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State aid: Commission approves €130 million Danish guarantee scheme for SMEs with export activities affected by coronavirus

The European Commission has found a DKK 1 billion (approximately €130 million) Danish liquidity guarantee scheme for small and medium-sized enterprises (SMEs) affected by the coronavirus outbreak to be in line with EU State aid rules. The scheme, which will be accessible to SMEs with a certain amount of export activities, 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: “This Danish guarantee scheme of 1 billion DKK, or approximately €130 million, will support SMEs with a certain amount of export activities in these difficult times. We continue to work in close cooperation with Member States to find workable solutions to mitigate the economic impact of the coronavirus outbreak, in line with EU rules.”

The Danish support measure

Denmark notified to the Commission aDKK 1 billion (approximately €130 million) liquidity guarantee scheme targeted at certain categories of SMEs affected by the coronavirus outbreak under the Temporary Framework.

The support, in the form of State guarantees on loans and credits, will be accessible to SMEs whose exports represent at least 10% of their yearly revenue, to the extent they experience or expect to experience a decline in revenue of at least 30% compared to their revenue before the coronavirus outbreak in Denmark. The support will also be available to the sub-suppliers of these companies if they are SMEs themselves. The guarantees will support lending to those SMEs, but will not take the form of export aid contingent on export activities.

The scheme aims at limiting the risk associated with issuing operating loans to those companies that are most severely affected by the economic impact of the coronavirus outbreak, thus ensuring the continuation of their activities.

The Commission found that the Danish measure is in line with the conditions set out in the Temporary Framework. In particular, it covers guarantees on operating loans with a limited maturity and size. It also limits the risk taken by the State to a maximum of 80%.

This ensures that support is swiftly available at favourable conditions and limited to those who need it in this unprecedented situation. To achieve this goal, the measures also involve minimum remuneration and safeguards to ensure that the aid is effectively channelled by the banks or other financial institutions to the beneficiaries in need.

The Commission concluded that the Danish guarantee schemes for exporting SMEs will contribute to managing the economic impact of the coronavirus outbreak in Denmark. The measures are 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 measures 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 business 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.56808 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.

Arianna PODESTA