Covid-19 and EU State Aid Developments: The European Commission Shows Quick Reflexes in its Effort to Alleviate the Economic Impact of the Pandemic through the State Aid Toolkit

Author: Anastasia Dritsa, KG Law Firm

When the effects of the pandemic first became apparent, it also became clear that the European Commission would need to put forward all available tools to support the EU’s economy. In this context, the President of the European Commission, Ursula von der Leyen, stated on 10 March 2020, amongst others, that the Commission would “make sure that state aid can flow to companies that need it”. Ever since the Commission has taken a number of steps in that direction.

First State aid measure in relation to the COVID-19 outbreak

On 12 March 2020, the European Commission approved a EUR 12 million Danish scheme to compensate damages caused by cancellations of large public events due to the COVID-19 outbreak. This was the first State aid measure notified by a Member State to the Commission in relation to the COVID-19 outbreak and the Commission approved the scheme under EU State aid rules within 24 hours of receiving the notification from Denmark.

The Commission assessed the measure under Article 107(2)(b) of the Treaty on the Functioning of the European Union (TFEU), which enables the Commission to approve State aid measures granted by the Member States to compensate specific companies or specific sectors (in the form of schemes) for the damages directly caused by exceptional occurrences.

Information for Notification under Article 107(2)(b) TFEU

Following the Danish scheme approval decision, the Commission also issued brief guidance to the Member States as to the information that should be provided under the following categories for notifications of aid based on this provision:

• Description of the exceptional occurrence and the official reaction of the authorities;
• General description of the aid scheme;
• Description of the damage covered;
• Description of the aid measure;
• Commitments.

Communication on the Commission’s immediate response to mitigate the economic impact of COVID-19

On 13 March 2020, the Commission issued a Communication to the European Parliament, the European Council, the Council, the European Central Bank, the European Investment Bank and the Eurogroup on the coordinated economic response to the COVID-19 Outbreak.

Amongst other measures described in the document, this Communication outlines the Member States’ possibilities to design ample support measures in line with existing State aid rules:

• First, Member States can decide to take measures applicable to all companies, for example, wage subsidies and suspension of payments of corporate and value added taxes or social contributions. These measures alleviate financial strains on companies in a direct and efficient manner. They fall outside the scope of State aid control and can be put in place by Member States immediately, without involvement of the Commission.
• Second, Member States can grant financial support directly to consumers, e.g. for cancelled services or tickets that are not reimbursed by the operators concerned. These measures also fall outside the scope of State aid control and can be put in place by Member States immediately, without involvement of the Commission.
• Third, State aid rules based on Article 107(3)(c) TFEU enable Member States, subject to Commission approval, to meet acute liquidity needs and support companies facing bankruptcy due to the COVID-19 outbreak.
• Fourth, Article 107(2)(b) TFEU enables Member States, subject to Commission approval, to compensate companies for the damage suffered in exceptional circumstances, such as those caused by the COVID-19 outbreak. This includes measures to compensate companies in sectors that have been particularly hard hit (e.g. transport, tourism and hospitality) and measures to compensate organisers of cancelled events for damages suffered due to the outbreak.
• Fifth, this can be complemented by a variety of additional measures, such as under the de minimis Regulation and the General Block Exemption Regulation, which can also be put in place by Member States immediately, without involvement of the Commission.

Temporary Framework for State Aid measures

On 19 March 2020, the European Commission announced the adoption of a Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak with a view to help Member States to absorb part of the shock in their economies that comes with the full force of a financial crisis. It was already introduced as a draft proposal in the statement by Executive Vice-President Margrethe Vestager on 17 March 2020, who clarified that this framework will complement the existing possibilities, such as those set out in the Commission’s Communication from 13 March 2020.

