Phasing out of the Temporary Framework for State aid related to the COVID-19 crisis

On 19 March 2020, the European Commission adopted the Temporary Framework for State aid measures to support the economy in the current context of the COVID-19 outbreak (“Temporary Framework”). The Temporary Framework is based on Article 107(3)(b) TFEU and aims to remedy a serious disturbance in the European economy. The Temporary Framework allowed States to adopt measures to contribute to the continuity of economic activity during the COVID-19 pandemic and to ensure post-crisis recovery.

The temporary framework, adopted in March 2020 and initially in force until the end of 2020, provided for five categories of aid which could, under certain conditions, be considered by the Commission as compatible with the internal market:

  • aid in the form of direct subsidies, repayable advances or tax advantages, up to a maximum amount of 800,000 euros per company;

  • aid in the form of loan guarantees;

  • assistance in the form of subsidized interest rates for public borrowing;

  • aid in the form of public guarantees and reduced interest rates granted to companies through credit institutions or other financial institutions; and

  • assistance in the form of short-term export credit insurance.

Given the evolution of the pandemic and its impact on the economies of EU Member States, the Temporary Framework has been amended several times and its duration extended.

On April 3, 2020, the Commission adopted a first amendment so that the aid can be used to accelerate research, testing and production of products related to COVID-19, to protect jobs and to further support the economy during the crisis (see our article of April 7, 2020).

On May 8, 2020, it adopted a second amendment to further facilitate access to capital and liquidity for companies affected by the crisis (see our article of May 13, 2020).

On June 29, 2020, it adopted a third amendment to further support start-ups and micro, small and medium-sized enterprises and encourage private investment (see our July 10, 2020 article).

On October 13, 2020, it adopted a fourth amendment to extend the Temporary Framework and allow the use of aid to cover part of the uncovered fixed costs of companies affected by the crisis (see our article of October 16, 2020).

On 28 January 2021, it adopted a fifth amendment to further extend the temporary framework, adapt the aid thresholds set in the temporary framework and allow the conversion of reimbursable instruments into direct grants under certain conditions (see our article of 3 February 2021).

Finally, on November 18, 2021, the European Commission extended the Temporary Framework until June 30, 2022 (see our article of November 24, 2021). The main change concerns the introduction of two categories of phasing-out aid, namely the possibility for Member States to grant investment and solvency support measures beyond the expiry date fixed (i.e. beyond June 30, 2022).

  • Investment support measures

Member States may stimulate private investment in companies, provided that the investment aid is granted within the framework of an aid scheme and in various forms and that the maximum individual aid to a company does not not exceed 10 million euros in nominal value. This ceiling is raised to EUR 15 million where the aid scheme provides for aid exclusively in the form of guarantees or loans. In addition, individual aid must not exceed 1% of the total budget of the scheme, except in exceptional situations duly justified by the Member State concerned.

The eligible costs covered by these investment support measures should only include investment costs in (in)tangible assets, excluding financial investments.

Furthermore, the aid intensity must not exceed 15% of the eligible costs, although increases may be justified in the case of small or medium-sized enterprises. In the case of aid in the form of guarantees or loans, the aid intensity must not exceed 30% of the eligible costs.

Finally, Member States can limit investment aid to specific economic areas of particular importance for economic recovery, provided that these limits are designed in a general way and do not constitute an artificial restriction of eligible investments.

This instrument is available to Member States until December 31, 2022 if the investments concerned were made before February 1, 2020.

  • Solvency support measures

Solvency support aims to alleviate difficulties related to a company’s level of indebtedness and to act as an incentive for private investment in equity, subordinated debt or quasi-equity, with the aim of realizing risk sharing between Member States and private investors.

Risk sharing is achieved by limiting the value of such a guarantee to a maximum of 30% of the underlying portfolio when covering the first losses, with a limit of 10 million euros on the total amount of financing provided. per company.

Like investment aid, solvency aid is granted under an aid scheme established on the basis of transparent and objective criteria, in the form of State guarantees or similar. This support will be granted under market-oriented conditions and will only target SMEs as final beneficiaries. Financial institutions are explicitly excluded from the measure.

This instrument is available to Member States until December 31, 2023.

In addition, the Commission made other changes, namely:

  • extending from 30 June 2022 to 30 June 2023 the possibility for Member States to convert certain repayable instruments (such as guarantees, loans and repayable advances) granted under the Temporary Framework into other forms of assistance, such as direct grants;

  • adjust the maximum amounts of certain types of aid in proportion to their prolonged duration;

  • clarify the exceptional flexibility provisions of the Commission’s Rescue and Restructuring Guidelines; and

  • extending by three months (from 31 December 2021 to 31 March 2022) the adapted list of non-marketable countries at risk for short-term export credit insurance.

In early 2022, the Commission consulted Member States on a possible extension of the Temporary Framework and requested related macroeconomic data.

However, the European Commission announced on May 12, 2022 that the Temporary Framework would not be extended beyond June 30, 2022, although certain measures may be implemented by States after this date; for example, Member States will still be able to convert loans into limited amounts of aid in the form of direct grants, subject to the conditions of the Temporary Framework and provided that this option has been considered in their national schemes. This conversion option could be used under strict conditions to cancel loans or parts of loans for the benefit of borrowers unable to repay.

Similarly, Member States will also be able to implement their loan restructuring programmes, for example by extending their duration or by lowering the applicable interest rates, within defined limits.

In addition, during the phase-out and transition phase, Member States will be able to adopt the specific investment support and solvency support measures described above until 31 December 2022 and 31 December 2023 respectively, subject to prior authorization by the Commission (see above). .

In conclusion, just over two years after the entry into force of the Temporary Framework, the Commission will have enabled Member States to provide rapid and flexible support to businesses affected by the COVID-19 crisis. The Commission has indeed adopted more than 1,300 decisions in the context of the coronavirus pandemic, authorizing nearly 950 national measures for a total amount of State aid estimated at nearly €3.2 trillion.

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