First, despite the fact that state aid law is concerned with competition among Member States rather than among firms, it still has crucial impact on consumers. State aid could cut a company’s marginal costs and lead to lower prices in the short term and thus to higher consumer welfare. But state support can also lead to restrictions of competition in the mid or long term, in the form of higher barriers to entry, therefore reducing consumer choice and incentives to innovate in the long-run.
State aid state support for efficient undertakings can benefit consumers, while state aid to inefficient market players is likely to reduce consumer welfare in the long-term.
Second, the relevance of (social) EU policies has increased in the past fifteen years of modernization in EU state aid law. The modernization programmes have linked the state aid rules to wider political priorities such as environmental protection, energy transition, social and territorial cohesion.
Third, under the EU Treaty all EU institutions, including the Commission and the Member States have the obligation to take consumer protection requirements “into account in defining and implementing other Union policies and activities” (Article 12 TFEU), a principle that is also laid down in the EU Charter of Fundamental Rights (Article 38). This legal precedent creates a constitutional basis for considering the requirements of consumer protection in the whole body of EU competition law and policy including the Treaty’s state aid provisions.
Therefore, when designing supportive measures, Member States should consider the impact of such measures on consumers and where appropriate also impose conditions on the beneficiaries of the aid to ensure that there is a return in investment for the general public. Examples of this include making sure that treatments for COVID19 developed with public funds are widely available and at a reasonable price or providing aid to airlines upon the condition they reimburse passengers.
The current crisis is challenging every sector of the economy. One lesson of the pandemic is that we need to build a more resilient and sustainable economy. State aid can serve that objective, but it must internalise the interest of consumers and citizens to make state resources truly beneficial to the society as a whole.
Note: Augustín Reyna and Kati Cseres also published the related paper ‘EU State Aid Law and Consumer Protection: An Unsettled Relationship in Times of Crisis’ in which they explore the legal aspects of EU State Aid and consumer protection more in-depth.
Augistín Reyna is Director of Legal and Economic Affairs at BEUC, the European Consumer Organisation. In July 2020 he succesfully defended his PhD thesis at the University of Bremen.
Kati Cseres is an Associate Professor of Law at the Amsterdam Centre for European Law and Governance (ACELG), University of Amsterdam. She is a Senior Fellow of the Amsterdam Center for Law & Economics (ACLE). She is editor of the Journal Legal Issues of Economic Integration. Kati has been Non-governmental adviser to the Netherlands Authority for Consumers and Markets (ACM) between 2014 and 2020.
Kati’s research expertise lies in EU competition law and consumer law,where she investigates how legal rules, formal and informal institutions of consumer and competition laws are connected and reinforced in market design and oversight. Her research agenda focuses on fundamental transformations in societies and economies that disrupt prevailing models of competition law enforcement and consumer law