Commission readies ‘crisis scheme’ for state aid approval

Commission vice-president in charge of Competition, Margrethe Vest (left) and Commission President Ursula von der Leyen (right), during a press conference on 13 March explaining measures taken to tackle the coronavirus crisis. [European Commission]

The European Commission prepared a temporary framework to fast-track state aid approval as a response to the coronavirus (COVID-19), last used in the aftermath of the financial crisis in 2008.

The EU executive said on Tuesday (17 March) that it has sent member states a proposal for consultation for a state aid temporary framework based on Article 107 of the EU treaties, which  can be activated to remedy “a serious disturbance across the EU economy”. 

The new regime will be operative in the next few days and will allow national governments to offer public support to companies, especially SMEs, without Brussels’ blessing under certain conditions.

In a statement, Commission vice-president in charge of Competition, Margrethe Vestager said that this framework “will enable member states to use the full flexibility foreseen under state aid rules to tackle this unprecedented situation”.

To that end, the Commission will authorise ex ante, and across the whole EU, some operations to offer cash support to struggling companies.

Euro area countries mobilise around €120 billion against coronavirus

Euro area countries have mobilised around 1% of their GDP (€120 billion) to fight against  the economic fallout from the coronavirus but continued to disagree over deploying a joint fiscal stimulus, after a joint teleconference held on Monday (16 March). 

The framework will allow national governments to offer direct grants (or tax advantages) of up to €500,000 to a company, provide subsidised state guarantees on bank loans, enable public and private soft loans, and transfer cash to banks so they can channel it to SMEs.

The Commission stresses that the temporary framework “makes clear that such aid is direct aid to the banks’ customers not to the banks themselves.” 

In this regard, the temporary framework offers guidance on how to avoid, “to the largest extent possible”, that banks retain some of the new liquidity.

It also gives guidance on how to minimise any undue residual aid to banks and to make sure that the aid is 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.

Compared with the preparations back in 2009, when it took three weeks to adopt such tools, Vestager explained that the response was faster today thanks to the experience gained back then. 

During the Eurogroup meeting on Monday, governments welcomed the extraordinary measures that the EU executive was adopting.

“Taking urgent action and making full use of the flexibility foreseen in the state aid rules is necessary to cushion the effect of the crisis for those companies and sectors which are affected, whilst ensuring a consistent framework and a level playing field in the single market,” finance ministers said in a statement.

The temporary scheme completes options already available to member states within the state aid rules to counter the economic fallout of the pandemic. 

These include wage subsidies and suspension of tax payment for all companies (so it does not represent discriminatory state aid support), or providing compensation to firms for damages caused by the virus. 

Coronavirus 'very likely' to push Europe into recession, Commission warns

The European Commission said on Friday (13 March) that the coronavirus COVID-19 will “very likely” push the European economy into recession this year, and warned that the rebound next year will depend on a bold response from member states.

In this regard, the Commission clarified that state aid rules provides that compensation can be granted to airlines for losses caused by the COVID-19, even if they received financial aid in the last ten years, effectively scrapping the “one time, last time principle”.

The EU executive is also working on additional templates to fast-track the approval of public support. On Tuesday, the Commission published one to guide how to compensate companies for damages and also expanded its communication channels with national authorities with a mailbox and phone line available 7 days a week.

“And most importantly, we have made sure that our decisions can be taken very fast,” Vestager added.

(Edited by Benjamin Fox)

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