The Temporary Framework is based on Article 107(3)(b) TFEU to remedy a serious disturbance across the EU economy and provides for five types of aid:

i) Direct grants, selective tax advantages and advance payments: Member States will be able to set up schemes to grant up to EUR 800,000 to a company to address its urgent liquidity needs.

ii) State guarantees for loans taken by companies from banks: Member States will be able to provide State guarantees to ensure banks keep providing loans to the customers who need them.

iii) Subsidised public loans to companies: Member States will be able to grant loans with favourable interest rates to companies. These loans can help businesses cover immediate working capital and investment needs.

iv) Safeguards for banks that channel State aid to the real economy: Some Member States plan to build on banks’ existing lending capacities, and use them as a channel for support to businesses – in particular to small and medium-sized companies. The Framework makes clear that such aid is considered as direct aid to the banks’ customers, not to the banks themselves, and gives guidance on how to ensure minimal distortion of competition between banks.

v) Short-term export credit insurance: The Framework introduces additional flexibility on how to demonstrate that certain countries are not-marketable risks, thereby enabling short-term export credit insurance to be provided by the State where needed.

The Framework will be in place until the end of December 2020. With a view to ensuring legal certainty, the Commission will assess before that date if it needs to be extended.

Indicatively, the European Commission has already approved a number of schemes notified by Member States under the Temporary Framework:

• 23 March 2020: the Commission approved State support for EUR 250 million Latvian subsidised loan scheme and loan guarantee scheme for companies affected by coronavirus outbreak.
• 22 March 2020: the Commission approved EUR 3 billion Portuguese guarantee schemes for SMEs and midcaps affected by Coronavirus outbreak.
• 22 March 2020: the Commission approved a EUR 50 million Italian support scheme for production and supply of medical equipment and masks during the Coronavirus outbreak.
• 22 March 2020: the Commission approved two separate German measures, implemented through the German promotional bank Kreditanstalt für Wiederaufbau (“KfW”) to support economy in the Coronavirus outbreak.
• 21 March 2020: the Commission approved a DKK 1 billion (approx. EUR 130 million) Danish guarantee scheme for SMEs affected by Coronavirus outbreak.
• 21 March 2020: the Commission approved three French State aid schemes to support the French economy in the context of the Coronavirus outbreak. The French plan is expected to mobilise more than EUR 300 billion of liquidity support for affected companies.
• 20 March 2020: the Commission approved a Danish public financing of Fehmarn Belt fixed railroad link.

There is no doubt that the Member States will keep notifying additional state aid measures in an effort to mitigate the negative effects of the pandemic to their economies, and, so far, the Commission has been handling them at full speed.

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Author: Anastasia Dritsa, KG Law Firm

When the effects of the pandemic first became apparent, it also became clear that the European Commission would need to put forward all available tools to support the EU’s economy. In this context, the President of the European Commission, Ursula von der Leyen, stated on 10 March 2020, amongst others, that the Commission would “make sure that state aid can flow to companies that need it”. Ever since the Commission has taken a number of steps in that direction.

First State aid measure in relation to the COVID-19 outbreak

On 12 March 2020, the European Commission approved a EUR 12 million Danish scheme to compensate damages caused by cancellations of large public events due to the COVID-19 outbreak. This was the first State aid measure notified by a Member State to the Commission in relation to the COVID-19 outbreak and the Commission approved the scheme under EU State aid rules within 24 hours of receiving the notification from Denmark.

The Commission assessed the measure under Article 107(2)(b) of the Treaty on the Functioning of the European Union (TFEU), which enables the Commission to approve State aid measures granted by the Member States to compensate specific companies or specific sectors (in the form of schemes) for the damages directly caused by exceptional occurrences.

Information for Notification under Article 107(2)(b) TFEU

Following the Danish scheme approval decision, the Commission also issued brief guidance to the Member States as to the information that should be provided under the following categories for notifications of aid based on this provision:

• Description of the exceptional occurrence and the official reaction of the authorities;
• General description of the aid scheme;
• Description of the damage covered;
• Description of the aid measure;
• Commitments.

Communication on the Commission’s immediate response to mitigate the economic impact of COVID-19

On 13 March 2020, the Commission issued a Communication to the European Parliament, the European Council, the Council, the European Central Bank, the European Investment Bank and the Eurogroup on the coordinated economic response to the COVID-19 Outbreak.

