COVID-19 crisis support measures and EU state aid rules

The rapid spread of the COVID-19 virus has not only led to a major global health crisis but also to a significant impact on the economy, with some sectors such as air transport and the travel industry having been hit very hard. This in turn puts considerable pressure on governments to consider support measures to industries affected by the COVID-19 crisis.

It is expected that, within the EU, most support measures in relation to the COVID-19 crisis will be funded by national budgets. These measures continue to be subject to strict EU State aid rules ¹. However, as was the case in relation to the 2008 financial crisis, the European Commission (which is the executive body charged with enforcing State aid rules; the Commission) has indicated its willingness to relax these rules and to put everything in place to review and clear aid schemes swiftly, while maintaining a certain degree of control over public support initiatives.

In the last few days, the Commission has adopted two important texts which are commented on below. It has adopted a clearance decision, within 24 hours following notification of a Danish compensation scheme relating to cancelled events All COVID-19 State aid related documents can be found here.

Companies in the most exposed industries and/or at risk of insolvency and governments faced with demands from such companies need to be aware of the new framework that has now been put in place.

Communication on a coordinated economic response to the COVID-19 crisis

On 13 March 2020, the Commission published a communication on a coordinated economic response to the COVID-19 crisis (Communication). Section 5 of the Communication deals with State aid. The salient points are as follows:

• The Commission acknowledges that, subject to its approval, Member States can meet acute liquidity needs and support companies facing bankruptcy due to the COVID-19 crisis. Similar to the 2008 financial crisis, the Commission stands ready to relax the so-called “one time, last time principle”, a rule that prevents companies that have received this type of aid in the 10 previous years to receive additional support.
• The COVID-19 crisis qualifies as “exceptional occurrences” under Article 107(2)(b) TFEU, which sets out that aid to make good the damage caused by such occurrences is compatible with the internal market. An important limitation is that there must be a direct causal link between the aid, the level of the loss, and the exceptional occurrence. The Commission has issued guidance / a template in relation to the information that needs to be provided in a notification under Article 107(2)(b) TFEU.At this stage, the Communication explicitly refers to the transport, tourism and hospitality sectors as possible beneficiaries of any aid.

A first precedent is the clearance decision relating to the Danish compensation scheme referred to above.

• Finally, the Commission notes that the impact of the COVID-19 outbreak in Italy is of a nature and scale that allows the use of Article 107(3)(b) TFEU. This provision enables the Commission to approve additional national support measures to remedy a serious disturbance to the economy of a Member State. It was used extensively after the 2008 financial crisis. The Communication specifically contemplates that the classification might be extended in the future to other Member States. The Framework referred to below provides further guidance.

The Commission has now put in place all necessary procedural arrangements to enable a swift Commission approval process. As at the time of the financial crisis, decisions can be taken within days of receiving a complete State aid notification, where necessary. The dedicated web page of the Commission contains a dedicated mailbox and telephone number to assist Member States with queries, and the Commission stands ready to provide templates based on precedent decisions on possibilities to grant aid to companies in line with existing State aid rules.

State aid temporary framework to support the economy in the context of the COVID-19 outbreak

On 19 March 2020, the Commission adopted a State aid temporary framework to support the economy in the context of the COVID-19 outbreak (the Framework).

The Framework provides guidance on how the Commission intends to apply Article 107(3)(b) TFEU when faced with requests to approve COVID-19 related State aid measures.

Simply put, the Framework enables Member States to: (i) set up schemes to direct grants, tax advantages and advance payments to a company up to €800,000; (ii) give subsidised State guarantees on bank loans; and (iii) enable public and private loans with subsidised interest rates. Moreover, the Framework recognises the important role of the banking sector to deal with the economic effects of the COVID-19 crisis, namely to channel aid. The Framework gives guidance on how to minimise any undue residual aid to the banks in line with State aid rules.

Taken together these steps reflect a willingness by the Commission to apply the existing rules in a pragmatic and flexible way, allowing State resources to be deployed quickly and effectively where Member States chose to do so.

We are closely monitoring COVID-19 State aid related matters. In Brussels and elsewhere in our network, we have a dedicated group of EU State aid experts able to guide companies and public authorities through the maze of EU State aid law and to assist in the procedure before the Commission.

Should you need assistance, have any further questions regarding this client alert or State aid generally, please do not hesitate to contact any of the individuals listed.

¹ The UK remains bound by the EU State aid rules during the BREXIT transition period which runs until the end of 2020.