Coronavirus crisis: how to support the economy under state aid rules?

Europe

While Member States are on a daily basis adopting measures in the attempt to combat the spread of the coronavirus, the stock markets are taking a historic fall -the first sign of very dark times ahead.

The pandemic outbreak will have significant economic impact. The air transport sector, hotels, restaurants, conference organizers, etc. are already suffering from the containment measures adopted by certain Member States and will suffer even more in the coming weeks and months. The International Air Transport Association (IATA) warned on 5 March 2020 that the total revenue impact on the air transport sector could be up to EUR 100 billion, and that was prior to the US ban on European flights and the total lock-down of several Member States.

Numerous sectors of the economy will need public support in order to get through these difficult times and in certain cases even to avoid bankruptcy.

Certain Member States have already adopted or decided to apply exceptional measures. For instance, Slovenia has adopted a law on the interim measure of partial reimbursement of salaries. In Germany, the government has slackened the rules on short-term work with public compensation being granted  when companies are forced to temporarily halt activities. Similar national general schemes on temporary unemployment exist in Europe and are being applied but further public measures to finance the economy will be needed.

Public support to undertakings has to be compliant with European state aid rules. The current European framework is not adequate for urgent and flexible public support to undertakings that are in serious financial difficulty. For instance, aid to undertakings in difficulty have to be notified beforehand by Member States to the European Commission prior to implementation – such notification procedure may take several months – and the conditions for the approval of rescue and restructuring aid are very strict.

On 9 March 2020, the President of the European Commission, Ursula von der Leyen, declared that the Commission will make sure “that state aid can flow to companies that need it”.

Indeed, the European Commission may authorise aid to remedy a serious disturbance in the economy of a Member State under Article 107.3, b) of the Treaty on the functioning of the EU. This legal basis was applied in the context of the mad cow disease and during the financial and economic crisis of 2008.

On 12 March 2020, the European Commission authorized the first coronavirus state aid notified by the Danish authorities in order to grant compensation to organizers of events cancelled due to concerns over the spread of the pandemy. The 12 million EUR aid scheme was approved within 24 hours of its formal notification.

On 13 March 2020, the European Commission announced it had set out a coordinated response to counter the economic impact of the coronavirus. As state aid is concerned, it is ready to work with Member States, to examine all notified measures and to react in a timely manner.

Measures proposed by the Commission include wage subsidies, suspension of payments of corporate and value added taxes or social contributions. In addition, Member States can also grant financial support directly to consumers, for example for cancelled services or tickets that are not reimbursed by the operators concerned. Furthermore, Member States can help companies cope with liquidity shortages and in need of urgent rescue aid.

A specific general framework is being prepared by the Commission. Meanwhile, DG COMP has set up a dedicated webpage, email and telephone number to assist Member States with any queries they have or measures they would like to discuss.

CMS will keep you informed of the European rules applying to state aid in such exceptional circumstances and of the public measures adopted by Member States in order to support your undertaking.

CMS has the widest coverage and the broadest team of state aid specialists in Europe. Furthermore, we have extensive experience in setting up aid schemes and in public interventions in favour of undertakings in difficulty.

Please refer to our brochure for the CMS contact in your jurisdiction.