The Government still ranks among the most generous in the European Union in the amount of money it pays out to subsidise economic activity, according to the latest analysis of state aid published by the European Commission yesterday.

But the Commission commends Ireland's rapid progress in complying with EU demands to reduce the levels of state aid and make them less distorting.

The state aid scoreboard, which is published yearly, assesses the state support given to particular economic activities.

Such state aid is generally regarded as being contrary to the aim of fair competition across a single European market.

"A national subsidy race remains one of the most serious threats to the unity of the common market," said the European Competition Commissioner, Mr Mario Monti.

His report concludes that, in 2002, the most recent year for which figures can be compiled, state aid stood at €49 billion, compared to €70 billion 10 years ago.

Of this total, Germany paid out €16 billion, France €10 billion, and Italy €6 billion. Ireland paid €1 billion.Of the 15 EU countries, only Greece and Luxembourg paid out less in absolute terms.

Per head of population, adjusting the figures for purchasing power, Ireland' s state aid is the third highest in the union after Finland and Denmark, excluding aid to railways.

Finland and Ireland both devote a significant proportion of their aid to the farming and fisheries sectors, but putting those sectors to one side, Ireland still ranks second only to Denmark .

Ireland gains credit for having reduced state aid in recent years.Commission analysis suggests this is partly because Ireland has increased its GDP - state aid levels are measured as a percentage of GDP - but also because reductions in corporation tax have reduced the relative advantage enjoyed by manufacturing companies given tax breaks, which the Commission regarded as state aid.

The European Commission wants governments to switch aid away from sector-specific assistance.