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March 24, 2020

EU Commission Adopts Emergency State Aid Framework to Enable EU Member States to Support Businesses in the COVID-19 Outbreak

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The EU Temporary State Aid Framework

On 19 March 2020, the European Commission adopted a Temporary Framework to enable EU Member States to use European State aid rules to support the European economy in the COVID-19 crisis (see C(2020) 1863). The first programs have already been approved in Denmark, Germany, France, Italy and Portugal.

The Temporary Framework, which is based on Article 107(3)(b) of the of the Treaty on the Functioning of the European Union (TFEU), recognizes that the entire EU economy is experiencing a serious disturbance. To remedy that, the Temporary Framework provides five types of aid that can be granted by EU Member States:

  1. Direct grants, selective tax advantages and advance payments: EU Member States will be able to set up programs to grant up to €800,000 for a company to address its urgent liquidity needs.
  2. State guarantees for bank loans: 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: Member States will be able to grant direct 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: 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. Although such loans will be handled by intermediaries, the Framework makes clear that such aid is considered as direct aid to the banks' customers, not to the banks themselves. The Framework also gives 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 the State where needed. On 23 March, the Commission launched an urgent public consultation to determine if public short-term export credit insurance should be made more widely available in light of the current crisis. More specifically, the Commission wants to assess the availability of private short-term export-credit insurance capacity for exports to all countries listed as "marketable risk countries" in the 2012 Short-term export-credit Communication (STEC). Marketable risks are commercial and political risks on public and non-public debtors established in countries listed in the Annex to the STEC, with a maximum risk period of less than two years. Depending on the results of the consultation and taking into account the relevant economic indicators, the Commission then may decide to remove countries from the list of "marketable risk countries" as a temporary measure.

Given the limited size of the EU budget, the main response will come from Member States' national budgets. The Temporary Framework will help target support to the economy, while limiting negative consequences to level the playing field in the Single Market.

The Temporary Framework will be in place until 31 December 2020. However, in order to minimize uncertainty, the Commission will assess before that date if it needs to be extended.

The Temporary Framework complements the many other possibilities already available to Member States to mitigate the socio-economic impact of the coronavirus outbreak, in line with EU State aid rules. On 13 March 2020, the European Commission adopted a Communication on a Coordinated economic response to the COVID-19 outbreak setting out these possibilities. For example, EU Member States can make generally applicable changes in favour of businesses (e.g., deferring taxes, or subsidising short-time work across all sectors), which fall outside State Aid rules. They can also grant compensation to companies for damage suffered due to and directly caused by the COVID-19 outbreak.

The Temporary Framework also includes a number of safeguards, including linking 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.

In the last several days, the European Commission has quickly approved several programs in a number of countries pursuant to the new Temporary Framework:

Denmark—European Commission Approves Program to Compensate Damages Caused by Cancellations of Large Public Events

On 12 March 2020, the European Commission found a €12-million Danish aid program to compensate organisers for the cancellation of large events with more than 1,000 participants to be in line with EU State aid rules (see IP/20/454). This was the first State aid measure of which an EU Member State notified the Commission in relation to the COVID-19 outbreak; approval followed within 24 hours of the Commission receiving the notification from Denmark (see also our Advisory dated 19 March 2020).

Denmark—European Commission Approves Guarantee Program for Small- and Medium-Sized Enterprises (SMEs)

On 21 March 2020, the European Commission found another €130-million Danish guarantee program for SMEs affected by the coronavirus outbreak to be in line with EU State aid rules (see IP/20/505). The program was  approved under the Temporary Framework. The Commission approved the Danish program within 48 hours of the Framework's adoption.

France—European Commission Approves French Programs to Support economy

On 21 March 2020, the European Commission approved three separate State aid programs to support the French economy (see IP/20/503) under the Temporary Framework. The Commission also approved these programs within 48 hours of the Temporary Framework's implementation.

France notified the Commission of three separate support programs under the Temporary Framework.

  • Two programs enabling the French public investment bank Bpifrance to provide State guarantees on commercial loans and credit lines, respectively, for enterprises with up to 5,000 employees.
  • A program to provide State guarantees to banks on portfolios of new loans for all types of companies. This is direct aid to the companies that will enable banks to quickly provide liquidity.

