State aid & COVID-19: A swift response to a massive challenge

Faster than during the 2008-2009 crisis, and almost as quick as the spreading of the Covid-19 virus … that’s how the EU’s response to the current pandemic crisis can be characterized. In exceptional circumstances such as the 2008-2009 financial crisis or during the 2010 Icelandic ash aviation lockdown, EU State aid law allows for flexible derogations to its standard approach to State aid control, and fast-track actions.

Lessons from the past – what can we learn from the actions implemented during the 2008-2009 financial crisis?

A quick glance into the rear view mirror, i.e. back to the financial crisis of 2008-2009 may indeed provide some insight on how fast the EU can act in challenging times.

While some early warning clues were noticeable in 2007, with some cracks in the US housing market, the financial crisis only truly began in 2008 with the demise of investment bank Bear Stearns, the difficulties faced by government-sponsored agencies Fannie Mae and Freddie Mac and, of course, the fall of Wall Street icon Lehman Brothers, which filed for bankruptcy on September 15.

US-born, the crisis quickly spread around the globe and a wave of panic threatened to tear down numerous banks and financial institutions, including those which were not exposed to the US housing subprime disaster.

The EU’s reaction was quick. On October 18, the EU Council adopted a series of measures designed to help stabilizing the banking sector; between October 2008 and July 2009, the EU Commission adopted a string of four successive Communications on State guarantees to bank liabilities, capital injections, impaired assets relief and restructuring aid.

The crisis then rapidly spread from the financial sector to the real economy and the Commission adopted a State aid Temporary Framework on December 17th, 2008, later amended several times in 2009 (February, October, December). Among other measures, this Temporary Framework provided for an increase in de minimis thresholds, an increase in amounts granted to cover investment and/or working capital, for reduced premium for State guarantee, subsidized interest rate, etc.

Perhaps more importantly yet, the 2008-2009 crisis triggered an in-depth review of the scope and functioning of EU State aid regime, which culminated in the 2012-2014 reform and, among others, its procession of revised and harmonized sectorial guidelines and the new general block exemption regulation 651/2014.

An even quicker reaction in March 2020

However quickly the EU acted 12 years ago, it was forced to be even more nimble over the past few days.

Indeed, as soon as on March 13th [1] and 19th [2], the EU Commission (the “Commission”) has adopted a series of measures implementing this flexible approach for approving urgent aid granted by Member States to companies affected by the COVID-19 outbreak

This flexibility illustrates how deeply the Commission’s perception of State has evolved between the pre-2008 crisis and today. Back in the early 2000s, State aids were largely perceived negatively. Following the 2008 crisis, the Commission’s philosophy has gradually shifted towards a more positive approach –subject to conditions–, in a process that culminated during the 2012-2014 reform.

We briefly discuss below the measures adopted since mid-March by the Commission.

A. The EU Existing Legal Toolbox

1. Natural Disasters or Exceptional Occurrences: Automatic Approval

Pursuant to Art. 107.2 (b) TFUE, State aid measures are automatically exempted, i.e. without discretionary compatibility assessment by the Commission, in order “to make good the damage caused by natural disasters or exceptional occurrences”. This provision applies provided that there is an “exceptional occurrence” causing economic damages. The Commission has already clarified that the COVID-19 outbreak constitutes an “exceptional occurrence”.

The very first Covid-19 decision adopted by the Commission, i.e. a Danish support scheme to organizers of events cancelled as a result of the Covid-19 outbreak, was based on Art. 107 §2 b) and was approved overnight on March 12 [3]

2. Serious Disturbance in the Economy of a Member State: Compatibility Assessment

Pursuant to Art. 107.3 (b) TFEU, State aid measures may be exempted under a discretionary compatibility assessment by the Commission, when they aim at remedying “a serious disturbance in the economy of a Member State”. This legal basis had only been used on a handful of cases between 1958 and 2008, then over 400 times during the financial crisis.

3. Rescue and Restructuring Aid

Pursuant to Art. 107.3 c) TFEU, EU State aid law also allows for “traditional” rescue and restructuring aid to save companies in difficulty, under very strict conditions. Here too, the EU’s response during the financial crisis illustrates how the Commission was able to quickly adapt its practice: specific guidelines were adopted by the Commission in 2009, which later influenced the 2014 guidelines for this type of exemption. While the Commission has not yet adopted specific Covid-19 guidelines on rescue and restructuring, it may do so in the (near?) ” future.

B. The New Temporary Framework (March 19th, 2020)

On March 13th 2020, the Commission adopted a coordinated response to counter the economic impact of the COVID-19 crisis [4] and, on March 19th 2020, it adopted a new State aid Temporary Framework valid until the end of 2020 [5].

This Framework complements the existing tools, but does not replace them. It describes the type of measures that Member states can implement in compliance with EU State aid rules, the vast majority thereof aiming at helping companies to cope with insufficient short term liquidity.

1. Measures available to all companies (without selectivity) do NOT constitute State aid and therefore do not need the Commission’s green light

Conditioning to their being available to all companies without selectivity, this applies to measures such as wage subsidies, suspension of payments of corporate and value added taxes or social contributions. It also applies to support directly channeled to consumers, for example, for cancelled services or tickets that are not reimbursed by the operators concerned (Temporary Framework, § 12).

2. Measures available to companies specifically hit by natural disaster or exceptional occurrence constitute State aid and must be notified to the Commission, but they are automatically exempted under Art. 107.2 b)

Measures to compensate specific companies for the damage directly caused by “exceptional occurrences”, for instance in sectors such as aviation and tourism, hospitality and retail. The principle of “one time, last time” would not apply in this context (Temporary Framework, § 15), provided that the companies’ trouble are directly related to the Covid-19 outbreak, i.e. companies which were not in difficulty on December 31st, 2019.

The Commission will require a number of information and data from the Member States, in order to track these exempted measures:

  • date of first case reported in the country and number of affected persons at the time of notification;
  • economic impact of the COVID-19 outbreak in the Member State;
  • sequence of events between the occurrence of the COVID-19 outbreak and the adoption of the State aid scheme including any official recommendations or prohibitions;
  • detailed required information that were published for certain sectors, such as the aviation sector (identification of the additional costs, of the foregone revenues -loss of traffic, reduced demand-, variable costs, catering not incurred, reference period, reconstitution of damages caused by comparison of the situation during the period of spread of the COVID-19 and the reference period).

3. Direct Grants, guarantees on loans, subsidized interest rates for loans …

The Framework clarifies other types of measures which Member States can adopt to support enterprises affected by the COVID-19 outbreak. As mentioned above, the measures eligible to the Framework apply only to companies which entered into difficulty after 31 December 2019 and subject to prior notification to, and approval by, the Commission:

  • Direct grants, repayable advances or tax advantages (small size aid measures up to €800,000) to address urgent liquidity needs (§§ 21-23);
  • Guarantees on loans (§§ 24-25) – measures more destined to large enterprises: (i) guarantee premiums set at a minimum level depending the recipient credit risk margin or (ii) aid schemes on the basis of this credit risk margin basis, but whereby maturity, pricing and guarantee coverage can be modulated (e.g. lower guarantee coverage offsetting a longer maturity); this type of aid will ensure banks keep providing loans to the business customers who need them to cover immediate working capital and investment needs;
  • Subsidised interest rates for loans (§§ 26-27): (i) loans granted at reduced interest rates (at least 1 year IBOR or equivalent plus the credit risk margins depending on recipient’s credit risk margin), or (ii) aid schemes, on the basis of the credit risk margin, but whereby maturity, pricing and guarantee coverage can be modulated (e.g. lower guarantee coverage offsetting a longer maturity); these loans can help businesses cover immediate working capital and investment needs;
  • Aid in the form of guarantees and loans channeled through credit institutions or other financial institutions (§§ 28-31): measures building on banks’ existing lending capacities, and using them as a channel for support to businesses/small and medium-sized companies; this type of aid is considered as direct aid to the banks’ customers, not to the banks themselves;
  • Short-term export credit insurance (§§ 32-33): additional flexibility on how to demonstrate that certain countries are not-marketable risks.

