State aid: Commission approves Luxembourg guarantee measure to further support economy in coronavirus outbreak

Luxembourg 2020_

(Polina Sushko, Unsplash)

This article is brought to you in association with the European Commission.


The European Commission has approved today another Luxembourg State aid scheme to support the Luxembourgish economy in the context of the coronavirus outbreak. The scheme was approved under the State aid Temporary Framework to support the economy in the context of the COVID-19 outbreak adopted by the Commission on 19 March 2020.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “The Luxembourg scheme that we approved today enables the granting of guarantees on loans at favourable terms to help business cover immediate working capital and investment needs and continue their activities in these difficult times. We continue working closely with Member States to ensure that national support measures can be put in place in a timely, coordinated and effective way, in line with EU rules.”

The Luxembourg support measure

Following the approval of the Luxembourg measure adopted on 24 March 2020, Luxembourg notified to the Commission an additional support measure under the Temporary Framework in the form of guarantees on loans.

The scheme is open to all companies, except those active in the promotion, renting and sale of building as well as holding of investments. It enables the granting of guarantees on loans at favourable terms to help businesses cover immediate working capital and investment needs.

The Commission found that the Luxembourg measure is in line with the conditions set out in the Temporary Framework. In particular, (i) the underlying loan amount per company is linked to cover its liquidity needs for the foreseeable future, (ii) the guarantees will only be provided until the end of this year, (iii) the guarantees are limited to a maximum six-year duration, and (iv) companies pay guarantee premiums as set out in the Temporary Framework.

The Commission concluded that the measure is necessary, appropriate and proportionate to remedy a serious disturbance in the economy of a Member State, in line with Article 107(3)(b) TFEU and the conditions set out in the Temporary Framework.

On this basis, the Commission approved the measure under EU State aid rules.

Background

The Commission has adopted a Temporary Framework to enable Member States to use the full flexibility foreseen under State aid rules to support the economy in the context of the Coronavirus outbreak. The Temporary Framework provides for five types of aid, which can be granted by Member States:

(i)           Direct grants, selective tax advantages and advance payments: Member States will be able to set up schemes to grant up to €800,000 to a company to address its urgent liquidity needs.

(ii)         State guarantees for loans taken by companies from banks: Member States will be able to provide State guarantees to ensure banks keep providing loans to the customers who need them. These state guarantees can cover loans to help businesses cover immediate working capital and investment needs.

(iii)        Subsidised public loans to companies: Member States will be able to grant loans with favourable interest rates to companies. These loans can help businesses cover immediate working capital and investment needs.

(iv)        Safeguards for banks that channel State aid to the real economy: Some Member States plan to build on banks’ existing lending capacities, and use them as a channel for support to businesses – in particular to small and medium-sized companies. The Framework makes clear that such aid is considered as direct aid to the banks’ customers, not to the banks themselves, and gives guidance on how to ensure minimal distortion of competition between banks.

(v)         Short-term export credit insurance: The Framework introduced additional flexibility on how to demonstrate that certain countries are not-marketable risks, thereby enabling short-term export credit insurance to be provided by the State where needed. On 27 March, the Commission further expanded on that flexibility: following an urgent public consultation, the Commission decided to amend the Annex to temporarily remove all countries from the list of “marketable risk” under the Short-term export-credit insurance Communication. This will make public short-term export credit insurance more widely available in light of the current crisis linked to the coronavirus outbreak. Following the amendment, State insurers will in principle be able to step in and provide insurance for short-term export-credit risk for all countries, without the need for the Member State in question to demonstrate that the respective country is temporarily “non-marketable.” This amendment will be in place until 31 December 2020, with a possibility to review beforehand.

 

The Temporary Framework will be in place until the end of December 2020. With a view to ensuring legal certainty, the Commission will assess before that date if it needs to be extended.

The Temporary Framework complements the many other possibilities already available to Member States to mitigate the socio-economic impact of the Coronavirus outbreak, in line with EU State aid rules. On 13 March 2020, the Commission adopted a Communication on a Coordinated economic response to the COVID-19 outbreak setting out these possibilities. For example, Member States can make generally applicable changes in favour of businesses (e.g. deferring taxes, or subsidising short-time work across all sectors), which fall outside State Aid rules. They can also grant compensation to companies for damage suffered due to and directly caused by the Coronavirus outbreak.

The non-confidential version of the decision will be made available under the case number SA.56805 in the State aid register on the Commission’s competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.

More information on the temporary framework and other action the Commission has taken to address the economic impact of the Coronavirus pandemic can be found here.

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