Covid-19 and the transformative power of State Aid: a framework for a democratically legitimate recovery

corona virus

By Julian Nowag and Marios Iacovides

The coronavirus pandemic has led to major shocks to the global economy and the EU Member States, with hardly any State spared. The European Commission estimates that the EU economy will contract by 7.5 % in 2020. Unemployment is forecast to rise from 6.7% in 2019 to 9% in 2020. Within this context, the role of the State has been strengthened. One particular element where the government has stepped in are measures to offer immediate support to companies affected by the fallout of Covid-19. Nearly all countries in the EU have adopted and are developing public support measures for companies. Many of them are also considering how to stimulate the economy after the crisis is over.

In our view, on the long road to recovery, European governments should not fail to see the crisis for what it also is: an opportunity for change, in line with each government’s democratic mandate and election manifesto, as well as the long-term strategy regarding competitiveness and Europe’s place in the world. In many countries, the adopted measures are the biggest stimulus ever made and the post-Covid recovery measures are bound to be even bigger.

Yet, the responses so far seem designed hastily and missing the chance to nudge our economies to transitioning to a post-Covid world as innovation leaders on matters such as environmental protection and social justice. Put differently, the governments around Europe rather than purely reacting to events on the ground should try to shape them. While it might be acceptable to simply react as events were unravelling, the same is not true for the measures that will be adopted for the recovery.

But how should that be done? We suggest that when adopting and implementing Covid-19 support measures for companies and the economy at large, Member States must be guided by two principles: the applicable legal framework and democracy.

Applicable legal framework as outer boundary

The legal framework sets certain limits to the government’s response. Member States are not free in providing support to companies at gusto. Instead, as Members of the EU they have to comply in particular with the EU State aid rules. These rules basically enshrine the principles of non-discrimination and transparency for such measures.

While these rules can be complex in cases, compliance with them should not be a major concern as set out previously on this blog. Governments have numerous experts at hand from within and outside government and the European Commission, which supervises compliance with these rules, has worked with Member States to achieve quick results. Since adopting the Temporary Framework for dealing with State Aid related to the coronavirus crisis, the Commission has so far cleared 130 state aid measures from all Member States except Cyprus (and is continuing to do so), totalling hundreds of billions of euro. It has even set up a 24/7 helpline to advise and guide governments to achieve compliance with the EU rules.

Carrots and sticks in a democratic market economy

This brings us to the second principle, democracy. Governments and the legislators have been elected by the people to foster the wellbeing of our society in specific ways. In a democratic state the majorities’ belief regarding the role of the State and the market and how to best organise these shape government policies and how government spends the taxpayers’ money. Thus, current government policies and spending priorities are and should reflect the democratically expressed wishes of the electorate.

The two main tools of any government to foster the wellbeing of society are incentives and prohibitions, or carrots and sticks if you want. Typically, such sticks are laws that mandate certain behaviour and foresee negative consequences for non-compliance.

However, such command and control approaches have gradually fallen out of favour. Nowadays, incentives are often thought to be more effective and desirable tools. While such incentives can take a multitude of shapes, monetary ones are certainly very effective tools, in particular, with regard to steering market behaviour in certain directions. For example, several Member States have adopted tax incentives for electric cars, and these have not surprisingly boosted demand for electric cars and spearheaded innovation in car production

Covid-19 support and recovery measures should not be any different. Democratic principles and thereby government priorities should be reflected in the measures. One might well ask why taxpayer money should be spent as part of the Covid-19 support and recovery measures on activities that the State would want to discourage or is committed to combat and eliminate. Do we really want to support companies that take advantage of our systems without contributing their share to the common good?

Some Member States, such as Denmark and Poland, have adopted clear and straightforward approaches these matters: conditioning aid schemes on companies not being registered in tax havens. Similarly, the latest proposal in Sweden for support for loss of turnout also includes a proviso that aid will not be given to companies established in tax havens. In the latest amendment to the Temporary Framework, the European Commission has also introduced certain conditions for the aid it allows the Member States to give out in response to the coronavirus pandemic. For instance, as long as Covid-19 recapitalisation measures have not been fully redeemed, beneficiary companies cannot make dividend payments, nor non-mandatory coupon payments, nor buy back shares, other than in relation to the State. Management’s remuneration is also capped at 2019 levels and no bonuses are to be paid.

However, while tax evasion and management pay may be important matters, there are others that rank higher on the policy agenda. And questions need to be asked in similar ways. For instance, do we need to support the fossil fuel industry with tax-payer money? Would this money not be better spent to support innovative businesses in the renewable energy area? Are we comfortable giving aid to airlines without asking them to rethink their business model of ever expanding non-essential travel and low prices? France has given one answer in this regard. It has provided aid to Air France on the condition of Air France reducing domestic flights, thereby moving traffic to less polluting alternatives such as rail.

