COVID-19: EU Commission Publishes Temporary State Aid Framework to Support Economy

The European Commission on 19 March adopted a Temporary Framework for State Aid to support the economy in the context of the COVID-19 outbreak, based on Article 107(3)(b) of the Treaty on the Functioning of the European Union, which enables the Commission to approve national support measures to remedy a serious disturbance to the economy of European Union member states.

The Temporary Framework provides for five types of aid:

1. Direct grants, selective tax advantages, and advance payments: Member states will be able to set up schemes to grant up to 800,000 euros to a company to address its urgent liquidity needs.
2. 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.
3. 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.
4. Safeguards for banks that channel state aid to the real economy: Where member states plan to build on banks' existing lending capacities and use them as a channel for support to businesses, such aid is considered as direct aid to the banks' customers, not to the banks themselves. The Temporary Framework provides guidance on how to ensure minimal distortion of competition between banks.
5. Short-term export credit insurance: The Temporary 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 a member state where needed.

The Temporary Framework includes a number of safeguards, for example, linking the subsidised loans or guarantees to businesses to the scale of their economic activity, by reference to their wage bill, turnover, or liquidity needs, and to the use of the public support for working or investment capital.

The Temporary Framework will be in place until 31 December 2020, but can be extended. It complements the possibilities for member states to design measures in line with existing EU State aid rules, as set out in the Commission’s communication on a coordinated economic response to the COVID-19 outbreak of 13 March.

The Commission has also published a template document setting out the information that member states should provide when notifying under Article 107(2)(b) of the Treaty on the Functioning of the European Union aid for damage caused as a result of an exceptional occurrence. See also the Commission’s press release.

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Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

London
Joanna Christoforou
Kate Habershon
Frances Murphy
Omar Shah
Leonidas Theodosiou 

Brussels
Christina Renner
Izzet Sinan

Frankfurt
Michael Masling