Conspicuous by its Absence: Explaining Ireland’s Minimal State Aid Response to the COVID-19 Pandemic

Christopher McMahon, Trinity College Dublin 

 

It was recently reported that among EU Member States Ireland has spent the least on pandemic-related State aid in the past year in proportion to its GDP. Ireland has spent €0.93 billion in State aid to businesses which amounts to 0.26% of GDP. The contrast with the countries at the other end of the European Commission’s State Aid Scoreboard is stark. France, which spent the most in absolute terms, granted €155.36 billion in aid amounting to 6.4% of GDP. Spain, which spent the most as a proportion of its GDP, granted €90.85 billion or 7.3% of GDP. Further, while there have been only 8 Commission decisions on different measures implemented by Ireland relating to the pandemic, 38 such decisions have been taken for Denmark, 31 for Italy and 22 for France. 

 

While Ireland is not a complete outlier, with 8 other Member States granting less than 1% of GDP, the headline figures give the impression that Ireland is either very fiscally conservative compared to its neighbours or very unwilling to use aid to deal with the pandemic, or both. This invites consideration of the reasons why Ireland sits at the bottom of this table despite the well-publicised and unprecedented income supports that have already been put in place in this jurisdiction.

 

The EU State aid regime 

First, it is worth taking a moment to consider what State aid is and how it is regulated in the EU. Articles 107-109 TFEU are designed to prevent Member States from handing out public money to private businesses. Article 107 TFEU sets out a general prohibition on State aid. State aid is defined loosely in the European Treaties and has been interpreted by the case law of the Court of Justice of the European Union to mean any measure that meets four conditions. The first is that it must be granted by the State or through State resources. Second, it must confer an advantage on an undertaking. Third, it must be selective in that it is targeted towards a relatively narrow group of undertakings rather than being a general measure applying to all undertakings in a comparable legal and factual situation. Fourth, it must have the potential to distort competition in the internal market and affect trade between Member States. All new aid must be notified to the Commission before it is implemented so that it can be reviewed for its compatibility with the internal market. 

 

Pandemic response of the European Commission

While Article 107(3) sets out general grounds on which the aid can be held to be compatible, the Commission has a lot of discretion in this area and frequently adopts guidelines on different types of aid. One such set of guidelines is the Temporary Framework which was adopted in March 2020 to allow Member States to grant more aid to respond to the pandemic. This has been amended on five occasions since then and it has been extended to aid measures granted no later than 31 December 2021. These rules are relatively permissive and allow aid for temporary income supports for businesses, the purchase of equipment to reduce infection risk and research into COVID-19. These rules, combined with the extremely low cost of borrowing for EU Member States throughout the pandemic, would appear to make the prospect of granting aid considerably more attractive. 

 

Ireland’s State aid response to the pandemic 

However, Ireland has not implemented very much aid. At the start of the pandemic, the Irish government notified a scheme of repayable advances to companies to adapt to COVID-19 restrictions. This was followed by various schemes of direct grants to restart businesses in the summer of 2020. Grants were also provided for research into COVID-19 and for investment into upscaling production of medicines and medical equipment to treat the disease. Indeed, the Irish government offered aid to pharmaceutical companies with manufacturing plants in Ireland to produce vaccines in Ireland but this was refused on the basis production facilities in Ireland were at capacity producing other medications. From August 2020 onwards, the aid measures were more targeted and were granted to businesses in the hospitality, entertainment and tourism sectors. 

 

Broad measures are not State aid

Before jumping to conclusions about the reluctance of the Irish government to spend money to support the ailing economy, it is important to note that not every State intervention will count as aid. It will be recalled that the State aid rules only apply to aid measures that are granted to undertakings rather than to citizens. This means that social welfare payments to citizens in the form of the Pandemic Unemployment Payment do not come within these rules. Further, it will be recalled that the prohibition on aid only applies to measures that are targeted towards specific groups of undertakings rather than general economic policy measures. This means that very general schemes, such as the Temporary Wage Subsidy Scheme and the Employment Wage Subsidy Scheme that replaced it, will not come within the general prohibition because they are offered to undertakings in general, subject to criteria relating to the impact of COVID-19 on their businesses. As the restrictions on economic and social activity arising from the pandemic begin to subside, these support measures may become more targeted to specific industries and more aid notifications may be required. 

 

Irish economy and aversion to aid

However, one must look further to find reasons why Ireland differs from other Member States in this respect. One reason might be that calculating aid as a proportion of GDP is problematic for Ireland. There are concerns about the accuracy of this measure for Ireland and its tendency to overestimate the size of the domestic economy due to the large presence of multinational companies in the State. This means that the proportion of the income the Irish government really has available to it may be underestimated by this measure. Another might be that the Irish economy has not been the worst affected by the pandemic, with its reliance on knowledge economy workers as well as pharmaceutical and technology manufacturing industries. Indeed, Ireland was the only EU country to enjoy a positive GDP growth rate in 2020. This may mean that less extensive supports are needed compared with other countries.

 

Despite these mitigating factors, it seems as though Ireland has at least something of an aversion towards State aid. Notwithstanding the continuing dispute over what an allegedly very large grant of aid to Apple through the tax system arising from a Commission decision in 2016 which has since been overturned and remains the subject of a further appeal, the reluctance of the government to resort to such measures in the pandemic is not inconsistent with policy over the last number of years. Excluding aid related to the financial crisis, Ireland has consistently been among the Member States granting the lowest amounts of State aid in the past few years, with the amount of aid in absolute terms granted by the State declining by almost two thirds between 2010 and 2017. This may simply be a policy choice on the part of the Irish government and the model of capitalism it has chosen to adopt. It has been suggested that strict application of the State aid rules has different effects on different models of capitalism, posing particular problems for more coordinated economies such as that of Germany. Ireland organises its economy quite differently. Outside the banking sector, Ireland does not have the same level of public ownership of industry that is seen in other Member States. A clear example of this can be seen in the decisions of other Member States to grant aid to national airlines and the Irish airline Ryanair’s unsuccessful attempt to challenge the approval of such aid from Sweden and France as unlawful. That being said, Ireland has paid lower levels of aid as a proportion of GDP than the UK since 2014, which might also be regarded as diverging from continental norms. It may be that Ireland has a particular aversion to the administration costs and review mechanisms that often come with notifying aid and is more willing to design measures so that they avoid the prohibition altogether. 

 

As a final point, it is interesting that despite this apparent preference for avoiding the State aid rules and the notification process altogether, the Irish government has not frequently cited the State aid rules as a reason for refusing to embark on a particular policy. This contrasts with its apparent willingness to cite the Constitution as obstacles to implementing a range of different policies, a practice which has been criticised in an earlier post on this blog by Rachael Walsh and elsewhere by David Kenny and Conor Casey. Given the potential of the State aid rules to touch on a very wide range of policies, they could easily become an alternative legal scapegoat. This may be particularly likely as more targeted supports replace the general schemes from the pandemic and the government’s need for support from the EU institutions in dealing with Brexit becomes less acute. 

Christopher McMahon is a PhD candidate at Trinity College Dublin. He holds degrees from Trinity College Dublin and the University of Oxford and was called to the Bar of Ireland in 2020.

 

Suggested citation: Christopher McMahon, ‘Conspicuous by its Absence: Explaining Ireland’s Minimal State Aid Response to the COVID-19 Pandemic’ (6 April 2021) https://tcdlaw.blogspot.com/2021/03/conspicuous-by-its-absence-explaining.html