Financial Institutions and Markets

Author: Melis Uslu

Introduction

The European Union continues to be an important investment center for foreign investors. According to data from the European Commission's "Second Annual Report on the monitoring of foreign direct investment in the European Union", the European Union received €117 billion worth of foreign direct investment in 2021. Compared to 2020, the number of acquisitions in the European Union increased by 32% and the number of greenfield investments by 12%. In 2021, 32.3% of acquisitions were from the United States and 25.6% from the United Kingdom, while 39.4% of greenfield investments were from the United States and 20.9% from the United Kingdom.

 

The European Union imposes strict rules on financial aids from member states to undertakings. Member states have to notify the European Commission about the state aid they receive, and the European Commission has the power to prohibit such state aid. However, these rules on state aid from member states do not apply to financial aids from third countries. Whereas, just like financial aids from member states, financial aids from third countries also carry the risk of distorting competition in the internal market of the European Union. Moreover, while undertakings receiving financial assistance from Member States of the European Union are subject to strict scrutiny, undertakings receiving financial assistance from outside the European Union are not subject to similar scrutiny, which creates inequality among these undertakings. The Foreign Subsidies Regulation, which was prepared by the European Commission in order to ensure a favorable competitive environment in the internal market of the European Union and to eliminate the legislative gap on foreign subsidies, was published in the Official Journal of the European Union on December 22, 2022 and entered into force on January 12, 2023. The Foreign Subsidies Regulation will be implemented as of July 2023. On the other hand, the draft regulation on the implementation of the Foreign Subsidies Regulation was opened for consultation on February 6, 2023, but has not yet entered into force.

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