Solidarity and Competition in the European Union During the Financial and Debt Crisis

The global financial and economic crisis has affected the trade-off between solidarity and competition in the European Union in two respects. Firstly, member state governments are pushing for rapid and extensive assistance for their domestic banks (and non-bank companies). This form of solidarity within member states is, however, subject to European state aid control, which aims to prevent detrimental subsidy races and to ensure undistorted competition within the single market. Secondly, the sharp increase of state aid sanctioned by the European Commission exacerbated the problem of sovereign debt, which has assumed dramatic proportions especially in the south of the EU. A question of priorities consequently arose: Should one trust in solidarity among member states to prevent the looming insolvency of some of them or should competition among the same states be relied upon to induce greater fiscal discipline and stem the increase of sovereign debt. The remainder of this article discusses these two aspects of the trade-off between solidarity and competition within the European Union in more detail