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Anti-virus state aid

10.12.2020
4 min read

In the tough conditions of the epidemic, governments are trying to mitigate the consequences of the crisis. For this purpose they are developing horizontal schemes of state support for the business sector, which has been seriously damaged by a sharp drop in economic activity, as well as a decrease in consumer demand and the level of income. Primarily this applies to such areas as tourism, air carriage, the hotel business, catering, retail, domestic services, sports, culture and entertainment. Different countries and supranational unions are seeking a balance between helping companies, on the one hand, and, on the other hand, not only maintaining competition but also ensuring its subsequent development.

On 19 March 2020 the European Commission approved the programme “Temporary Framework for State Aid Measures to Support the Economy”, which is intended to support the liquidity of businesses in the conditions of the economic crisis that has been caused by the outbreak of COVID-19 (Temporary Framework to support the economy in the context of the coronavirus outbreak, OJ C 91I, 20.03.2020).

The anti-crisis measures are aimed at significantly increasing the volume of financing or reducing the financial burden. To this end, a wide range of special tools are offered that member states may use to cooperate with the European Union.

Initially, the programme provided for the following additional measures of state support:
  • direct grants, tax benefits and a refund of advance payments;
  • state guarantees and subsidising interest rates on loans for companies;
  • other guarantees and loans, and short-term insurance of export loans.
The member states of the European Union must notify the European Commission of their intention to support any business sector so that it would be possible to subsequently assess whether the measures proposed meet specific criteria. 

The chances to participate in the programme are limited. The Commission takes into account whether the state aid is necessary, appropriate and adequate for eliminating the adverse economic consequences of the pandemic. Moreover, in order to obtain the support, a business must be effective, and, most importantly, viable. Enterprises that were already experiencing difficulties as of 31 December 2019, i.e. before the crisis, may not claim support. 

The schemes of state aid for different initiating countries are approved based on article 107 (2) (b) of the Treaty on the Functioning of the European Union. The above article establishes the boundaries of lawfulness for granting state support and the procedure for supervising compliance with the rules.

The Temporary Framework for State Aid Measures to Support the Economy has allowed EU member states supporting the economy during the COVID-19 crisis to be flexible when conforming to antimonopoly rules. Nevertheless, the proposed measures must not violate or threaten competition by providing benefits to the recipients of the state aid. A significant shift in priorities to specific sectors at the expense of others when granting subsidies may create an unfavourable climate on competitive markets. Despite the exclusive nature of the circumstances of the pandemic the risk still remains that some businesses may abuse the measures of state support. 

As of today the European Commission has passed over 120 decisions, having considered various proposed schemes of state aid. For instance, Italy has developed a special programme to increase the production and supply of medical products and personal protective equipment. In Portugal for small and medium-sized enterprises in the tourism sector, the restaurant business, and the mining and processing industry, the schemes of state aid should limit the risks relating to the grant of transaction loans to affected companies. Germany has approved plans for comprehensive business support: from establishing loan programmes covering up to 90% of the risk relating to loans for companies of all sizes to increasing investments in production facilities and expanding the infrastructure around the development of medicines.

Subsequently the programme developed by the European Commission was amended in terms of providing aid to speed up research into COVID-19, granting additional support to micro- and small enterprises, providing recapitalisation and subordinated debt to companies in need, as well as other measures aimed at maintaining uninterrupted economic activity both during and after the current crisis. The specified changes are to be implemented over a longer period and are mainly aimed at expanding the perimeter for combating the consequences of economic stagnation.

Russia and the EAEU have also stepped in to support business.

Russian has developed its own package of anti-crisis measures. Financial aid to companies will not only benefit their ability to compete, but will also generally ensure the stable development of competition neutralizing the economic consequences of the pandemic.

The EAEU has proposed measures that should facilitate foreign trade activity, support macroeconomic stability and create the conditions for subsequent economic growth. However, much less support is proposed as compared with the EU. 
 
It is the first time since the 2008 financial crisis that such a large-scale policy has been implemented to intervene in the economy by granting state aid. It is worth mentioning that the effective tools in this respect include well-designed measures to support the liquidity of businesses together with the programmes for subsidising employment.
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