The Emperor Takes off his Clothes: Commission State Aid Forbearance as Orchestrated Industrial Policy

From its origins as a market-oriented project, the EU has experienced a relatively long period of liberal economic governance, during which state intervention in the economy has been severely restricted. From this perspective, the Commission is often seen as a competence-maximising enforcer of liberal competition rules, such as state aid rules. While the influence of free-market ideals in Brussels policy circles has played a role in this aversion to economic interventionism, it is also the result of the fact that the Commission faces severe legal and institutional constraints on its ability to conduct traditional industrial policy. Recently, however, political economy scholars have highlighted the Commission's capacity to conduct industrial policy through the repurposing of market instruments and its role in promoting European integration. This paper contributes to this debate by highlighting the importance of forbearance as a key instrument in the Commission's industrial policy toolbox. Refining claims about the timing of the Commission's recent industrial policy activism, we find that the use of forbearance predates the global financial crisis. Contributing to recent debates on the use of forbearance as an industrial policy tool, we draw on orchestration theory to understand this strategy and highlight the trade-offs inherent in conducting industrial policy through national-level intermediaries. Empirically, we substantiate our claim with a case study of the Commission's (non-)enforcement of state aid rules in the area of official export credits. In conclusion, we reflect on the potential and limits of this stealth approach to industrial policy for European integration.