In the long term, are we sure we should be saving certain sectors and companies that harm us? Sure, we should protect workers and ensure plans are put in place for reorienting the economies of local communities that may suffer because of the transition. But would support to the fossil fuel industry really be in line with Member States’ ambitious targets for the reduction of carbon emissions and the EU’s Green Deal?

Re-building better

In our view, rather than using a shotgun approach of untargeted subsidies to all and everyone, it is worth to pause and think. In this reflection one might distinguish between different categories of criteria. On the one hand one might think of fundamental criteria. Only those companies or sectors that fulfil the fundamental criteria are eligible for some form of support. This approach, exemplified by the Danish and Polish measures, can include the tax residence. A second category is made up of desirable conditions. Companies fulfilling the fundamental criteria could obtain better conditions if they signed up to complying with desirable conditions.

This is feasible and legal under State Aid law. After all, although the measures may seem selective (and thus potentially problematic), the European Commission has accepted the Danish, French and Polish schemes. As an indication of things to come, in the latest amendment to the Temporary Framework, the European Commission notes that it welcomes steps taken by Member States to take climate change into account when designing their support measures, as it considers that such an approach will allow for a more sustainable long term growth and promote the transformation to the agreed EU’s objective of climate neutrality by 2050.

Reasonable people may of course disagree on what constitutes a fundamental criterion and what is a desirable condition. But the categorisation is a political decision that politicians have been elected to make. It is up to them to decide, in line with their priorities and election manifestos. This is why we voted for them. These decisions will also be influenced by the countries’ obligations as EU Member States and their international obligations (for instance the Paris Agreement) and might include for example criteria regarding dividends and executive pay, environmental, labour and fundamental rights.

These are not easy decisions. It might well appear easier to governments to use a shotgun approach of untargeted subsidies when designing their recovery plans from the Covid-19 economic crisis. However, democracy invites us not to neglect those decisions. We need to go further than simply preserving the economy. We should shape the future by fostering competitiveness, innovation thereby future-proofing each Member State and the EU. These benefits are surely worth the effort of not taking the path of least resistance represented by a shotgun approach to subsidies.

Julian Nowag –                                                 Julian is an associate professor at Lund University specializing in competition law and Director of the master programme in European Business Law. He is an associate at the Oxford Centre for Competition Law and Policy as managing editor of The Journal for Antitrust Enforcement. Educated Germany and the UK (LLM in Durham, Master degree (MSt) & PhD at Oxford), he is a qualified lawyer in Germany with his professional training focused on competition law including placements at the German Competition Authority, DG Comp (cartels unit) and Allen & Overy’s German antitrust unit. Julian can be found on SSRN ( and Twitter (@kaleidoscomp).


Marios Iacovides –                                       Marios Iacovides is an Assistant Professor in EU Law at Stockholm University, specialised in Competition Law and World Trade Organization Law. He obtained an LLB with European Legal Studies at King’s College, London, an LLM in European Integration Law at Stockholm University, and an LLD in European Law at Uppsala University. He has represented the Swedish Competition Authority as Legal Counsel on several competition law proceedings at first instance and on appeal and is currently a Non-Governmental Advisor for DG Competition in the International Competition Network. He can be found at SSRN (, Twitter (@mciacovides) and LinkedIn (



Marios Iacovides

Marios Iacovides is an Assistant Professor in EU Law at Stockholm University, specialised in Competition Law and World Trade Organization Law. He obtained an LLB with European Legal Studies at King’s College, London, an LLM in European Integration Law at Stockholm University, and an LLD in European Law at Uppsala University. He has represented the Swedish Competition Authority as Legal Counsel on several competition law proceedings at first instance and on appeal and is currently a Non-Governmental Advisor for DG Competition in the International Competition Network.

