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State aid in response to the Covid-19 crisis

Relaxation of European regulations and financial support system announced by the French government

30/03/2020

On 19 March 2020 the European Commission adopted a temporary framework governing State Aid to allow Member States to take all necessary measures aimed at supporting companies weakened by the COVID-19 epidemic. Given the limited size of the (EU) European Union's budget, the principal response will come from the national budgets of the Member States. The Commission therefore wants to provide the necessary tools to respond effectively to the crisis while ensuring compliance with uniform competitive conditions within the single market. This framework bears similarities to the temporary measures adopted by the Commission in 2008, in response to the global financial crisis.

In a declaration on 19 March, the competition commissioner Margrethe Vestager emphasised that "the economic repercussions of the COVID-19 outbreak are considerable. We must act quickly to limit the consequences as much as possible. And we must act in a coordinated manner. This new temporary framework allows Member States to fully exploit the flexibility provided for by the regulations governing State aid to support the economy in this difficult period" (statement IP/20/496).

The temporary legal framework agreed at the European level 

To alleviate the "serious disruption" that the economy is experiencing, the Commission is making it possible for Member States to grant, in particular, the following types of aid, subject to compliance with some conditions to avoid distorting competition within the single market:

  • direct subsidies, repayable advances and tax benefits, within a limit of 800,000 euros per company to meet urgent liquidity requirements;
  • public guarantees for loans taken out by companies with banks, to guarantee continuity of finance by the banks;
  • public loans at reduced rates of interest, to help companies cover their immediate needs for turnover and investment funds;
  • guarantees to strengthen banks' existing lending capacity to support companies, in particular the SMEs. Under certain conditions, these forms of assistance will be considered direct aid to companies (because they are granted to benefit the banks' customers) and not to the banks themselves;
  • short-term export credit insurance subject to demonstrating a failure by the private sector to cover certain risks.

These regulations will be applied to all aid paid from 1 February 2020 until the end of 2020, with the possibility of the Commission re-evaluating the situation and extending their application beyond this date if considered necessary.

The Commission makes clear however that Member States must demonstrate that the State Aid measures notified in application of these temporary regulations are necessary, appropriate and proportionate and that the conditions placed upon them are met in full.

The temporary framework thus adopted supplements the many other possibilities Member States have to come up with measures that comply with existing State Aid regulations in order to mitigate the socio-economic impact of the COVID-19 epidemic.

As a reminder, in a communication dated 13 March titled "A coordinated economic response to the COVID-19 epidemic", the Commission set out the possibilities open to Member States in the context of the health crisis.

In particular, Member States can adopt measures that do not fall within State Aid controls, such as generally applicable changes benefiting all companies. This includes, for example, suspending tax and social security contributions, or subsidising short-term working in all industries. Member States may also grant financial support to consumers directly, for example for cancelled services or tickets that have not been reimbursed by the operators concerned.

In addition, article 107, paragraph 2, point b), of the TFEU allows Member States to compensate companies for damage directly caused by exceptional events, such as that caused by the COVID-19 epidemic. This may be useful for supporting industries that have been affected particularly strongly, such as transport, tourism, hotels, restaurants and retail. The Commission invites Member States to notify it of these aid schemes, which it undertakes to examine quickly.

The measures announced at the French level and approved by the Commission 

At the French level, the government announced the deferral of payment dates for several mandatory levies, the creation of a solidarity fund for small companies and facilitated access to the credit mediator for companies.

Echoing the initiatives adopted at the EU level, the Minister for the Economy and Finance, Bruno Le Maire, announced on 19 March a strengthening of the company finance support scheme to confront the crisis (see our flash info Company Finance from 20 March 2020). This system, which was introduced in the draft Amending Finance Law presented to Parliament on 18 March and is undergoing urgent review, complements the measures announced a few days ago and discussed above.

It includes three principal elements:

  • a system of liquidity loans for companies backed by a State guarantee of 300 billion euros;
  • activation of public re-insurance covering loan insurance liabilities of 10 billion euros; and
  • the set-up of short-term credit-export reinsurance covering up to 2 billion euros to support French exporters.

In parallel with these announcements, France notified the Commission of some of these measures, specifically:

  • two aid schemes allowing the French public investment bank Bpifrance to provide State guarantees to commercial loans and credit lines to companies with up to 5000 employees;
  • an aid scheme intended to provide State guarantees to banks on new loan portfolios for companies of all types. This is a form of direct aid to companies, which will allow banks to quickly provide liquidity to any company that has need of it.

On 21 March 2020 the European Commission authorised these aid schemes in application of the temporary framework rules for State Aid which it had adopted 48 hours previously (State Aid SA.56709 (2020/N) – France – COVID-19 : Plan to secure company finances). It particularly took note of the fact that these measures cover credit guarantees of limited duration and volume and that they limit the risk to be assumed by the State is to a maximum of 90%. According to the Commission, this guarantees that the planned support will be rapidly available under favourable conditions and that it is reserved for companies that have need of it in the current situation. It thus concluded that the measures notified by the French authorities are necessary, appropriate and proportionate to alleviate a serious disruption to the economy of a Member State, in accordance with article 107, paragraph 3, section b) of the TFEU and the conditions specified in the temporary framework.

The European Law & Competition team within CMS Francis Lefebvre Avocats is fully mobilised to give you any assistance you need. We will keep you updated with developments on this subject.


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