On 13 October 2020, the European Commission amended, once again, the "Temporary Framework to enable Member States to further support the economy in the COVID-19 outbreak". The Commission has decided to extend the application and the scope of the Temporary Framework to include support for fixed costs of companies, which had been excluded, based on article 107(3), lett. (b) TFEU.
The new amendments are in addition to the previous amendments of the Temporary Framework, adopted on 19 March 2020 1; including the aid measures regarding public recapitalization of undertakings.
1. Prolongation of the Temporary Framework
The aim of this latest amendment is, firstly, to prolong the measures set out in the Temporary framework with the objective of enabling Member States to support businesses in the context of the coronavirus crisis. The Temporary Framework was initially set to expire after 31 December 2020, except for recapitalisation measures that could be granted until 30 June 2021.
The Commission considered, firstly, that the evolution of the economic situation in the exceptional circumstances created by the COVID-19 outbreak, as well as the more permanent effects of the outbreak, are likely to continue and, secondly, the Temporary Framework was the appropriate an instrument to ensure that national support measures effectively help affected undertakings during the outbreak, whilst limiting undue distortions to the Internal Market and ensuring a level playing field.
The Commission acknowledged that, while the Temporary Framework has been useful as an instrument to address the economic consequences of the outbreak, the use of the Temporary Framework has also highlighted disparities in the Internal Market, mainly due to the differences in economic size and budgets of Member States.
On the basis of the above, the Commission, therefore, considers that a limited prolongation of the measures set out in the Temporary Framework (until 30 June 2021) and, for recapitalisation measures, until 30 September 2021, is appropriate to ensure that national support measures effectively help undertakings during the outbreak, but also to maintain the integrity of the Internal Market and to ensure a level playing field.
Due to serious uncertainties concerning the recovery, the Commission will assess before 30 June 2021 if the Temporary Framework needs to be further extended.
2. Support for uncovered fixed costs of companies
The new amendment will also enable Member States to support companies facing a decline in turnover, by covering part of their fixed costs temporarily.
The new aid measure represents a significant change in the Commission's approach, which, in the past, has generally given preference to aid measures linked to the restructuring of undertakings. However, in the context of the coronavirus crisis, the Commission considers that it may not be efficient for those undertakings to downsize if doing so entails significant restructuring costs. The measure is thus aimed at bridging the gap, thereby avoiding the deterioration of their capital, maintaining their business activity and providing them with a platform from which to recover.
The new aid measure must be granted no later than 30 June 2021 and covers uncovered fixed costs incurred during the period between 1 March 2020 and 30 June 2021 ('eligible period'). The aid is granted on the basis of a scheme to undertakings that suffer a decline in turnover during the eligible period of at least 30% compared to the same period in 2019.
The support will contribute to a part of the beneficiaries' fixed costs not covered by their revenues or other sources, such as insurance, up to a maximum amount of 3 million euros per undertaking.
In line with the other measures provided for by the Temporary Framework, aid may not be granted to undertakings that were already in difficulty (within the meaning of the General Block Exemption Regulation No 651/2014) on 31 December 2019. In derogation to the above, aid can be granted to micro or small enterprises that were already in difficulty on 31 December 2019 provided that they are not subject to collective insolvency procedures under national law, and that they have not received rescue aid or restructuring aid.
The aid may be granted in the form of direct grants, guarantees and loans provided the total nominal value of such measures remains below the overall cap of EUR 3 million per undertaking.
Italy has already introduced a national measure aimed at supporting micro or small enterprises by covering temporarily part of their fixed costs, especially with regard to electric bills (see article 30 of Decree Law no. 34/2020).
It is now up to Italy and the other Member States to introduce further aid measures, in accordance with Commission's Communication of 13 March 2020.
3.Further amendments and adjustments of the Temporary Framework
With regard to recapitalisation measures, the Commission has introduced some additional adjustments and clarifications concerning, in particular, the State's non-participation in the recapitalisation of enterprises where the State was an existing shareholder prior to the recapitalisation.
Furthermore, taking into account the continued general lack of sufficient private capacity to cover all economically justifiable risks for exports to countries from the list of marketable risk countries, the amendment provides for an extension until 30 June 2021 of the temporary removal of all countries from the list of "marketable risk" countries.
4. State aid measures approved and future scenarios: the Recovery and Resilience Facility and its interaction with the European Green Deal
The Commission has, to-date, approved an estimated 250 state aid measures, in accordance with the Temporary Framework, thus on the basis of TFEU Article 107(3), lett. b), the rule of the Treaty which allows aid to remedy a serious disturbance in the economy of a Member State.
