STOP IT! YOU’RE SPOILING IT! - The (un)desirable consequences of state aid in face of the 2008 economic crisis

Abstract

During the 2007-2008 global economic crisis it took not long until the crisis swapped over from affecting banks to affect the real economy. Governments saw the need to act in order to strengthen their economies facing recession. Supporting the real economy was a lower-ranking priority than saving banks, yet specific crisis state aid schemes have been implemented. Due to the single European market these measures had to be approved by the competition agency of the European Commission. The thesis uses the concept of resilience to study the coping of an economy with a crisis. Resilience is carefully deconstructed into short-term resilience, containing resistance and recovery from a crisis and long-term resilience which incorporates reorientation and renewal. Qualitative causal process tracing is applied to uncover the links between crisis impact, state aid and economic resilience in EU economies. The research finds that asking for state aid schemes at the Commission as well as granting state aid was influenced by the crisis magnitude. Furthermore, state aid had a positive effect on the resistance and recovery. However, this effect is rather measured in qualitative implications because it helped avoiding a credit crunch within an economy. The long-term effects turned out to be negative as expected. Firms that were granted aid were less likely to reorient after a crisis nor were they restructuring, because they were kept alive by state aid. Since beneficiaries of subsidies mostly opted for schemes that were not connected to sustainable provisions governments failed to foster so called smart growth. Word count: