Overview
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On March 19, 2020, the European Commission (Commission) adopted a Communication on the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak (Temporary Framework).
In the Communication, the Commission sets out how it intends to construe the two fundamental state aid provisions in the Treaty on the Functioning of the European Union (TFEU) that are primarily of interest in the current crisis. These are:
- Article 107 (2)(b) TFEU which provides that "aid to make good the damage caused by natural disasters or exceptional occurrences" is deemed to be compatible by law with the State aid aid prohibition in Article 107(1) TFEU; and
- Article 107(3)(b) TFEU which allows State aid to be granted to remedy a serious disturbance to the economy of a Member State.
Given that the COVID-19 outbreak affects all EU Member States, the Commission considers that State aid can be declared compatible with the internal market for a limited period to remedy the liquidity shortage faced by undertakings and ensure that the disruptions caused by the COVID-19 outbreak do not undermine their viability.
The Temporary Framework sets out five types of aid.
1. Direct Grants, Repayable Advances or Tax Advances
Member States may grant aid to companies facing urgent liquidity needs in the form of direct grants, repayable advances, tax or payments advantages. The aid must not exceed EUR 800,000 per undertaking and must meet the conditions set out in paragraphs 22 b) to e) of the Temporary Framework. Such conditions are, inter alia, that the aid must be granted on the basis of a scheme with an estimate budget and to undertakings that were not in difficulty on December 31, 2019 but entered in difficulty as a result of the COVID-19 outbreak.
2. Public Guarantees on Loans for a Limited Period
Member States may grant aid to companies in the form of pubic guarantees relating to investment and working capitals loans for up to six years. Guarantee premiums must be set at specified minimum levels, depending on whether the recipient is a large enterprise or SME. Member States may also notify schemes, considering these levels as basis but whereby maturity, pricing and guarantee coverage can be modulated. The public guarantee must not exceed 90% of the loan principal where losses are sustained proportionally by the credit institution or 35% where losses are first attributed to the State and only then to the credit institution. Again, the guarantee must be granted to undertakings that were not in difficulty on December 31, 2019 but entered in difficulty as a result of the COVID-19 outbreak. Further, the guarantee must be granted by December 31, 2020 at the latest.
3. Subsidised Interest Rates for Loans
Member States may grant aid to undertakings in the form of loans with reduced interest rates to cover immediate working capital and investment needs. The loans must be at least equal to the base rate (one-year IBOR or equivalent as published by the Commission) applicable on January 1, 2020 plus specified credit risk margins set out in paragraph 27(a) of the Temporary Framework. The amount of the loan with a maturity beyond December 31, 2020 must not exceed the double of the annual wage bill of the beneficiary for 2019 or for the last year available. In the case of undertakings created on or after January 1, 2019, the maximum loan must not exceed the estimated annual wage bill for the first two years in operation. The loan must be granted to undertakings that were not in difficulty on December 31, 2019 but entered in difficulty as a result of the COVID-19 outbreak.
4. Guarantees and Loans Channelled Through Credit Institutions or Other Financial Institutions
Where Member States plan to build on banks' existing lending capacities and use them as a channel to support undertakings facing a sudden liquidity shortage, the Temporary Framework clarifies that such aid is considered as direct aid to the banks' customers, not to the banks themselves.
The Temporary Framework also provides for certain safeguards in relation to the possible indirect aid in their favour so to limit distortions to competition. In particular, the credit institutions or other financial institutions should, to the largest extent possible, ensure that the benefits resulting from the public guarantee or subsidised interest rates on loans, as discussed above, are 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.
5. Short-term Export Credit Insurance
Further, the Temporary Framework introduces additional flexibility on how to demonstrate that certain non-EU export countries are not-marketable risks, thus enabling short-term export credit insurance to be provided by the State where needed.
Finally, the Temporary Framework imposes general transparency and reporting obligations in order to enable the Commission to monitor the granting of State aid.
The Temporary Framework complements the possibilities that already exist for Member States to design measures in line with EU State aid rules, as set out in the Communication on Coordinated economic response to the COVID-19 Outbreak published by the Commission on March 13, 2020 as its immediate response to mitigate the economic impact of the COVID-19 outbreak.
The Temporary Framework will be in place only until December 31, 2020. But it can be reviewed and extended by the Commission before the end of 2020 on the basis of important competition policy or economic considerations.
In addition to the above measures, the Commission notes the usefulness of the existing exemptions that are available under the de minimis Regulation 407/2013 and the General Block Exemption Regulation 651/2014, which can be invoked by Member States immediately, without involvement of the Commission.
For more information on changes to EU competition rules in the times of COVID-19 click here.
