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European Union: Commission Adopts Temporary Framework for State Aid Measures to Support Member States’ Economies During COVID-19 Outbreak

By Global Legal Monitor, LIBRAY OF CONGRESS

(Apr. 10, 2020) On March 19, 2020, the European Commission (Commission) adopted a Temporary Framework for state aid measures (Temporary Framework) to support the European Union economy during the current COVID-19 outbreak. Under the Temporary Framework, member states can temporarily grant state aid in a variety of forms that would otherwise be incompatible with the European Union (EU) internal market in order to safeguard the continuity of economic activity by ensuring sufficient liquidity is available for all kinds of businesses. The Temporary Framework will remain in effect until December 31, 2020. The Commission must review the socioeconomic circumstances before December 2020 to decide whether to extend this date. On April 3, 2020, the Commission adopted an amendment to the Temporary Framework (Amendment) that extends it to additional state aid measures.

State Aid Rules Under the TFEU

The EU legal framework on state aid states that “any aid granted by a Member State … which distorts or threatens to distort competition . . . shall . . . be incompatible with the internal market” (Consolidated Version of the Treaty on the Functioning of the European Union (TFEU) art. 107, para. 1) and provides a list of types of aid that are or may be compatible with the internal market. (TFEU art. 107, paras. 2–3.)

The temporary state aid measures provided by the Temporary Framework rely on article 107, paragraph 3(b) of the TFEU, which states that state aid may be considered compatible with the internal market when it is granted “to remedy a serious disturbance in the economy of a Member State.” In order to rely on this article, EU law requires that the entire EU, or an important part of it, must be affected by the serious disturbance. (Temporary Framework para. 17.) The Commission acknowledges in the Temporary Framework that the current economic situation due to the COVID-19 outbreak justifies the use of state aid for a limited period of time under article 107, paragraph 3(b). (Para. 18.) The member states must notify the Commission of the state aid measures they are implementing. (TFEU art. 108.) Furthermore, they must show that their measures are capable of remedying the current serious disturbance and comply with the conditions set out in the Temporary Framework.

Types of State Aid Measures Provided Under the Temporary Framework

The intention of the Temporary Framework is to mitigate the negative impact of decreased liquidity for businesses of all sizes while keeping the internal market intact for the future by avoiding any distortion to competition.

The Temporary Framework provides for five types of state aid measures that can be granted by member states in accordance with article 107, paragraph 3(b):
Aid in the form of direct grants, repayable advances, tax advantages, or equity not exceeding €800,000 (approximately US$865,200) per company to companies that were not in difficulty on December 31, 2019, but are having liquidity troubles due to the COVID-19 outbreak. (Temporary Framework paras. 22–23; Amendment paras. 12–14.)
Aid in the form of guarantees on loans. (Temporary Framework paras. 24, 25; Amendment para. 15.)
Aid in the form of subsidized interest rates for loans. (Temporary Framework paras. 26, 27; Amendment para. 16.)
Aid in the form of guarantees and loans channeled through credit institutions or other financial institutions. (Temporary Framework paras. 30–31.) If banks need direct support for maintaining their operations—for example, in the form of recapitalization or impaired asset measures—the conditions of article 32, paragraph 4(d) of Directive 2014/59/EU will apply. (Paras. 6–7.)
Short-term export credit insurance: Member states generally may not provide short-term export credit insurance for marketable risks. However, the Temporary Framework points out that, in the current economic situation, private insurance coverage in certain “marketable risk countries” may not be available. The Temporary Framework therefore at first provided increased flexibility, allowing member states to provide public short-term export credit insurance more widely. (Temporary Framework paras. 32–33.) The Amendment to the Temporary Framework has removed all countries from the list of “marketable risk” countries until December 31, 2020, therefore temporarily dropping the requirement to demonstrate there is no market for private insurance. (Amendment para. 17.)

Monitoring and Reporting

Member states must publish information on all state aid measures granted under the Temporary Framework within 12 months of granting them, provide the Commission with a list of all the approved measures, and submit annual reports to the Commission demonstrating that the conditions set out in the Temporary Framework have been fulfilled. The Commission may request additional information. (Temporary Framework paras. 34–38; Amendment paras. 23, 24.)

State Aid Granted Under the Temporary Framework

Immediately following the adoption of the Temporary Framework, the Commission began to approve state aid measures about which it had been notified by member states. To date, the Commission has approved 22 such national state aid measures, including two subsidized loan programs and a public guarantee scheme in Germany; a state guarantee scheme and a direct grant program in Italy; two guarantee schemes in Spain; two public guarantee schemes in Estonia; a repayable advances program and state guarantee scheme in Luxembourg; three state guarantee schemes and a direct grant program in France; a guarantee scheme in Denmark; and a repayable advances program in Ireland.

Extension of the Temporary Framework to Five Additional State Aid Measures

On April 3, 2020, the Commission adopted an amendment that extends the Temporary Framework to five additional state aid measures in order to increase research and development efforts related to COVID-19 and facilitate efforts to increase job security, such as deferrals of tax and/or social security contributions and wage subsidies for employees. (Amendment paras. 3–4, 18–22.)

Prepared by Zeynep Timocin Cantekin, Law Library intern, under the supervision of Jenny Gesley, Foreign Law Specialist.

Author: Jenny Gesley

Topic: Competition, antitrust, and monopolies, Government lending and loan guarantees, International organizations, Small business, Treaties and International Agreements/European Union

Jurisdiction: European Union, Date: April 10, 2020

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