Watchdog finds European Commission failed to assess competition impact of post-Covid aid

The European Commission failed to assess the market impact of a slew of temporary state aids schemes introduced in the wake of the COVID-19 pandemic and their effect on competition remains unclear due to lack of transparency on spending, the European Court of Auditors (ECA) found in a report published on Wednesday.

The pandemic and the impact of the Ukraine war on the EU has led member states to pour an enormous amount of money in their economies through state aid, rising from €120 billion before the pandemic, to peaks of €320 billion in 2020 and 2021, before dipping again to almost €230 billion in 2022. “We don’t know if the single market suffered [as a result of these aid packages] however,” ECA member Marius Hyzler said during a press conference.

While state aid spend is usually closely monitored by the Commission to ensure no adverse impact on competition in the single market, the EU enforcer loosened state aid rules several times in response to the pandemic and Russia's invasion of Ukraine war. It has also adopted new rules designed to ease the grant of subsidies in response to the American Inflation Reduction Act – through which the US granted fiscal benefits to domestic green industry.

But the auditors’ report found that despite the Commission studying the impact of state aid related to COVID-19 on turnover and on the probability of default of undertakings, it failed to investigate the effects on competition. The Commission’s study only concluded that state aid played a significant role in helping firms throughout the crisis, the auditors recalled.

“Since reliable data from member states was lacking, the study [of the Commission ] was limited to Spain, Italy, and Poland, thereby omitting those member states with the highest state aid expenditure,” the report pointed. “The Commission has not yet planned an evaluation of the impact of the Ukraine crisis framework,” auditors added. The report also points that the Commission did not vet unnotified state aid.

Due to the lack of transparency on how the money was spent, the auditors were also unable to assess the potential inequalities between larger and smaller EU countries.