European Commission allows member states full flexibility under state aid rules

The European Commission will allow EU member states full flexibility under state aid rules to support their economies in the wake of the COVID-19 outbreak. 

Together with many other support measures under existing state aid rules, the so called temporary framework enables countries to ensure sufficient liquidity is available to businesses of all types and to preserve the continuity of economic activity during and after the COVID-19 outbreak. 

“The economic impact of the COVID-19 outbreak is severe. We need to act fast to manage the impact as much as we can. And we need to act in a coordinated manner,” Executive Vice President Margrethe Vestager, in charge of competition policy, said. 

The state aid Temporary Framework provides for five types of aid: 

Direct grants, selective tax advantages and advance payments: Member States will be able to set up schemes to grant up to €800,000 to a company to address its urgent liquidity needs. 

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. 

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. 

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. Such aid is considered as direct aid to the banks’ customers, not to the banks themselves, and gives guidance on how to ensure minimal distortion of competition between banks. 

Short-term export credit insurance: The 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. 

Given the limited size of the EU budget, the main response comes from national budgets. But the Framework includes a number of safeguards, by 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. 

“The aid should therefore help businesses to weather the downturn and to prepare a sustainable recovery,” the Commissioner said. 

The Framework will be in place until the end of December 2020.