The European Commission will next month spell out plans for a sweeping overhaul of the European Union's state aid regime, which will make it harder for governments to bail out large, struggling companies.
The regulator, which has the power to scrutinise and block governments from subsidising businesses, will promise to subject all such payments to rigorous economic analysis.
It plans to permit subsidies only if the material benefits of the payment outweigh the costs to the wider market.
In principle, the commission wants state aid to be paid only to correct "market failures" - for example, to address small companies' inability to receive bank lending or to entice the market to provide services "beneficial to society", such as public broadcasting.
Subsidies may also be justified to boost business innovation, investment in research and development, social cohesion, cultural diversity and the environment, the commission will say in its paper.
According to a draft of the paper, "state aid should only be used when it is an appropriate instrument for meeting a well-defined objective, when it creates the right incentive, is necessary and when it distorts competition to the least possible extent".
The paper follows up on promises made by Neelie Kroes, the European Union Competition Commissioner, who promised earlier this year to make reform of Europe's state aid regime one of the hallmarks of her tenure.
She is thought to be sceptical of some of the Commission's past state aid decisions, such as allowing a government-backed bail-out of Alstom, the French engineering group, last year.
Officials said that the commission's approach could make it more difficult for governments to engineer such bail-outs of companies in future.
Grants to entice large corporations to invest in a country or region would also be likely to receive a more hostile reaction in Brussels, particularly if their investments were not linked to innovation or research and development, officials added.
Frank Montag, a Brussels-based partner and state aid specialist at Freshfields Bruckhaus Deringer, the law firm, said the changes were welcome: "It is good that they are trying to find a more economic approach. In the past, its analysis has been a bit simplistic."
Economic analysis is already playing a much bigger role in the regulator's assessments of mergers and antitrust violations.
This followed a string of court defeats in which the regulator's decisions were criticised for failing to examine the economic impact of certain transactions.
