European Union: State Aid Measures For The Real Economy

This article was originally published in the schoenherr roadmap`10 - if you would like to receive a complimentary copy of this publication, please visit: http://www.schoenherr.eu/roadmap.

While the situation on the financial markets appears to be improving, the full impact of the financial crisis on the real economy is only slowly starting to be felt. Following comprehensive and specifically crisis-related State aid rules for the banking sector1, the European Commission (the Commission) has for almost a year also applied modified rules for the real economy to support access to financing. These rules give beneficiary undertakings additional opportunities to escape a credit squeeze.

Serious Disturbance, Significant Aid

As a consequence of the current crisis, banks have become much more risk averse in their lending activities than in previous years – despite comprehensive support measures from EU member states. In the real (i.e. not financial) economy, this has led to the oft-cited credit squeeze affecting, in particular, small and medium-sized undertakings (SMEs). Although the financial apparatus provides for sufficient credit capital, the risk surcharge incurred renders conditions more and more unattractive.

The Commission has recognised this problem and since 17 December 2008 has applied a temporary Community framework for State aid measures to support access to finance in the current crisis – temporarily altering the existing State aid rules through 31 December 20102. These measures shall unleash and facilitate bank lending to companies. In this context, the Commission particularly points out that this relaxation of State aid rules will further guarantee investments in environmental projects and, thus, ecologically sustainable growth of the economy.

All of the modifications of the State aid rules outlined below must be notified to the Commission, i.e. they are subject to the standstill clause laid down in Article 87 of the EC Treaty prior to their approval. In order to guarantee that the support measures put in place by the member states for the benefit of undertakings can nevertheless be made of use as quickly as possible, the Commission presupposes that most of the additional room for aid will be notified and implemented as so-called aid schemes. Once an aid scheme of a member state has been approved, further aid may be granted within its scope without prior individual notification.

The legal basis for the possibilities of approval provided for within the temporary Community framework is Article 87(3)(b) of the EC Treaty. Pursuant to this provision, which was virtually unknown before the crisis, the Commission is entitled to declare aid compatible with the common market in order "to remedy a serious disturbance" in the economy of a member state. The Commission considers that the current global crisis requires such exceptional policy responses.

More Than De Minimis

While, according to the current de minimis regulation of the Commission, Article 87(1) of the EC Treaty will not apply to aid measures if the total de minimis aid granted to any one undertaking does not exceed EUR 200,000 over any period of three fiscal years3, the Commission now allows a significantly higher threshold of EUR 500,000. Further conditions that must be met are as follows: (i) the firm was not (yet) in difficulty on 1 July 2008, (ii) the member state obtains a declaration from the undertaking concerned about all de minimis aid and any other aid received and (iii) the member state checks adherence to the ceiling of EUR 500,000.

As regards Austria, the Commission authorised a temporary aid scheme on 23 March 2009 according to which aid may be granted in the form of direct grants, interest rate subsidies, subsidised public loans and public guarantees up to a maximum amount of EUR 500,000 per company4. According to reports, many undertakings make use of this scheme.

Subsidised Loan Guarantees

In its notice on the application of Articles 87 and 88 of the EC Treaty to State aid in the form of guarantees5, the Commission already explained the conditions under which the existence of State aid can be entirely ruled out.

The notice does not, however, indicate any criteria for the assessment of the compatibility of guarantees with the common market. The Commission now makes up for that deficit – again on the basis of Article 87(3)b) of the EC Treaty. In particular, the Commission specifies in an Annex to the Community Framework the "safe harbour premiums" in basis points, thus enabling undertakings to correctly apply this possibility of aid.

Aid In The Form Of Subsidised Interest Rates

In order to tackle the credit squeeze, the Commission now also accepts that public or private loans are granted at an interest rate which is at least equal to the central bank overnight rate6 plus a premium equal to the difference between the average one year interbank rate and the average of the central bank overnight rate over the period from 1 January 2007 to 30 June 2008, plus the credit risk premium corresponding to the risk profile of the recipient.

Aid For The Production Of "Green Products"

As already mentioned, the Commission wants to pursue its environmental targets with a high priority despite the financial crisis. As to the production of certain clearly defined "green products", it should therefore be possible to authorise additional measures in the form of subsidised loans.

Risk Capital Investments And Export Credit Insurance

Finally, the risk capital market within the Community has also been adversely affected by the crisis. And risk capital investments are of major economic importance, particularly for SMEs. In its guidelines adopted in 20067, the Commission has set out the conditions under which State aid supporting risk capital investments may be considered compatible with the common market in accordance with Article 87(3)(c) of the EC Treaty. The stipulated provisions will now be significantly relaxed on the basis of Article 87(3)(b) of the EC Treaty until 31 December 2010.

Similarly, the currently applicable rules with respect to the State aid assessment of export credit insurance8 will be adapted to the new economic situation. Whereas "marketable" risks could not up to now be covered by export credit insurance with the support of member states, a respective risk may now also be covered by the member state if it is able to demonstrate a lack of market. Thus, the Commission extends the applicability of the so-called escape clause (point 4.4. of the Communication on short-term export credit insurance) for member states.

In the current global crisis, not only the financial economy but also the real economy may benefit from a more generous State aid regime. Austria, however, has so far not made good use of the additional opportunities. It may also make sense for non-banking institutions to take advantage of the new, more intensive State aid measures. But time is short: As things now stand, this window of opportunity closes on 31 December 2010.

This article was originally published in the schoenherr roadmap`10 - if you would like to receive a complimentary copy of this publication, please visit: http://www.schoenherr.eu/roadmap.

Footnotes

1. A comprehensive collection of all measures is available at the website of the commission at http://ec.europa.eu/competition/state_aid/legislation/compilation/d_03_11_09_en.pdf

2. OJ 2009 C 83/1.

3. OJ 2006 L 379/5.

4. IP/09/454.

5. OJ 2008 C 155/10

6. cf. Commission Communication on the revision of the method for setting the reference and discount rates, OJ 2008 C 14/6.

7. Guidelines on State aid to promote risk capital investments in small and medium-sized enterprises, OJ 2006 C 194/2.

8. Communication from the Commission to Member States pursuant to Article(1) of the EC Treaty applying Articles 92 and 93 of the Treaty to short-term export-credit insurance, OJ 1997 C 281/4.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions