Competition in the common market can be distorted not only by the behaviour of undertakings, but also by State intervention. The arguments adduced by governments for intervening in economic activities are numerous, but they all have a socio-political ring: to prevent the closure of undertakings which might give rise to collective redundancies, which are unacceptable in social and regional terms. At national level, undertakings experiencing difficulties make public opinion and the official authorities aware of their predicament, especially when they are big companies, regarded as "flagship undertakings" and/or they occupy a large number of workers whose jobs are endangered.
The social and regional consequences of structural changes should indeed be attenuated, but the changes themselves should not be opposed by artificially ensuring the survival of obsolete industries or sectors in decline. The question should be asked, on a case-by-case basis, whether aid is really needed, rather than a radical change in production structures and methods, and whether aid for an industry in difficulty in one Member State of the EU might not harm the interests of the same industries established in the other Member States. It is, indeed, obvious that State intervention may involve a conflict of interests between the economic operators benefiting from such intervention and their competitors in the other Member States, which will be placed in a less favourable position and will press their governments to redress the situation. Unilaterally conceived State initiatives cannot, therefore, but trigger reciprocation from partner countries and lead to costly operations for everyone. In order to avoid retaliation from partner countries and squandered resources, therefore, a "code of good conduct" is needed for the Member States in this area.
In fact, as other forms of protectionism recede, the importance of State aids as an anti-competitive mechanism tends to grow. Beyond their negative effect on competition, State aids can also have serious implications for economic cohesion within the EU [see section 12.1.2]. Large and well developed Member States are able to outbid less developed Member States on the periphery of the Union in the aid race. Indeed, the four largest Member States account for 88% of all aid granted in the Union.
Aid of a regional character was examined in the chapter on regional development [see section 12.2.1]. The following paragraphs look at other State operations: general aid, sectoral aid, national monopolies and public undertakings.
The Commission processes more than one thousand aid applications every year. The annual total amount of aid in the EU-15 stands at around EUR 50 billion, around 70% of which concerns horizontal objectives of common interest, such as strengthening economic and social cohesion, protection of the environment, promotion of research and development, and small and medium-sized enterprises. All the Member States grant aid to their companies, but the percentage of GNP absorbed by this aid varies from 2% to 4%, with the highest percentage granted by the wealthiest countries. National aids, useful or otherwise, may distort competition between undertakings, some of which enjoy subsidies or tax reductions while others do not. It is this harmful impact on competition which prompts the Commission to take action on behalf of the Union, particularly when the aid granted runs counter to the cohesion objective because it is to the detriment of the poorer regions of the Union [see section 12.1.2]. In order to instigate a reduction of the overall level of State aid as a percentage of gross domestic product, the Commission has taken steps on a number of fronts, such as: devising indicators of the effectiveness and efficiency of State aid; intensifying the assessment of the impact of aid on competition on the basis of economic criteria; and encouraging exchanges of experience and concerted evaluation exercises [COM/2002/555].