2.3.4. Distortion of Competition; Affecting Trade between Member States

For a state aid measure to be caught by the prohibition ot Article 87 EC, a measure

must further distort competition as well as affect trade between the Member States.

In respect of the first of these two requirements, once it has been established that state

aid is provided, the conclusion that the aid distorts competition is almost automatic.

As state aid must benefit certain undertakings or production of goods, the competitiveness

of the recipient(s) is increased vis-a-vis its competitors. It therefore concerns very

nearly a per se rule.'"" The risk of distorting competition is considered especially high

in the case of aids to firms in financial difficulty, aiming to prevent their liquidation

and market-exit with a reallocation of resources."" The Commission regards aid in

these circumstances with particular concern. ' I b i s is well reflected in the Commission s

policy and practice. For instance, in its decision concerning aid by Spanish authorities

to Mcgafcsa the Commission stated:

Aid to firms in difficulties carries the greatest risk of transferring unemployment

and industrial problems from one Member State to another; it acts as a means of

preserving the status quo by preventing forces at work in the market economy from

their normal consequences in terms of disappearance of inefficient firms in their

process of adaptation to changing conditions in competition."

The detrimental effects of this type of aid is not limited to global distortions - between

Member States - but may also concern generic or specific - between sectors or undertakings-

distortions."- Thus in Hestwooif concerning German state aid in an attempt

to rescue a previously privatised company, the Commission observed that

the aid was intended only to maintain the status quo and postpone the inevitable,

while at the same time it transferred the attendant industrial and social problems

to other, more efficient producers and other Member States rather than supporting

a restructuring process which should have been initiated when the rescue aid was

granted."'

Section Two. Community Law and Cross-Border Insolvency Regulation

Iii respect of the requirement of'Articlc 87 EC that the state aid must affect the trade

between Member States, it should be noted that the Commission has adopted a Regulation

concerning a tie minimis exemption for state aid.'" The notice sets a threshold

of 100.000 EUR granted over three years. Aid not exceeding this figure will bo presumed

not to affect trade between Member State and is exempted from the requirement

of prior notification.''