Leave a Reply

Related Posts

22. Oct 2020
Features by Stefano Riela

Covid-19 and the geopolitics of the Herfindahl-Hirschman Index

The Covid-19 pandemic has revealed that trade is not a free flow whose tap globalization has turned on for good: export may be restricted due to unavailability and, as in the case of import, as part of foreign policy. What emerged as a discontinuity with the globalization of the last three decades makes the assessment of a market structure more […]
12. Oct 2020
Features by Alexandr Svetlicinii

Two hats on one head: Competition authorities and FDI screening

The Regulation 2019/452 establishing a framework for the screening of foreign direct investments into the Union (EU FDI Screening Regulation) was adopted on 19 March 2019 and became fully operational on 11 October 2020. Its adoption was preceded by the heated discussion on the need to reform the EU merger control framework, which according to some stakeholders, should be able […]
22. Sep 2020
Features by Daniel Mandrescu
Epic, Fortnite, Apple, battle royale, competition law, antitrust, district court, monopolization, monopoly, essential facilities, refusal to supply, tying, abuse of dominance

Epic v Apple (2): market power and foreclosure in the app distribution market(s)

Epic’s battle against Apple has been extensively covered in media in the past month. This attention is undoubtedly due to Epic’s explicit move against Apple’s terms and conditions as well as Apple’s fierce reaction to cut all ties with Epic. Epic’s legal dispute is, however, not only against Apple but also against Google who has removed Epic from its Play […]
04. Sep 2020
Features by Friso Bostoen
Epic, Fortnite, Apple, battle royale, competition law, antitrust, district court, monopolization, monopoly, essential facilities, refusal to supply, tying, abuse of dominance

Epic v Apple (1): introducing antitrust’s latest Big Tech battle royale

Mid-August 2020, a series of events unfolded in a short period of time. They may prove a watershed moment for the role of antitrust in regulating digital markets. It started when gamers playing Fortnite on their iPhone were suddenly faced with a new choice screen when buying in-app currency: What changed is that Epic, the developer of Fortnite, introduced an […]
16. Jun 2020
Features by Virgilio Mouta Pereira

Hitting the mark or setting the bar too high? The “merger gap” and prospective analysis in the aftermath of CK Hutchison/Telefónica

by Miguel Marques de Carvalho and Virgílio Pereira On 28 may 2020, the General Court (“GC”) handed down a landmark judgment whereby it overturned the European Commission’s (“Commission”) decision which had prohibited the four-to-three acquisition of Telefónica UK (“O2”) by Hutchison 3G UK (“Three”). This blogpost provides an overview  of the main points raised by the ruling and offers some […]
09. Jun 2020
Features by Alice Rinaldi
Mobile apps image

Re-imagining the Abuse of Economic Dependence in a Digital World

As proven by the recent consultation on the Digital Services Act, the European Union is actively pursuing new solutions to cope with the challenges posed by digitalization. This post proposes a new approach to conducts taking place in the context of online commercial relationships, such as refusals to access platforms or datasets. Namely, it suggests that the European legislator should […]
19. May 2020
Features by Virgilio Pereira
Amazon logo

Amazon/Deliveroo: Dynamic Counterfactual Analysis and the Failing-Firm Defence

The economic and financial impact of the Covid-19 pandemic foreshadows an increase in the number of deals where the so-called “failing-firm defence” (“FFD”) might come under discussion, as recently demonstrated by the provisional clearance of Amazon’s investment in Deliveroo by the Competition and Markets Authority (“CMA”). This blogpost addresses the interplay between the FFD and dynamic counterfactual analysis, in light of the […]
14. May 2020
Features by Daniel Mandrescu
credit card swiping

Restrictions of competition by object and multi-sided platforms – insights from Budapest Bank

The judgment of the CJEU in Budapest Bank (Case C-228/18) is the most recent case that provides guidance with regard to the application of art. 101 TFEU in the context of multi-sided platforms. The CJEU explicitly confirmed the possibility of finding restrictions of competition by object by such players despite the complexities originating from their multi-sided nature. However, the manner in which […]
23. Apr 2020
Features by Friso Bostoen

Venture capital and antitrust: on exit strategies, killer acquisitions, and innovation harms

Venture capital (VC) is the primary source of financing for early-stage startups bringing their innovation to market. And a disproportionate amount of venture capital goes to startups in the tech sector. However, the last few years have seen a contraction in VC investment, particularly in potential competitors to incumbent digital platforms such as Facebook, Google and Amazon, which some interpret as […]
06. Apr 2020
Features by Rita Paukste

EURIBOR Cartel: Features of Collusion and Detection of Cartel

A colleague of mine (kudos for you know who you are) once told me that in his competition law class he has a part called “how to make a good cartel?” A thought-provoking academic exercise in many aspects, indeed. When analyzing cartels in the financial sector this popped in mind to raise other questions – how participants in cartels in […]

If you are interested, please use our Newletter to stay informed about our upcoming conferences, workshops, trainings and current published journals in our core areas of EU competition, data protection, substances and environmental law, as well as exciting new projects in emerging technologies and digitalisation.

Don’t miss any news and sign up for our free news alert.  Sign up now