The EU Commission approves the Italian State guarantee supporting a debt moratorium from banks to SMEs affected by the COVID-19 outbreak

The European Commission has approved the Italian State guarantee supporting a debt moratorium from banks to small and medium-sized enterprises (SMEs) affected by the coronavirus outbreak. The scheme was approved under the State aid Temporary Framework to support the economy in the context of the COVID-19 outbreak adopted by the Commission on 19 March 2020.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “It is crucial for SMEs to have access to liquidity in this extremely difficult situation caused by the coronavirus outbreak. SMEs are the backbone of Italy’s and, more generally, Europe’s economy. To help them get through these difficult times, Italy is providing a State guarantee to support a debt moratorium for SMEs. Today, we have approved the State guarantee under the new State aid Temporary Framework, in close cooperation with the Italian government.”

The Italian support measures

Italy notified to the Commission under the Temporary Framework a State guarantee to support a debt moratorium for SMEs, which includes the postponement of repayments of overdraft facilities, bank advances, bullet loans, mortgages and leasing operations. The measure aims at temporarily easing the financial burden on SMEs that are severely affected by the economic impact of the coronavirus outbreak. The objective of the scheme is to ensure that SMEs have liquidity to help safeguard jobs and continue their activities faced with the difficult situation caused by the coronavirus outbreak.

The Commission found that the Italian measure is in line with the conditions set out in the Temporary Framework. In particular, the guarantee covers a well-defined set of financial exposures and is limited in time: the scheme runs until 30 September 2020 and the guarantee extends for 18 months after the end of the moratorium. Furthermore, the guarantee covers the payment obligations falling under the moratorium, the risk taken by the State is limited to 33% and, in any case, before calling on the State guarantee, financial intermediaries must make recovery efforts themselves. To ensure that the measure benefits only SMEs, who experience difficulties due to the coronavirus outbreak, eligible beneficiaries must not have non-performing exposures prior to 17 March 2020. They also need to certify that their business activity has suffered due to the economic effects of the coronavirus outbreak. This ensures that support is swiftly available and limited to those who need it in this unprecedented situation.

The Commission concluded that the guarantee to provide liquidity for SMEs under the moratorium will contribute to managing the economic impact of the coronavirus outbreak in Italy. The measures are necessary, appropriate and proportionate to remedy a serious disturbance in the economy of a Member State, in line with Article 107(3)(b) TFEU and the conditions set out in the Temporary Framework.

On this basis, the Commission approved the measures under EU State aid rules.

Background

The Commission has adopted a Temporary Framework to enable Member States to use the full flexibility foreseen under State aid rules to support the economy in the context of the coronavirus outbreak. The Temporary Framework provides for five types of aid, which can be granted by Member States:

(i) Direct grants, selective tax advantages and advance payments: Member States will be able to set up schemes to grant up to €800,000 to a company to address its urgent liquidity needs.

(ii) State guarantees for loans taken by companies from banks: Member States will be able to provide State guarantees to ensure banks keep providing loans to the business customers who need them. These state guarantees can cover loans to help businesses cover immediate working capital and investment needs.

(iii) Subsidised public loans to companies: Member States will be able to grant loans with favourable interest rates to companies. These loans can help businesses cover immediate working capital and investment needs.

(iv) Safeguards for banks that channel State aid to the real economy: Some Member States plan to build on banks’ existing lending capacities, and use them as a channel for support to businesses – in particular to small and medium-sized companies. The Framework makes clear that such aid is considered as direct aid to the banks’ customers, not to the banks themselves, and gives guidance on how to ensure minimal distortion of competition between banks.

(v) Short-term export credit insurance: The Framework introduces additional flexibility on how to demonstrate that certain countries are not-marketable risks, thereby enabling short-term export credit insurance to be provided by the State where needed. On 23 March, the Commission launched an urgent public consultation with a view to establish if public short-term export credit insurance should be made more widely available in light of the current crisis linked to the coronavirus outbreak. More specifically, the public consultation aims at assessing the availability of private short-term export-credit insurance capacity for exports to all countries listed as “marketable risk countries” in the 2012 Short-term export-credit Communication. Depending on the results of the consultation and taking into account the relevant economic indicators, the Commission then may decide to remove countries from the list of “marketable risk countries” as a temporary measure.

The Temporary Framework will be in place until the end of December 2020. With a view to ensuring legal certainty, the Commission will assess before that date if it needs to be extended.

The Temporary Framework complements the many other possibilities already available to Member States to mitigate the socio-economic impact of the coronavirus outbreak, in line with EU State aid rules. On 13 March 2020, the Commission adopted a Communication on a Coordinated economic response to the COVID-19 outbreak setting out these possibilities. For example, Member States can make generally applicable changes in favour of businesses (e.g. deferring taxes, or subsidising short-time work across all sectors), which fall outside State Aid rules. They can also grant compensation to companies for damage suffered due to and directly caused by the coronavirus outbreak.

The non-confidential version of the decision will be made available under the case number SA.56690 in the State aid register on the Commission’s competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.

More information on the temporary framework and other action the Commission has taken to address the economic impact of the coronavirus pandemic can be found here.

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European Commission, The EU Commission approves the Italian State guarantee supporting a debt moratorium from banks to SMEs affected by the COVID-19 outbreak, 25 March 2020, e-Competitions March 2020, Art. N° 93964

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