Other aid measures closely related to the crisis have been approved outside the scope of the Temporary Framework, either in direct application of TFEU Article 107(3), lett. b) (14 measures), or in direct application of Article 107(2), lett. b), the rule of the Treaty which allows aid to make good the damage caused by natural disasters or exceptional occurrences (19 measures), or, finally, in direct application of Article 107(3), lett. c), which allows aid to facilitate the development of certain economic activities or of certain economic areas (3 measures).
So far, the main beneficiaries have been German undertakings, while other Member State undertakings are disadvantaged, due to smaller financial resources. To-date, out of ?2.94 trillion in approved State aid to the EU economy, an estimated 52% has been in Germany (as opposed to Italy's 15% and France's 14%).
In order to address these imbalances, on 6 October 2020, the Council formally reached a political agreement on the Recovery and Resilience Facility, with a financial envelope of ?672.5 billion, which will support public investment in the Member States, as well as reforms post Covid-19 crisis. The facility is the centrepiece of the Next Generation EU ("NGEU"), or Recovery Fund, a new recovery instrument designed to respond to the COVID-19, which will boost the EU budget with new financing raised on the financial markets for 2021-2024. The NGEU has a financial firepower of ?750 billion (?390 billion grants and ?360 billion in loans) and its key features have been discussed by the EU leaders at their meeting on 17-21 July 2020.
The facility - still not approved by the European Parliament, which argues for more funding for genuinely "EU" instruments", such as Erasmus programme - is built on three pillars: i) instruments to support Member State efforts to recover from the crisis; ii) measures to boost private investment and support ailing companies; iii) the reinforcement of key EU programmes to accelerate the twin green and digital transitions.
In order to receive support from the Recovery and Resilience Facility, Member States must prepare national recovery and resilience plans setting out their reform and investment agendas until 2026, including targets, milestones and estimated costs. At least 37% of the allocations in each plan should support the green transition and at least 20% the digital transformation.
Member States have been invited submit their draft plans to the Commission as from 15 October and are expected to present their plans officially by 30 April at the latest. According to the Council's mandate, measures started from 1 February 2020 onwards would be eligible.
Media reports suggest that Italy has submitted to the Commission in early October its 'Guidelines' for the definition of the National Recovery and Resilience Plan, approved by Parliament on 13 October. The next step should be to present the plan by the end of the year so that formal talks with the Commission can begin at the beginning of 2021.
Under the facility, the Commission should assess Member States' recovery and resilience plans or, where applicable, their updates, within two months. The assessment of the recovery and resilience plans is to be approved by the Council by means of an implementing decision, which should be issued within four weeks of the Commission proposal.
The Commission will also have to assess the proposed measures in the light of State aid rules. In this context, the Commission will engage with Member States to ensure investment projects supported by the Recovery and Resilience Facility are compatible with State aid rules, also by providing guidelines and templates outlining the conditions under which measures will be authorised.
We can expect that some of these measures will fall outside the scope of the State aid rules (e.g. certain infrastructure development, grants and other benefits to health system and to citizens, etc.), and that others will not have to be notified to the Commission as they fall within the scope of the block exemptions Regulations. However, a significant part will be subject to Commission review which gives rise to the risk of suspension of the aid granted as well as repayment to the State on the basis of the Commission review or a complaint from a competitor.
In this context, the Commission intends to complete the parallel revision of the sectoral guidelines and communications (the so-called fitness check) by the end of 2021, anticipating that certain conditions relating to aid to support the green and digital transition will be amended in order to facilitate access to measures, in addition to the possible introduction of "green bonuses" and other incentive mechanisms 2 for measures in favour of the environment.
Finally, to complete the picture, reference is made to the public consultation, launched by the Commission on 13 October, on the general interaction between the European Green Deal and European competition law. The call 3 for contributions is open until 20 November and aims to explore if and how the rules on state aid, anticompetitive agreements and abuses of dominant position, as well as merger control, can or should find new application and interpretation in the context of the objectives of the European Green Deal.
1 Here our previous article. On 3 April 2020, the EU Commission adopted a first amendment to enable aid to accelerate research, testing and production of COVID-19 relevant products, to protect jobs and to further support the economy during the current crisis. On 8 May 2020, it adopted a second amendment to further ease the access to capital and liquidity for undertakings affected by the crisis. On 29 June 2020, it adopted a third amendment to further support micro, small and start-up companies and incentivise private investments.
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