Following COVID-19 outbreak, on March 19th, the European Commission adopted a Temporary Framework to enable Member States to use the full flexibility foreseen under State aid rules to support the economy. The legal basis for the Temporary Framework is Article 107(3)(b) TFEU, which allows the Commission to declare compatible with the single European market aid measures granted by Member States to ‘remedy a serious disturbance in the economy of a Member State’. The Temporary Framework will be in place until December 31st, 2020.
To face the severe lack of liquidity and access to finance for undertakings, the State aid Temporary Framework provides for five types of aid that can be granted by Member States:
Direct grants, selective tax advantages and advance payments:
Commission will consider such measures as compatible State aid aimed at addressing the companies’ shortages of liquidity, provided that the following conditions are met:
- the aid does not exceed EUR 800 000 per undertaking in the form of direct grants, repayable advances, tax or payments advantages; all figures used must be gross (i.e., before any deduction of tax or other charge);
- the aid is granted on the basis of a scheme with an estimated budget;
- the aid may be granted to undertakings that were not in difficulty on 31 December 2019 but that entered in difficulty as a result of COVID-19 outbreak;
- the aid is granted no later than 31 December 2020;
- for the undertakings active in the processing and marketing of agricultural products the aid is conditional on not being partly or entirely passed on to primary producers and is not fixed on the basis of the price or quantity of products purchased from primary producers.
As for the agricultural, fisheries and aquacultural sectors specific the Temporary Framework provides for specific conditions.
Aid in the form of guarantees on loans
Member States will be able to provide State guarantees to ensure banks keep providing loans to undertakings so to help them to cover immediate working capital and investment needs.
Aid in the form of subsidised interest rates for loans
Member States may grant public loans at subsidised interest rates to firms which were not in difficulty on 31 December 2019 but entered into difficulties thereafter as a result of the epidemic.
Aid in the form of guarantees and loans channelled through credit institutions or other financial institutions
Aid measures referred to above may be provided to undertakings (in particular to SMEs) facing a sudden liquidity shortage directly or through credit institutions and other financial institutions. In the latter case, the aid should benefit final undertakings and not constitute an indirect advantage to the banks themselves. The latter should adopt mechanisms which ensure that the advantages are passed on to the largest extent possible to the final beneficiaries, in the form of higher volumes of financing, riskier portfolios, lower collateral requirements, lower guarantee premiums or lower interest rates.
Short-term export credit insurance
Export-credits enable foreign buyers of goods and/or services to defer payment. Deferred payment implies credit risk for the seller/exporter, against which they insure themselves, typically with the private insurers (so-called export credit insurance).
With the adoption of the Temporary Framework, it has been introduced an 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.
Due to the worsening of the coronavirus outbreak and in view of an imminent insufficiency of private insurance capacity for exports to all countries, on March 27th, 2020, the Commission has decided to consider all countries as temporarily non-marketable and to remove all countries from the list of “marketable” countries until 31 December 2020. Following the amendment, State insurers will be able to step in and provide insurance for short-term export-credit risk for all countries, without the need for the Member State in question to demonstrate that the respective country is temporarily “non marketable”.
