Illiberal Versus Externally Fomented growth model readjustment: post-GFC state aid in the EU’s semi-periphery

Abstract

Most foreign capital-led, export-oriented Eastern EU member states and the consumption-driven Southern European countries suffered a heavy blow during the Global Financial Crisis (GFC) in 2008–09. The GFC exposed the vulnerability of these economies to external shocks and raised the need for readjustment of their growth models through state intervention. While the rise of illiberal governments drove readjustment in the East, the main driver was externally fomented in the South. This article focuses on state aid, a particular instrument of industrial policy, which has been a main vehicle for growth model readjustment. We seek to explore whether the provision of state aid in the two European semi-peripheries contributes to long-term post-crisis recovery by promoting competitive investments in two Eastern (Hungary and Poland) and two Southern EU members (Portugal and Spain). Relying on the European Commission’s state aid database, we show that after 2013, in the consumption-driven South, governments aimed to strengthen supply through aid, while in the export-oriented East, they were more concerned about promoting exporting firms. The article thus reveals how state aid may preserve and reinforce existing growth models in the semi-periphery even if strategic aims and rhetoric target readjustment.