The Coronavirus (COVID-19) pandemic has been declared an exceptional occurrence, paving the way for more and faster approval of national State aid initiatives in the EU.
The massive and unprecedented financial impact on the world economy has led to a number of European governments promising aid to the sectors and companies hit hard by the COVID-19 virus pandemic. Such aid initiatives are of course subject to the European State aid rules and would – in normal circumstances - require prior notification to the European Commission’s Directorate-General for Competition. Non-notified aid or aid that does not conform to the State aid rules must be paid back by aid recipients with interest.
The state aid rules do, however, foresee a possibility for making it easier for Member States to provide aid to make good damage caused by "exceptional occurrences". In a rapid response to the COVID-19 pandemic, the European Commission’s Directorate General for Competition has on 12 March 2020 issued a decision stating that the COVID-19 virus can be considered an "exceptional occurrence" within the meaning of the State aid rules (Article 107(2)(b) TFEU).
A new Temporary Framework to complement the existing State aid toolbox
Further, the European Commission is in light of the pandemic adopting a new "Temporary Framework" (partially inspired by the two temporary frameworks of the 2008 financial crises), which will enable Member States to:
- set up schemes direct grants (or tax advantages) up to €500,000 to a company;
- give subsidised State guarantees on bank loans;
- enable public and private loans with subsidised interest rates; and
- recognise the important role of the banking sector in dealing with the economic effects of the COVID-19 outbreak, namely by channelling aid to final customers, in particular small and medium-sized enterprises. The Temporary Framework makes clear that such aid will be treated as direct aid to the banks’ customers, not to the banks themselves.
The new Temporary Framework complements the existing State aid toolbox with many other possibilities already available to Member States in line with State aid rules – be it general measures to provide wage subsidies and suspension of tax payments for all companies, financial measures in favor of publically owned companies not qualifying for State aid due to a flexible application of the private market investor test or providing compensation to companies for damages suffered due to the COVID-19 outbreak.
Compensation can in particular be useful to support sectors that are hit particularly hard by the COVID-19 pandemic. In this regard, the European Commission has indicated that it is particularly aware of the impact on the transport sector (airlines, airports, ground handling, rail and bus undertakings, maritime companies, etc.) and it must be expected that aid to the transport sector will be a priority for the European Commission.
The European Commission has finally issued a useful diagram showing how Member States can provide short term liquidity support in terms of relief on tax or social contribution, loans or guarantees.
Conclusion
Nobody knows just what the financial impact of the COVID-19 pandemic will be. But for sure the impact will be very considerable and we all see the beginning of it with remote working rules, closures of shops and restaurants, etc.
To stem the worst effects of the financial impact the European Commission has in record time set up a new framework that will allow EU Member States to mitigate the financial impact through grants of State aid. The Temporary Framework and the existing State aid rules are complex and navigating these remains a challenge but nonetheless present a unique possibility for companies as well as State, regional or local authorities to ward off some of the negative financial consequences of the COVID-19 pandemic.
