In the face of COVID-19 pandemic, a number of European countries are taking extraordinary measures in an effort to slow down the spread of infection and cope with the toll that the epidemic is taking on healthcare sector and economy in general. In addition to being a serious threat to life and health for a large number of people, COVID-19 is hurting the economy through severe disruptions of production, financial markets, supply chains, and work forces.
Countries are imposing measures ranging from complete quarantine, to closure of borders, prohibition of exports, closure of public gatherings, shut-down of hospitality outlets, and closure of schools. Many people work remotely or are required to stay in isolation. Many have to care for infected family member or children who are forced to stay at home following the shut-down of day-care centres and schools. As a consequence, businesses are taking a hit, especially in the tourism, hospitality, and transport sectors. The crises will especially affect small and medium businesses. EU countries are considering and fast-tracking different measures in order to support their economies, including government loans, tax and social security credits or deferrals. However, some of these measures may be hindered by the State aid rules which require prior notification and clearance.
EU State aid rules provide for an exception from the general prohibition of state aid for measures aimed at making good the damage caused by natural disasters or exceptional occurrences. There is no definition of exceptional occurrence, but the EU Commission confirmed that COVID-19 outbreak qualifies as such. EC President Ursula von der Leyen and EC Executive Vice President and Competition Commissioner Margrethe Vestager announced on 13 March that the European Commission would quickly and decisively help governments use their resources to help citizens and businesses in order to make sure that businesses have sufficient liquidity they need to keep operating. The European Commission has issued short guidelines for the EU countries on how they can provide liquidity measures to companies during COVID-19 crisis. General measures which do not have to be notified are reliefs on tax and social security contributions, loans and guarantees provided at market rates, de minimis support in the amount of EUR 200,000 in 3 years for most sectors in the form of grants, subsidized loans up to EUR 1 million in 5 years or subsidized guarantees for loans in the amount of EUR 1,5 million in 5 years.
For SMEs and small public companies State aid may also be given via schemes providing for loans or guarantees to address cash-flow shortfalls for a period od up to 18 months, on the basis of Rescue & Restructuring Guidelines, which must be notified. Loans or guarantees to large undertakings may be granted on the basis of Rescue & Restructuring Guidelines to cover operating cash-flow shortfalls for up to 6 months, but must be notified as individual aid.
The Commission has already cleared, within 24 hours, the first notification of state aid submitted by the Danish government regarding its plans to compensate companies that had to cancel events with more than 1000 people. The EC assessed the measure within the scope of Article 107(2) and confirmed that COVID-19 outbreak qualifies as an exceptional occurrence, as it is an extraordinary, unforeseeable event having a significant economic impact. Slovenia, in which the COVID-19 outbreak has escalated quickly within the last few days, has prepared the Law on the Interim Measure of Partial Reimbursement of Salaries in order to protect employees and provide relief to the affected companies.
In addition to assisting the Member States in designing the schemes and clearing them though urgent procedures, the EU Commission might have to respond with a designated framework in order to spare the countries from having to deal with the state aid notifications at the time where all capacities are strained and reduced, as it did in 2008. Commissioner Vestager announced that the Commission is working on a new framework.
National state aid regulations of Serbia, Montenegro, and Bosnia and Herzegovina also contain the exception for state aid granted to make good the damage cause by exceptional occurrences. Judging from how the situation with the outbreak is developing in the region, we can expect that these countries will have to adopt similar state aid measures to curb the outbreak.