Over the last years, geopolitical events such as the Covid crisis, the Russo-Ukrainian War, and the closure of the Strait of Hormuz combined with a global rise of protectionism and instability have put the European industrial sector under high competitive pressure. As a reaction, the European Commission’s Directorate-General for Competition (DG Competition) has adopted five state aid frameworks since 2020. This policy brief shows that alongside investment aid, DG Competition has increasingly allowed member states to use operating aid by raising maximum aid intensity and broadening the sectoral scope throughout the frameworks. This is highly concerning, since operating aid is an expensive policy tool with potentially high distorting effects on the single market and questionable long-term effectiveness. Against this backdrop, this policy brief proposes a new permanent state aid framework for operating aid. This framework is built around two conditions that apply at the sectoral level. The first condition guarantees that operating aid is limited to strategic industries, while the second condition requires that such industries only receive operating aid when they are under acute threat of permanent loss of productive capacity due to an external crisis. Furthermore, to prevent waste of government money and to protect the single market the proposed framework includes safeguards such as time limits and clawback mechanisms.

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