European Commission relaxes State aid rules to counter economic impact of COVID-19

Antitrust and Competition: Novel Issues in a Post-Coronavirus World

The European Commission has thus far reacted to the COVID-19 in three layers.

The temporary framework

On 19 March 2020, the EU’s Competition Commissioner Margrethe Vestager presented the Commission’s “Temporary Framework for State aid measures” to help businesses get access to the liquidity and financial support they require to survive the economic crisis caused by the COVID-19 outbreak. Emphasizing the need for a close European coordination of national aid measures, the Framework outlines various ways in which EU governments may support business with a focus on ensuring liquidity, which are outlined below.

Margrethe Vestager, EU Competition Commissioner, has clearly emphasized the importance of coordinated action to tackle the economic impact of the coronavirus outbreak, i.e.:

“Managing the economic impact of the coronavirus outbreak requires decisive, fast and – most importantly – coordinated action. EU State aid rules provide a toolbox for Member States to help companies in this difficult time. We will add to this toolbox to enable Member States to support companies that develop, test and produce much needed products to fight the coronavirus, such as vaccines, medical devices and protective equipment. We will also enable Member States to give targeted support to save jobs in sectors and regions that are hit particularly hard by the outbreak, by relieving them from tax payment and social contributions or giving wage subsidies. The Commission will continue to do all it can to support European governments and citizens.”1

The Framework confirms the earlier Communication of 13 March 2020, which pointed out the ways in which Member States can support the economy by measures that do not qualify as State aid. These include any measures such as wage subsidies, suspension of tax and social security payments granted to all companies (these are general, not selective measures). Further, any financial support given directly to consumers is not State aid.

Member States can also design additional support measures in line with the General Block Exemption Regulation without the involvement of the Commission.

Member States can notify to the Commission aid schemes under the rules for rescue and restructuring aid to meet acute liquidity needs and support undertakings facing financial difficulties.

Very importantly, sectors that have been particularly hit by the outbreak (e.g. transport, tourism, culture, hospitality and retail) and/or organizers of cancelled events for damages suffered due to and directly caused by the outbreak can be compensated as well (directly under Article 107(2)(b) TFEU). For this support, the principle of “one time last time” (applicable to rescue and restructuring aid) does not apply.

The Temporary Framework adds to the above by introducing additional support measures that can be approved swiftly under Article 107(3)(b). It emphasizes that the Member States can combine aid schemes with individual cases. So if you do not fit into a scheme, do not hesitate to ask for bespoke measures.

The additional measures, most of which can be granted cumulatively, fall into five groups:

  • Aid in form of direct grants, repayable advances or tax advantages
    Such aid can be grated up to EUR800 000 per undertaking (corporate group), provided the undertaking was not yet in financial difficulty on 31 December 2019. It must be granted by 31 December 2020. Special rules apply to undertakings in the agricultural and fisheries sectors.
  • Aid in the form of guarantees on loans
    In order to ensure access to liquidity to undertakings facing a sudden shortage, the Commission will approve State aid in the form of new public guarantees on loans compatible, under certain conditions. that depend on the size of the company (SME or large enterprises) and the maturity of the loan. The guarantee may relate to investment and working capital loans.
  • Aid in the form of subsidized interest rates for loans
    The conditions for such aid also depend on company size and maturity.
  • Aid in the form of guarantees and loans channeled through credit institutions or other financial institutions
    If aid in the form of public guarantees and reduced interest rates is provided through credit institutions and other financial institutions as financial intermediaries, special conditions must be complied with to ensure such aid does not indirectly benefit those intermediaries.
  • Short-term export credit insurance
    On 27 March, the Commission published its amendment to the Annex of EU Commission’s Communication of 19 December 2012 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to short-term export-credit insurance (“Commission Communication”). According to the Commission Communication, State insurers2 are not allowed to provide short-term export-credit insurance for marketable risks (i.e. commercial and political risks with a maximum risk period of less than two years). Although the Temporary Framework adopted by the Commission provides additional support measures in the field of short-term export-credit insurance, it has been considered insufficient to rapidly address the difficulties undertakings encounter. In particular as the public consultation has led to the consideration that there is a general lack of sufficient private capacity to cover all economically justifiable risks for exports to countries currently classified as marketable risk countries. The Commission has therefore introduced an amendment to the list of marketable risk countries, whereby the Commission has decided to consider all commercial and political risks associated with exports to the countries listed in the Annex to the Communication as temporarily non-marketable3 until 31 December 2020.

The Temporary Framework applies from 19 March to 31 December 2020.

First extension of the Temporary Framework

Moreover, on 27 March, the Commission sent a draft proposal to the EU Member States to extend the State Aid Temporary Framework adopted on 19 March by adding five types of additional support measures, allowing Member States to intervene more selectively on the basis of greatest need. The additional proposed support measures, adopted by the Commission on 3 April 2020, are as follows:

  • More support for corona related R&D;
  • More support for the construction and upgrading of testing facilities for products tackling the coronavirus outbreak (e.g. vaccines, medical equipment or devices, etc.). EU Member States may also grant no-loss guarantees to provide incentives for undertakings to invest;
  • More support for the production of products relevant to tackle the coronavirus outbreak (e.g. vaccines, medical equipment or devices, disinfectants, protective materials etc.). EU Member States may also grant no-loss guarantees to provide incentives for undertakings to invest;
  • Targeted support in the form of deferral of tax payments and/or suspensions of employers’ social security contributions to avoid lay-offs in sectors hit by the coronavirus outbreak; and
  • Targeted support in the form of wage subsidies for employees to avoid lay-offs in sectors hit by the coronavirus outbreak.

Recapitalisation measures

On 9 April 2020, the Commission sent to Member States for consultation a draft proposal to extend the State Aid Temporary Framework to recapitalisation measures4. This extension of the scope of the Temporary Framework to aid in the form of recapitalisation coupled with the possibility for Member States to support companies outside of EU state aid control (through the existing pari passu and MEIP principle tools) should give Member States a certain level of flexibility to respond to the economic challenges of the COVID-19 crisis.

Recapitalisation measures are defined in the Commission’s statement as public support in the form of equity or hybrid capital instruments for companies “severely affected” by the COVID-19 crisis.

The Commission clarified that such public interventions in the form of recapitalisations should remain “measures of last-resort”. Furthermore, the Commission warned that recapitalisation aid would come with a strict framework, for instance through conditions for “State's entry, remuneration and exit from the companies concerned, strict governance provisions and appropriate measures to limit potential distortions of competition”.

The Commission’s aim is to have the new Temporary Framework in place in the course of this week.

For more information, please refer to the Global Antitrust and Competition key contacts

1 EU Commission’s press release of 27 March 2020, Coronavirus: Commission Statement on consulting Member States on the proposal to extend State aid Temporary Framework.

2 State insurers are defined as a company or organisation that provides export-credit insurance with the support of, or on behalf of, a Member State, or a Member State that provides export-credit insurance.

3 EEA countries (excluding Liechtenstein), UK, US, Australia, Canada, Japan, New-Zealand and Switzerland. 

EU Commission’s press release of 9 April 2020, Coronavirus: Commission Statement on consulting Member States on proposal to further expand State aid Temporary Framework to recapitalisation measures