The temporary framework recognizes that the EU economy is experiencing serious disruption

The European Commission has announced that it has approved a temporary legal framework for flexibility with regard to state aid in the context of the COVID-19 disease epidemic. The timetable recognizes that the EU economy is experiencing serious disruption, BTA reported.

To counter this, the EC provides for five types of assistance:

(1)  Direct grants, selective tax advantages and advance payments: Member States will be able to set up schemes to grant up to €800,000 to a company to address its urgent liquidity needs.

(2)  State guarantees for loans taken by companies from banks: Member States will be able to provide State guarantees to ensure banks keep providing loans to the customers who need them.

(3) Subsidised public loans to companies: Member States will be able to grant loans with favourable interest rates to companies. These loans can help businesses cover immediate working capital and investment needs.

(4) Safeguards for banks that channel State aid to the real economy: Some Member States plan to build on banks' existing lending capacities, and use them as a channel for support to businesses – in particular to small and medium-sized companies. The Framework makes clear that such aid is considered as direct aid to the banks' customers, not to the banks themselves, and gives guidance on how to ensure minimal distortion of competition between banks.

(5) Short-term export credit insurance: The Framework introduces additional flexibility on how to demonstrate that certain countries are not-marketable risks, thereby enabling short-term export credit insurance to be provided by the State where needed.

Given the limited size of the EU budget, the main response will come from Member States' national budgets. The Temporary Framework will help target support to the economy, while limiting negative consequences to the level playing field in the Single Market.

The Temporary Framework therefore includes a number of safeguards. For example, It links the subsidised loans or guarantees to businesses to the scale of their economic activity, by reference to their wage bill, turnover, or liquidity needs, and to the use of the public support for working or investment capital. The aid should therefore help businesses to weather the downturn and to prepare a sustainable recovery.

The Temporary Framework complements the many other possibilities already available to Member States to mitigate the socio-economic impact of the COVID-19 outbreak, in line with EU State aid rules.

The Framework will be in place until the end of December 2020. With a view to ensuring legal certainty, the Commission will assess before that date if it needs to be extended.

More information can be found in the official press release published by the European Commission press centre.

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