State aid & the COVID-19 pandemic – obtaining State aid for mitigating the financial impact of the pandemic

By Morten Nissen, Jose Rivas

03-2020

The Coronavirus (COVID-19) pandemic has been declared an exceptional occurrence, paving the way for more and faster approval of national State aid initiatives in the EU.

The massive and unprecedented financial impact on the world economy has led to a number of European governments promising aid to the sectors and companies hit hard by the COVID-19 virus pandemic. Such aid initiatives are of course subject to the European State aid rules and would – in normal circumstances - require prior notification to the European Commission's Directorate-General for Competition. Non-notified aid or aid that does not conform to the State aid rules must be paid back by aid recipients with interest.

The state aid rules do, however, foresee a possibility for making it easier for Member States to provide aid to make good damage caused by "exceptional occurrences". In a rapid response to the COVID-19 pandemic, on 12 March 2020 the European Commission's Directorate General for Competition issued its first decision in this context stating that the COVID-19 virus can be considered an "exceptional occurrence" within the meaning of the State aid rules (Article 107(2)(b) TFEU). The Commission has published some guidelines for the notification of State aid measures under Article 107(2)(b)TFEU. These guidelines aim at speeding up the review and approval process of public support measures designed to compensate economic damages deriving from the COVID-19 outbreak.  

A new Temporary Framework to complement the existing State aid toolbox

Further, on 19 March 2020, the European Commission adopted a new "Temporary Framework" (partially inspired by the two temporary frameworks of the 2008 financial crisis), which will enable Member States to: 

  1. set up schemes direct grants (or tax advantages) up to €800,000 to a company;

  2. give subsidised State guarantees on bank loans;

  3. enable public and private loans with subsidised interest rates; and

  4. recognise the important role of the banking sector in dealing with the economic effects of the COVID-19 outbreak, namely by channeling aid to final customers, in particular small and medium-sized enterprises. The Temporary Framework makes clear that such aid will be treated as direct aid to the banks' customers, not to the banks themselves. 

The new Temporary Framework is accompanied by a Notification Template that Member States can follow in their notification of State Aid measures in support of the economy in the current COVID-19 outbreak. The Temporary Framework  complements the existing State aid toolbox with many other possibilities already available to Member States in line with State aid rules.

Several Member States have already benefited from this Temporary Framework. On 26 March 2020, the European Commission published a list of the State aid measures approved under Article 107(2)(b) TFEU and under the Temporary State Aid Framework since the COVID-19 outbreak. The European Commission has approved public support programs in the following countries:

  1. Italy: On 22 March 2020, the Commission approved an €50 million Italian support scheme for production and supply of medical equipment and masks during COVID-19 outbreak. On 25 March 2020 the Commission approved an Italian State guarantee scheme to support a debt moratorium from banks to SMEs affected by the COVID-19 outbreak. 

  2. Portugal: the Commission has approved €3 billion Portuguese guarantee schemes for SMEs and midcaps active in four sectors: (i) tourism; (ii) horeca and similar activities; (iii) extractive and manufacturing industry; and (iv) travel agency activities, touristic animation, event organisation (and similar activities).

  3. France: the Commission has approved three French State aid schemes expected to mobilise €300 billion of liquidity support for companies affected by the COVID-19 outbreak. The French schemes provide for State guarantees to banks on portfolios of new loans for all types of companies and enable the French public investment bank to provide State guarantees on commercial loans and credit lines for enterprises with up to 5,000 employees.

  4. Germany: on 22 March 2020 the Commission approved two support measures (subsidized loans) implemented through the German bank Kreditanstalt für Wiederaufbau aiming at providing liquidity to companies affected by the COVID-19 outbreak. On 24 March 2020, the Commission approved two additional German aid schemes under the Temporary Framework providing for (i) guarantees on loans at favorable terms and (ii) direct grants, repayable advances and tax and payment advantages. 
  5. Latvia: the Commission has approved two Latvian aid schemes in the form of loan guarantees and subsidised loans for a total of €250 million.
  6. Luxembourg: the Commission has approved an €300 million aid scheme in the form of repayable advances of up to €500,000 to allow beneficiaries to face their operating costs in the difficult situation caused by the COVID-19 outbreak.

  7. Denmark: after the approval under Article 107(2)(b) TFEU of an €12 million Danish aid scheme to compensate damages caused by the cancellation of large public events, on 21 March 2020 the Commission approved under the Temporary Framework, a DKK 1 billion (approx. €130 million) Danish guarantee scheme for SMEs. On 25 March 2020 the Commission approved a second aid scheme under Article 107(2)(b) TFEU aiming at compensating self-employed for the losses of turnover due to the COVID-19 outbreak.

  8. Spain: the Commission has approved €20 billion Spanish guarantee schemes applicable to new loans and refinancing operations for companies and self-employed affected by the COVID-19 outbreak.

  9. UK: the Commission approved two UK State aid schemes in the form of loan guarantees and direct grants to support SMEs in the context of the COVID-19 pandemic.
Compensation can in particular be useful to support sectors that are hit particularly hard by the COVID-19 pandemic. In this regard, the European Commission has indicated that it is particularly aware of the impact on the transport sector (airlines, airports, ground handling, rail and bus undertakings, maritime companies, etc.) and it must be expected that aid to the transport sector will be a priority for the European Commission.

The European Commission has also published a useful diagram showing how Member States can provide short term liquidity support in terms of relief on tax or social contribution, loans or guarantees.  
Conclusion

Nobody knows just what the financial impact of the COVID-19 pandemic will be. But for sure the impact will be very considerable.

On the one hand, to stem the worst effects of the financial impact, the European Commission has, in record time, set up a new framework that will allow EU Member States to mitigate the financial impact through grants of State aid. 

On the other hand, the European Commission's planned review if its State aid rules in the fields of energy, environment, regional aid, research and development, finance and Important Projects of Common European Interest, will be delayed due to the COVID-19 crisis. 

The Temporary Framework and the existing State aid rules are complex and navigating these remains a challenge. Nonetheless, a unique opportunity is presented to companies as well as State, regional or local authorities, to ward off some of the negative financial consequences of the COVID-19 outbreak.

In the spirit of solidarity with clients and contacts in these extraordinary times, Bird&Bird's state aid experts will, at no cost, guide you with your preliminary state aid queries by phone/email. You will find their contact details below.

Our Competition and EU law team is widely recognised as a leading practice in relation to State aid.

Contact: Morten Nissen, Co-head, Competition & EU Practice Group and José Rivas, Partner, Competition & EU Practice Group

All of our Competition & EU contacts can be found here.

Last reviewed: 30 March 2020