State Aid is a term that refers to forms of State-controlled financial resources, given to Undertakings on a discretionary basis, with the potential to distort competition and affect trade between Member States of the European Union.
The State Aid Framework is the EU’s internal subsidy control system
In general, State Aid is prohibited under the Treaty on the Functioning of the EU (TFEU) because of its anti-competitive effects. For example, without State Aid control Member States might engage in wasteful subsidy races, which are non-sustainable, or perfectly healthy companies might be put out of business because their competitors received unfair state subsidies.
However, various categories of schemes are considered compatible, as their positive effects are considered to outweigh their negative impact. The State Aid Framework performs a balancing act of economic policy to prevent distortion of fair competition, while also achieving worthy policy objectives, such as Regional Development, Environmental Protection or to promotion of Research and Development and Innovation (RDI) in Industry.