The French plan is expected to mobilise more than €300 billion of liquidity support for companies affected by the economic impact of the coronavirus outbreak. The European Commission found that the French measures are in line with the conditions set out in the Temporary Framework. In particular, they cover guarantees on loans with a limited maturity and size. They also limit the risk taken by the State to a maximum of 90%. This ensures that support is swiftly available at favourable conditions and limited to those who need it in the current situation. To achieve this goal, the measures also involve minimum remuneration and safeguards to ensure that the aid is effectively channelled by the banks to the beneficiaries in need.

Germany—European Commission Approves German Measures to Support Economy

On 22 March 2020, the European Commission approved two German State aid programs to support the German economy (see IP/20/504).

Germany notified the Commission of two separate support measures under the Temporary Framework, implemented through the German promotional bank Kreditanstalt für Wiederaufbau (KfW):

  • A loan program covering up to 90% of the risk for loans for companies of all sizes. Eligible loans may have a maturity of up to five years and can reach €1billion per company, depending on the company's liquidity needs.
  • A loan program in which the KfW participates together with private banks as a consortium to provide larger loans. For this program, the risk taken by the State may cover up to 80% of a specific loan, but not more than 50% of total debt of a company.

The measures will allow the KfW to provide liquidity in the form of subsidised loans to companies affected by the coronavirus outbreak. This will happen in close cooperation with commercial banks.

The European Commission was notified a few days after the German government announced its plans to provide unlimited liquidity to the German economy to manage the effects of the economic impact of the coronavirus outbreak (see also our Advisory dated 19 March 2020).

Portugal—European Commission Approves €3-Billion Portuguese Guarantee Programs for SMEs and Midcaps

On 22 March 2020, the European Commission approved four Portuguese guarantee programs for SMEs and midcaps affected by the Coronavirus outbreak, under EU State aid rules (see IP/20/506). The programs, with a total budget of €3 billion, were approved under te Temporary Framework. The Commission approved the four Portuguese programs two days after the Framework's adoption.

Italy—European Commission Approves €50-Million Italian Support Program for Production and Supply of Medical Equipment and Masks

On 22 March 2020, the European Commission approved a €50-million Italian aid program to support the production and supply of medical devices, such as ventilators and personal protection equipment, including masks, goggles, gowns and safety suits (see IP/20/507). The program will help Italy provide the necessary medical treatment to those infected, while protecting healthcare operators and citizens. The Commission approved the program within 48 hours of receiving the notification from Italy.

Latvia—European Commission Approves State Support for €250-Million Latvian Subsidised Loan Program and Loan Guarantee Program

On 23 March 2020, the European Commission approved a Latvian loan guarantee program and a subsidised loan program totalling €250 million for companies (see IP/20/508).

The overall budget for the subsidised loan program is €200 million, out of which €50 million is expected to come from the State budget and the rest from international financial institutions. The amount contemplated in the State budget for the loan guarantee program is also €50 million. It is expected to be leveraged and cover guarantees worth more than €200 million.

Luxembourg—European Commission Approves €300-Million Luxembourg Program to Support Companies

On 24 March 2020, the European Commission found Luxembourg's €300-million program to support companies affected by the coronavirus outbreak (see IP/20/516).

Germany—European Commission Approves German Guarantee Program to Further Support its Economy

On 24 March 2020, the European Commission approved another German State aid program to support the German economy in the context of the coronavirus outbreak (see IP/20/517). Following the approval of the German program adopted on 22 March, Germany notified the Commission of an additional support measure, implemented through the German federal and regional authorities, as well as promotional and guarantee banks. The additional program will be open to all companies and enables the granting of guarantees on loans at favourable terms to help businesses cover immediate working capital and investment needs.

Spain—European Commission Approves €20-Billion Spanish Guarantee Program to Support Companies and Self-Employed Persons

On 24 March 2020, the European Commission approved two guarantee programs in Spain for companies and self-employed persons affected by the coronavirus outbreak (see IP/20/520). The programs will cover a volume of around €20 billion.

For more information on these topics please contact the author or any member of Arnold & Porter's Coronavirus Task Force.

© Arnold & Porter Kaye Scholer LLP 2020 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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