COVID-19 Legal Update: State aid aspects

23 March 2020 – need2know

In order to enable the Member States the compensation of the economic impact of the corona crises, the European Commission has adopted a temporary framework which relaxes State aid rules. Our partner Christian F. Schneider gives an overview of the aid opportunities resulting therefrom.

What role does EU State aid law play?

After the coronavirus pandemic spread to the EU Member States, massive economic effects were quickly felt, whether as a result of disruptions in supply chains, delays in delivery due to border controls, or sanitary measures requiring the closure of plants. Many EU Member States have launched support measures to mitigate these effects. In the case of Austria, the most important of these measures is the COVID-19 Act, Federal Law Gazette I 2020/12 of 15 March 2020, which, as a so-called “Article Act”, provides, among other things, for the establishment of a COVID-19 crisis management fund and labour market policy measures; further measures are to follow.

It should be noted, however, that such measures constitute State aid to the extent that they confer an economic advantage on enterprises with effects on the internal market. Such aid is prohibited in principle under Article 107 (1) of the Treaty on the Functioning of the European Union (TFEU) and is only permissible in exceptional cases; as a rule, such aid may only be granted after approval by the European Commission.

Nevertheless, the European Commission reacted quickly and approved a first aid measure of Denmark in the amount of EUR 12 million on 12 March 2020 to compensate for damage caused by the cancellation of major public events; the Commission approved the measure within one day (!) after notification on the basis of Art 107 (2) lit b TFEU, according to which aid to make good the damage caused by natural disasters or other exceptional occurrences is compatible with the internal market.

However, in addition to the aforementioned Article 107 (2) lit b TFEU, other provisions of the TFEU may also form the basis for the admissibility of COVID-19 conditional aid measures. In particular, Art 107 (3) lit b TFEU, according to which, inter alia, aid to remedy a serious disturbance in the economy of a Member State may be considered compatible with the internal market. On the basis of this legal basis, Commission Vice-President Margarethe Vestager sent a Commission proposal for a Temporary Framework for State Aid Measures to support the economy in the current COVID-19 outbreak to the Member States for consultation on 17 March 2020 and published it definitively on 19 March 2020.

The essence of such a Union framework is that the Commission, through it, will give advance notice of how it intends to exercise its discretion in authorising Member States’ aid in relation to COVID-19, but this does not preclude the Commission from authorising Member States’ aid that does not comply with the Union framework.

What are the key points of the Union framework?

The Union framework is limited in time to 31 December 2020 and is intended to allow for the following specific measures:

– Aid to meet urgent liquidity needs: These may be granted until 31 December 2020 under a general aid scheme (i.e. not ad hoc as individual aid) with a maximum budget estimated in advance by the Member State as a direct grant, repayable advance, tax or payment advantages of up to EUR 800,000 (before tax) per undertaking. (Specific criteria differ in part for agriculture.)

– Aid in the form of premium reductions on guarantees for investment and working capital loans: Low minimum premiums for guarantees depending on the credit period are permissible (e.g. for a loan with a one-year maturity 25 basis points for SMEs and 50 basis points for non-SMEs), whereby the guarantee must be granted by 31 December 2020 at the latest, the credit period may not exceed six years and there are restrictions on the amount of the loan or guarantee (e.g. maximum loan volume in principle doubled by personnel expenses or 25% of turnover for 2019).

– Aid in the form of isubsidized nterest rates on loans for investment and working capital needs: This measure is only permissible as an alternative to the premium subsidy mentioned above, whereby the minimum interest rate must correspond to the 1-year IBOR plus a risk premium depending on the loan term (again different for SMEs and non-SMEs, the same basis points as for guarantee premiums are applied as premiums). The loan contract must be signed by 31 December 2020 at the latest and may have a maximum term of 6 years; the same credit volume restrictions apply as for guarantees.

– Concerning guarantee premium and interest rate subsidies: The Union framework clarifies that both measures may be granted by the State directly or through a bank. In the latter case there should be no aid to the bank, but banks are encouraged to pass on the benefits of the measure to beneficiaries to the maximum extent possible.

– Short-term export credit insurance: This would provide for exemptions from the principle that marketable risks cannot be the subject of State aid in relation to short-term export credit insurance if evidence of market failure in the Member State concerned is provided.

Where Member States grant aid under Article 107(2)(b) TFEU (see above) to companies in difficulty as a result of the COVID-19 crisis, the principle of the one-off nature of the aid should not apply to aid to companies in difficulty because such aid would not qualify as aid to companies in difficulty as such.

It is also important to note that Member States may only grant the measures mentioned (except in the case of export credit insurance) in favour of companies that were not already in financial difficulty on 31 December 2019.

What’s the procedure?

Due to its character as a so-called “Union Framework,” it inevitably follows that the aid measures listed there may only be implemented by the Member States with the approval of the European Commission. However, since the Commission approved the aforementioned aid scheme in Denmark within one day (notification on 11 March 2020, approval on 12 March 2020), it can be assumed that the Commission will proceed with similar speed in other cases as well. For example, the Commission approved a French aid scheme within 48 hours on the basis of the new Union framework.

What is the Commission proposal’s position on other aid measures?

The Commission proposal does not, of course, rule out the possibility of Member States using other, already known, admissible aid instruments instead or in addition to this.

The Commission has also recently published a checklist for Member States that intend to grant aid under Article 107(2)(b) TFEU to repair damage caused by exceptional measures, in order to allow for the quickest possible processing.

RA Associate Professor DDr. Christian F. Schneider

Questions? Please contact:
RA Associate Professor DDr. Christian F. Schneider

Practice Group
Public commercial Law

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