The EU Commission implements a specific and temporary framework for State aid measures to support the EU economy during the COVID-19 outbreak

The current health crisis related to the Covid-19 outbreak has forced several Member States of the European Union (hereinafter the “EU”) to take exceptional containment measures of their population which have resulted in a decrease in the companies’ cash flow and in a freeze on their investments.

In this emergency context, the European Commission has announced, on March 19th 2020, the relaxation of EU State aid rules and the implementation of a specific and temporary framework for State aid measures to support the European economy in the current COVID-19 outbreak (hereinafter the “Temporary framework”) (I).

Based on this new legal framework, first state aid schemes have already been notified by several Member States, such as France, Italy, Germany, Denmark and Portugal (II).

A temporary framework for State aid measures to support the European economy in the current COVID-19 outbreak

Article 107 (3) (b) TFEU exceptionally allows for aid “to remedy a serious disturbance in the economy of a Member State”. According to the decision-making of the Commission and the General Court caselaw, such a provision may be implemented only when the disturbance affects the whole or an important part of the economy of the Member State concerned.

The last time this provision had been implemented was in 2008 in order to address the consequences of the financial crisis.

The Commission has recognised that the COVID-19 creates exceptional circumstances likely to hit solvent or less solvent undertakings which may face a sudden shortage or even unavailability of liquidity.

In this context, the Temporary framework sets out the different possibilities Member States have under EU rules to ensure liquidity and access to finance for all undertakings, especially small and medium enterprises, that face a sudden shortage in this period in order to allow them to recover from the current situation.

First, in order to address undertakings’ urgent liquidity needs, Member States may offer direct grant, repayable advances or tax advantages of up to EUR. 800.000 [1].

Second, in order to cover undertakings’ immediate working capital and investment needs and to ensure banks keep providing loans to the business customers who need them, Member State are enabled to grant guarantees on loans or to subsidise public loans to companies through loans with favourable interest rates.

In addition, Member States may offer safeguards [2] for banks that channel State aid to the real economy. However, such an advantage must be passed on to the final beneficiaries in the form of higher volumes of financing, riskier portfolios, lower collateral requirements, lower guarantee premiums or lower interest rates.

Loans eligible to State guarantees directed directly to undertakings or through safeguards to banks must have a maturity of up to six years.

Finally, Member States will also be able to grant aid in form of short-term export credit insurance if Member States demonstrate the lack of market by providing enough evidence of the unavailability of cover for the risk in the private insurance market.

The Commission sets out broad conditions to make these measures available to the larger number of companies active in all sectors of the economy who face difficulties as a result of the COVID-19 outbreak until December 31st, 2020.

First State aid schemes notified to the Commission deemed compatible with the Single Market

Pursuant to this new Temporary framework, several Member States have already notified their aid schemes to the European Commission:

  • France [3] and Germany [4] notified their State aid schemes to the Commission in form of subsidised public loans granted by their public investment banks. Companies of any size and active in all sectors (excepted banks and other financial institutions) are eligible;
  • Denmark [5] and Portugal [6] notified State aid schemes specifically directed to support SMEs [7] respectively with a budget of approximatively €130 million and €3 billion;
  • Italy [8] notified a €50 million support scheme in form of direct grants or repayable advances to companies of all size which (i) set up new facilities for the production of medical devices and personal protection equipment; (ii) expand the production of their existing structures producing such equipment; or (iii) convert their production line to that effect. Considering that these State aid schemes are necessary, appropriate and proportionate to remedy a serious disturbance in the economy of each Member State, in line with Article 107(3)(b) TFEU and the conditions set out in the Temporary Framework, the measures are deemed compatible with the single market.

Conclusion

The European Union is facing a veritable shock through this unprecedent health crisis affecting as never the economy of each Member States.

Given the emergency of the situation, a prompt and pertinent answer from the Commission to legally frame Member States interventions was expected.

By opening the Member States’ right to implement broad financial measures to support their economy, irrespective of the size of the company nor the sector on which it operates, the goal is set: “maintaining the integrity of the EU Internal Market and ensure [in fine] a level playing field”.

The Commission is aware that these measures might not be sufficient and therefore allows herself to extend the December 31st, 2020 deadline after review based on important competition policy or economic considerations.

Footnotes

[1This amount will be limited to EUR. 120.000 per undertaking active in the fishery and aquaculture sector and to EUR. 100.000 per undertaking active in the primary production of agricultural products.

[2Safeguards may take form of public guarantees or reduced interest rates granted to credit institutions and other financial institutions.

[3Eur. Comm., dec. of March 21st, 2020, SA. 56709 France - COVID-19: Plan de sécurisation du financement des entreprises and press release “Commission approves French schemes to support economy in Coronavirus outbreak”, IP/20/503. French plan is expected to mobilise more than €300 billion of liquidity support for companies.

[4Eur. Comm., dec. of March 22nd, 2020, SA.56714 - Germany - COVID-19 measures and press release “Commission approves German measures to support economy in Coronavirus outbreak”, IP/20/504.

[5Eur. Comm., press release, “Commission approves Danish guarantee scheme for SMEs affected by Coronavirus outbreak”, IP/20/505

[6Eur. Comm., press release, “Commission approves €3 billion Portuguese guarantee schemes for SMEs and midcaps affected by Coronavirus outbreak”, IP/20/506.

[7In Portugal, only SMEs active in specific sectors of the economy are eligible (tourism; restaurants and similar activities; extractive and Manufacturing industry; and travel agency activities, touristic animation, event organisation and similar activities).

[8Eur. Comm., press release, “Commission approves €50 million Italian support scheme for production and supply of medical equipment and masks during Coronavirus outbreak”, IP/20/507.

PDF Version

Authors

Quotation

Adriano Capuocciolo, Lucile Delahaye, Hugues Villey, The EU Commission implements a specific and temporary framework for State aid measures to support the EU economy during the COVID-19 outbreak, 19 March 2020, e-Competitions March 2020, Art. N° 93872

Visites 146

All issues

  • Latest News issue 
  • All News issues
  • Latest Special issue 
  • All Special issues