that do not operate in market conditions, or as efficient as the markets would want them to. Governments are made up from politicians who are keen on being re-elected to their office. This makes them susceptible to influence from voters, public opinion shapers, lobbyists and even donors to political campaigns. The situation when decision making might be influenced by those players is called government failure. The effect of a government failure in the state aid field is that state support might be directed to the wrong recipients. As a result, subsidies end up being a misused political tool that does not achieve what it is intending to, which is public welfare.178
A perfect example of state aid being used as a political tool for the government to intervene in the economy is the Greek Business Reconstruction Organisation: in the 1980’s and shortly after the accession of Greece to the then European Communities, the new socialist Greek government implemented a programme for the restructuring of privately
177 Article 26 TFEU [2012] OJ C326/47.
178 C Buelens et al., ‘The economic analysis of State Aid: some open questions’, (European
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owned companies that were considered too large to fail, because of their importance in terms of employment, production and exports in the total of the Greek economy.179
The specific measures contained in this law that were scrutinised by the Commission were recapitalisation schemes for companies that came under the control of the publicly owned Business Reconstruction Organisation, in the form of the conversion of the companies’ debt into equity capital held by the Organisation and the National Bank of Greece. The European Commission authorised those schemes as compatible with Article 92(3)(b) EC,180 (which is now Article 107(3)(b) TFEU), and acknowledged this vast restructuring programme under the condition that State aid measures would be individually notified and assessed.181 This was one of the few cases that a State aid scheme was authorised under the provisions of Article 107(3)(b) TFEU, because the Commission favours the provisions of Article 107(3)(c) TFEU. The scheme was justified because of the ‘problems and structure of the Greek economy’ which ‘indicated that the crisis was not a sectoral one but covered the whole economy’.182
The BRO was a clear attempt of state intervention in the economy, unprecedented in the recent history of Greece, because it allowed the state to intervene into failing private companies, by depriving the owners of their right to manage their company. It did not go as far as to deprive them of
179
Greek law 1386/1983 ‘Regarding the Business Reconstruction Organisation (BRO)’ Government Gazette 107/8-8-1983 vol. A.
180
Concerning law 1386/1983 by which Greek Government grants aid to Greek industry Commission Decision 88/167/EEC [1988] OJ L76/18.
181
Commission of the European Communities, (EC) XVIIth Report on Competition 1987 in <http://bookshop.europa.eu/is-bin/INTERSHOP.enfinity/WFS/EU-Bookshop-Site/en_GB/- /EUR/ViewPublication-Start?PublicationKey=CB5087340> accessed on 14/11/10.
182
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their ownership rights, because this would be clearly unconstitutional.183 The BRO was dismantled in the 1990’s when more centre-right and centre- left governments started privatisation programmes of state owned companies. There are reports in the media though, nowadays, that a revival of this type of Organisation, probably adjusted to the current conditions would be a possible solution to the crisis that Greece is facing in recent years.184 This is why the above analysis is not a relic of the past, but an important link in the chain of State aid measures in Greece.
Due to the inherent problems of the structure of the Greek economy, the State is obligated to intervene in the economy and provide solutions in sectors of the economy that the private sector failed to provide. The financial institutions sector is characterised of concentration among five big banks, in many of which the State was the main shareholder in the past, or still is nowadays in a lesser amount. This concentration led to inadequate issuing of new loans to undertakings or the substantial slowness of the approval process.185 As a result, the liquidity problems in the market drive the State to grant aid.
Apart from the inherent structural problems, the Greek State’s policies themselves have been hindering substantial growth of the economy that should be based on free and competitive market conditions and not aid.
183
A Gerontas Public Financial law (Ant. N. Sakkoulas, Athens- Komotini 1989) 339.
184
Georgios Manetas, ‘Eleourgiki, Atlantic, Enom. Klostoifantourgia: A government... crutch for bank loans’ Imerisia Online newspaper (Athens, 15-11-2010)
<http://www.imerisia.gr/Article.asp?catid=12334&subid=2&pubid=76019148 >accessed on 15-11-2010: ‘The current situation brings to many peoples’ mind of the early 1980's, where the State through the famous Reconstruction Organization (BRO) acquired control of once-strong companies that collapsed. Then it was the explosive rise in interest rates over 20%, today is the economic crisis and lack of liquidity in the market forcing the state to stretch out a helping hand and help to save large corporations employing thousands of workers’. Researcher’s own translation.
185
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From being a mainly agricultural economy in the 1950’s and much of the 1960’s, Greece changed to become a mainly industry and services based economy in the 1970’s, over a decade. The change did not happen smoothly but rather abruptly, and with lack of real plan for the confrontation of the consequences on the environment, which put the burden for providing solutions to the enterprises. But in order for them to do so, they were in need of capital, which was not always available from the financial institutions. Once again, the state needed to cover the gap it had created by its own actions, or failures.
2.5.4 Other types of distortions of competition caused by state aid –