Newsroom / News / Media / Info Magazine LGP NEWS 01/2020 / EU billion aid ante portas

EU billion aid ante portas

EU billion aid ante portas

Contrary to the claims and criticisms of various national governments, the EU has acted quickly and decisively in economic crisis management. This is an up-to-date overview of the main EU initiatives to stabilise and revitalise the economy.

On 23 April 2020, the Council of Heads of State and Government agreed to the 540 billion Euro raft of measures proposed by the Euro-group Finance Ministers. This finance package will be made available by 1 June 2020 at the latest, as mandated by the European Council, and will essentially consist of three pillars:

1. Job security:

The Commission can grant Member States up to 100 billion Euros in loans to finance short-time work (SURE: Support to Mitigate Unemployment Risks in an Emergency).

2. Support for SMEs:

A guarantee fund of 25 billion Euros will be established through the European Investment Bank (EIB). It aims to mobilise up to 200 billion Euros in loans for SMEs.

3. Support for Member States:

Establishment of a credit line through the European Stability Mechanism (ESM). If necessary, all ESM Member States can draw up to two percent of their respective GDPs as a loan to finance direct and indirect health care costs and prevention measures in connection with the COVID-19 pandemic. This results in total finance of up to 240 billion Euros.

Furthermore, the European Commission had already adopted a temporary framework for state aid to support the economy and avert serious disruption in the face of COVID-19 on 19 March 2020 (!). This framework allows Member States to support companies in financial distress due to the COVID-19 pandemic, in line with EU state aid law. The measure allows aid in the form of direct grants or tax benefits, subsidised guarantees for bank loans, interest rate subsidies, and short-term export credit insurance.

On 3 April 2020, the Commission added further measures to the temporary framework. They allow Member States to grant companies capital, interest-free loans or guarantees for loans covering 100% of risk up to a value of 800,000 Euros (not 500,000 Euros, as repeatedly claimed by the Austrian Finance Minister, contrary to the facts!). In addition, Member States may grant these companies additional “de minimis” aid, which can increase the support per company up to 1 million Euros. However, this aid may only be granted to enterprises which were not yet in economic difficulties as of 31 December 2019, but whose problems are considered to be caused by COVID-19. The measures may be granted until 31 December 2020.

Last but not least, on 28 April 2020 the European Commission took a decisive measure regarding the capital adequacy requirements for banks. In order to ensure a sufficient supply of credit to companies and private individuals, banks are temporarily relieved of equity, liquidity and operational issues. In line with the key role of banks in coping with the economic dislocation, a legislative proposal (CRR Quick Fix) also brought forward important elements of the banking package adopted in June 2019. This concerns the extension of SME support and infrastructure support, through loans backed by pension or wage subsidies and the exemption of certain software from capital deductions.

All these important measures are aimed at combating the immediate symptoms of the COVID-19 crisis. But what should be done to get Europe’s economy back on track and generate sustainable growth? To this end, an EU recovery fund is planned, and has already been agreed in principle by the European Council. This is said to be worth 300 to 500 billion Euros, which could be used to mobilise up to 1.5 trillion Euros through investors. The European Commission would be allowed to take out loans for this purpose, limited until 2024, which the Member States would underwrite. The fund’s resources are to be used to make rapid investments in climate protection, sustainable energy (“green deal”), digitisation, and health care. 

The focus will likely be on those economies that are particularly impacted by COVID-19, such as Italy and Spain. No agreement could be reached so far on the question of which instruments should in principle be used for these investments – whether with repayable loans or non-repayable grants. Consensus on this issue will depend on whether the deadline of 27 May 2020 set by EU Commission President Ursula von der Leyen for the presentation of the Reconstruction Fund is met. 

Author:

Mag. Peter Michael Ikrath, Senior Expert Counsel at LANSKY, GANZGER + partner

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