4. A rapid flow of massive national measures

As of April 6th, the Commission had already given its green light to over 30 state aid packages notified by 22 member states + UK, … and counting. Most of these measures aim at supporting SMEs and self-employed, guaranteeing loans and protecting financing of company, and supporting specific sectors (tourism, culture, transportation, hospitality, etc.). One may single out a few of the earliest measures:

  • on 12 March 2020, a €12 m Danish scheme to compensate damages caused by cancellations of large public events due to COVID-19 outbreak [6];
  • on 21 March 2020, a Danish €130 million aid scheme to support small businesses and three French aid schemes State guarantees on commercial loans and credit lines to companies that have up to 5,000 employees and State guarantees to banks on portfolios of new loans for all types of companies up to €300 billion of liquidity support) [7];
  • on 22 March 2020, an Italian €50 m aid scheme for the production and supply of medical equipment and masks [8]; four Portuguese €3 bn schemes for small and medium-sized enterprises and midcaps [9]; two German subsidized loan programmes (one covering up to 90% of the risk for loans for mid-sized and larger companies with a maturity of up to 5 years and to €1 billion per company, depending on the company’s liquidity needs, and one in which the German federal promotional bank participates together with private banks to provide larger loans – risk cover taken by the State up to 80% of a specific loan but not more than 50% of total debt of a company) [10];

The list of Member State Measures approved under Article 107(2)b TFEU and under the Temporary State Aid Framework can be found on DG Comp website:

5. April 3rd : a first amendment to the Temporary Framework

Two weeks after its adoption, the Temporary Framework was amended by the Commission [11], with a view to allowing investment aid to R&D projects carried out by companies involved in the fight against the pandemic, as well as new forms of aid for specific companies active in severely impacted sectors or regions.

Measures relating to the fight against the pandemic

In particular, member states are allowed to grant aids covering up to 100% of eligible costs for fundamental research, and up to 80% of eligible costs of industrial research and experimental development. An additional 15% can be added on top of the 80% cap, for cross-border cooperation projects between EU member states. Aid beneficiaries must commit to grant nonexclusive licenses to technology resulting therefrom under nondiscriminatory conditions to third parties in the EEA.

Aids may also be granted under the Amendments, in order to support the construction of testing and upscaling infrastructures required to develop, test, and upscale, up to first industrial deployment prior to mass production, a number of COVID-19 related products: vaccines and antivirals (including their components); medical devices, hospital and medical equipment, and necessary raw materials; disinfectants, etc. Such measures may include direct grants, tax advantages, and repayable advances covering up to 75% of eligible costs.

Measures in favor of companies particularly affected

The Amendment also allows EU member states to grant two new types of operating aid to specific companies active in regions or sectors particularly affected by the pandemic, which face harsh liquidity constraints.

Measures include deferrals of tax payments and/or suspensions of social security contributions in those sectors or regions or for types of companies that are hit the hardest by the pandemic, as well as wage subsidies for employees of companies active in those sectors/regions.

C. What’s next?

While the Covid-19 outbreak’s full effects seem to be only starting to unfold, any attempt to look beyond the immediate horizon will probably be futile.

However, one can speculate that some further short-term actions will be adopted in the (near?) future, such as possible Covid-19 specific Guidelines on Rescue and Restructuring, expedited review of capital injections under State aid rules and, beyond the State aid area, emergency merger control clearances. Also, it is fair to anticipate that the existing de minimis thresholds (currently EUR 200.000 per beneficiary over a three-year period) may be increased.

What’s next on a longer term? It’s anyone guess, of course, but it is worth recalling that the 2008-2009 crisis was the matrix of a fundamental revision of the perception of the role of public authorities into the economy.

Today, “Industrial Policy” is no longer a cursed word in the EU debate, as was recently illustrated by the announcement by the Commission of a “new Industrial Strategy for a globally competitive, green and digital Europe” on March 10. One may safely assume that State aid, which are at the forefront of the EU’s response to the Covid-19 outbreak, will also play a pivotal role in these new developments.

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DG COMP has set up a dedicated mailbox and telephone number to assist Member States with any queries on COVID-19 State aid measures: + 00 -

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Note from the Editors: although the e-Competitions editors are doing their best to build a comprehensive set of the leading EU and national antitrust cases, the completeness of the database cannot be guaranteed. The present foreword seeks to provide readers with a view of the existing trends based primarily on cases reported in e-Competitions. Readers are welcome to bring any other relevant cases to the attention of the editors.

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Michel Debroux, State aid & COVID-19: A swift response to a massive challenge, 16 April 2020, e-Competitions State aid & Covid-19, Art. N° 94216

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