Legal Articles

The EU’s Economic Response to COVID-19

As the looming economic crash induced by the COVID-19 becomes all the more imminent, the European Commission is stepping up its economic and fiscal measures to assist the EU Member States in combatting and mitigating the current economic shocks to the Internal Market. 

The following timeline chronologically maps out the recent fundamental Communications issued by the Commission this month in this regard: 

20 March 2020

The Commission issues a Communication ‘on the activation of the general escape clause of the Stability and Growth Pact    

Main Highlights: 

  • The Communication reaffirms that the COVID-19 crisis is an event falling outside the control of governments, hence rendering applicable the unusual event provision of the Stability and Growth Pact. This entails that the budgetary impact of the budgetary measures already being adopted by Member States should not be taken into consideration when the Commission assesses compliance with the said pact. 
  • The Commission observes that in terms of fiscal measures, more far-reaching flexibility under the Stability and Growth Pact is required. 
  • In such a situation of a severe economic downturn, the general escape clause allows the taking of budgetary measures by member states in order to deal with the situation within the ambits of the procedures of the Stability and Growth Pact.  It also enables the Commission and the Council to undertake the relevant policy coordination measures within the Pact, while departing from the generally applicable budgetary requirements.   
  • The Commission concludes that the conditions to activate the general escape clause are met, and asks the council to endorse this conclusion.  

19 March 2020

The Commission adopts a ‘Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak (the “Temporary Framework”)

The Temporary Framework is intended to further support the economy of member states by enabling them to use full flexibility under the state aid rules. It should assist member states in ensuring sufficient liquidity to businesses and preserving the continuity of economic activity.   

Main Highlights:

  • As the COVID-19 pandemic causes insufficient liquidity and significant damage across the whole economy of the EU, well-targeted public support becomes necessary to alleviate such repercussions.  The Commission observes that the main response will need to come from the member states’ national budgets.  
  • The five temporary state aid measures as listed in the Temporary Framework are considered compatible to article 107 (3) (b) of the Treaty on the Functioning of the European Union (‘TFEU’) and should complement the measures in the Commission’s Communication of 13h March 2020.
  • The 5 temporary state aid measures listed in the Temporary Framework are the following: 
  • Aid in the form of direct grants, repayable advances or tax advantages;
  • Aid in the form of guarantees on loans;
  • Aid in the form of subsidised interest rates on loans; 
  • Aid in the form of guarantees on loans channelled through credit institutions or other financial institutions;
  • Short-term export credit insurance 
  • State aid measures under the Temporary Framework should be necessary, appropriate and proportionate to remedy a serious disturbance in the member state’s economy.  Specific conditions listed in the Temporary Framework should also be fulfilled.
  • The Temporary Framework should apply from 19 March 2020 to 31 December 2020, unless extended.  

13 March 2020

The Commission issues a Communication on the ‘Coordinated economic response to the COVID-19 Outbreak’

Main Highlights: 

  • The Commission proposes to direct 37 billion Euro under the cohesion policy to the COVID-19 outbreak, as part of “Coronavirus Response Investment Initiative”. This is to be fully implemented in 2020 and should, amongst others, enable Member States to provide support to their healthcare systems, provide liquidity, and support national short time working schemes.  
  • The Commission states that one billion Euro will be made available from the EU budget as a guarantee to the European Investment Fund to support working capital financing and help European SMEs and small mid-caps.
  • The Commission exemplifies support measures which may be taken by member states in line with existing state aid rules.  Such measures include: 
    • the implementation of measures across the board with respect to all companies such as wage subsidies; 
    • the granting of direct financial support to consumers, for instance; for cancelled services.
  • The Commission determines that fiscal support measures should be implemented to counter the negative socio-economic consequences of the COVID-19 pandemic.  The Commission is to propose to the Council the application of the full flexibility within the EU fiscal framework as it considers that in light of the current circumstances, the flexibility to cater for “unusual events outside the control of government” is applicable.
  • The Commission also considers other aspects affected by COVID-19, including the supply of medical equipment, transport, tourism and employment.

Bibliography 

https://ec.europa.eu/competition/state_aid/what_is_new/sa_covid19_temporary-framework.pdf

https://ec.europa.eu/info/sites/info/files/economy-finance/2_en_act_part1_v3-adopted_text.pdf

https://ec.europa.eu/info/sites/info/files/communication-coordinated-economic-response-covid19-march-2020_en.pdf