The Court of Justice Allows Member States to Compensate the Undertaking of their Choice: a Critique

State aid that compensates for damage caused by natural disasters or exceptional occurrences can run into many millions. It has the potential to cause a serious distortion to competition in the internal EU market. Yet, Article 107(2)(b) declares that aid compatible with the internal market without any prior assessment of its positive and negative effects by the Commission. This immediately raises the question - why is that aid considered by the TFEU to be compatible with the internal market? A corollary question is whether compensatory aid can be granted only to some of the undertakings harmed by a natural disaster or exceptional occurrence. The Court of Justice has recently answered the latter question by ruling that compensatory aid for a limited number of beneficiaries is not excluded by Article 107(2)(b). This paper argues that the latter question cannot be answered without deriving a plausible answer to the former question. Given the structure and overall objective of Article 107, a plausible answer is that compensatory aid tends to restore rather than distort competition. Therefore, compensatory aid that is granted to a limited number of beneficiaries is likely to be discriminatory beyond the extent that is inherent in any State aid measure and to cause excessive distortion of competition.