Amongst other measures described in the document, this Communication outlines the Member States’ possibilities to design ample support measures in line with existing State aid rules:

• First, Member States can decide to take measures applicable to all companies, for example, wage subsidies and suspension of payments of corporate and value added taxes or social contributions. These measures alleviate financial strains on companies in a direct and efficient manner. They fall outside the scope of State aid control and can be put in place by Member States immediately, without involvement of the Commission.
• Second, Member States can grant financial support directly to consumers, e.g. for cancelled services or tickets that are not reimbursed by the operators concerned. These measures also fall outside the scope of State aid control and can be put in place by Member States immediately, without involvement of the Commission.
• Third, State aid rules based on Article 107(3)(c) TFEU enable Member States, subject to Commission approval, to meet acute liquidity needs and support companies facing bankruptcy due to the COVID-19 outbreak.
• Fourth, Article 107(2)(b) TFEU enables Member States, subject to Commission approval, to compensate companies for the damage suffered in exceptional circumstances, such as those caused by the COVID-19 outbreak. This includes measures to compensate companies in sectors that have been particularly hard hit (e.g. transport, tourism and hospitality) and measures to compensate organisers of cancelled events for damages suffered due to the outbreak.
• Fifth, this can be complemented by a variety of additional measures, such as under the de minimis Regulation and the General Block Exemption Regulation, which can also be put in place by Member States immediately, without involvement of the Commission.

Temporary Framework for State Aid measures

On 19 March 2020, the European Commission announced the adoption of a Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak with a view to help Member States to absorb part of the shock in their economies that comes with the full force of a financial crisis. It was already introduced as a draft proposal in the statement by Executive Vice-President Margrethe Vestager on 17 March 2020, who clarified that this framework will complement the existing possibilities, such as those set out in the Commission’s Communication from 13 March 2020.

The Temporary Framework is based on Article 107(3)(b) TFEU to remedy a serious disturbance across the EU economy and provides for five types of aid:

i) Direct grants, selective tax advantages and advance payments: Member States will be able to set up schemes to grant up to EUR 800,000 to a company to address its urgent liquidity needs.

ii) State guarantees for loans taken by companies from banks: Member States will be able to provide State guarantees to ensure banks keep providing loans to the customers who need them.

iii) Subsidised public loans to companies: Member States will be able to grant loans with favourable interest rates to companies. These loans can help businesses cover immediate working capital and investment needs.

iv) Safeguards for banks that channel State aid to the real economy: Some Member States plan to build on banks’ existing lending capacities, and use them as a channel for support to businesses – in particular to small and medium-sized companies. The Framework makes clear that such aid is considered as direct aid to the banks’ customers, not to the banks themselves, and gives guidance on how to ensure minimal distortion of competition between banks.

v) Short-term export credit insurance: The Framework introduces additional flexibility on how to demonstrate that certain countries are not-marketable risks, thereby enabling short-term export credit insurance to be provided by the State where needed.

The Framework will be in place until the end of December 2020. With a view to ensuring legal certainty, the Commission will assess before that date if it needs to be extended.

Indicatively, the European Commission has already approved a number of schemes notified by Member States under the Temporary Framework:

• 23 March 2020: the Commission approved State support for EUR 250 million Latvian subsidised loan scheme and loan guarantee scheme for companies affected by coronavirus outbreak.
• 22 March 2020: the Commission approved EUR 3 billion Portuguese guarantee schemes for SMEs and midcaps affected by Coronavirus outbreak.
• 22 March 2020: the Commission approved a EUR 50 million Italian support scheme for production and supply of medical equipment and masks during the Coronavirus outbreak.
• 22 March 2020: the Commission approved two separate German measures, implemented through the German promotional bank Kreditanstalt für Wiederaufbau (“KfW”) to support economy in the Coronavirus outbreak.
• 21 March 2020: the Commission approved a DKK 1 billion (approx. EUR 130 million) Danish guarantee scheme for SMEs affected by Coronavirus outbreak.
• 21 March 2020: the Commission approved three French State aid schemes to support the French economy in the context of the Coronavirus outbreak. The French plan is expected to mobilise more than EUR 300 billion of liquidity support for affected companies.
• 20 March 2020: the Commission approved a Danish public financing of Fehmarn Belt fixed railroad link.

There is no doubt that the Member States will keep notifying additional state aid measures in an effort to mitigate the negative effects of the pandemic to their economies, and, so far, the Commission has been handling them at full speed.