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State aid: EU Commission approves German guarantee scheme to stabilise trade credit insurance market in coronavirus outbreak

The European Commission has approved, under EU State aid rules, a German guarantee scheme to support the trade credit insurance market in the face of the coronavirus outbreak.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “The German guarantee scheme will help ensure that trade credit insurance continues to be available to all companies.

The measure will support the liquidity of European companies and help them continue their commercial 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 coordinated and effective way, in line with EU rules.”

The German support measure

Germany notified to the Commission a State guarantee scheme supporting the insurance of trade between companies affected by the coronavirus outbreak.

Trade credit insurance protects companies supplying goods and services against the risk of non-payment by their clients. Given the economic impact of the coronavirus outbreak, the risk of insurers not being willing to maintain their insurance coverage has become higher.

The German scheme ensures that trade credit insurance continues to be available to all companies, avoiding the need for buyers of goods or services to pay in advance, therefore reducing their immediate liquidity needs. The Commission assessed the measure under EU State aid rules, and in particular Article 107(3)(b) of the Treaty on the Functioning of the European Union (TFEU), which enables the Commission to approve State aid measures implemented by Member States to remedy a serious disturbance in their economy.

The Commission found that the scheme notified by Germany is compatible with the principles set out in the EU Treaty and is well targeted to remedy a serious disturbance of the German economy. In particular, (i) the trade credit insurers have committed to Germany to maintain their current level of protection in spite of the economic difficulties faced by companies due to the coronavirus outbreak; (ii) the guarantee is limited to only cover trade credit originated until the end of this year; (iii) the scheme is open to all credit insurers in Germany, covering also trade credit to purchasers of goods and services in third countries; (iv) the guarantee mechanism ensures risk sharing between the insurers and the State, up to a volume of €5 billion, and provides an additional safety-net to cover up to €30 billion in total if required; and (v) the guarantee fee provides a sufficient remuneration for the German State.

The Commission therefore concluded that the measure will contribute to managing the economic impact of the coronavirus in Germany and beyond.It 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 general principles set out in the Temporary Framework adopted by the Commission on 19 March 2020, as amended on 3 April 2020

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

Background

In case of particularly severe economic situations, such as the one currently faced by all Member States and the UK due the coronavirus outbreak, EU State aid rules allow Member States to grant support to remedy a serious disturbance to their economy. This is foreseen by Article 107(3)(b) TFEU of the Treaty on the Functioning of the European Union.

On 19 March 2020, the Commission adopted a State aid Temporary Framework based on Article 107(3)(b) TFEU 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, as amended on 3 April 2020, provides for the following types of aid, which can be granted by Member States: (i) Direct grants, equity injections, selective tax advantages and advance payments; (ii) State guarantees for loans taken by companies; (iii) Subsidised public loans to companies; (iv) Safeguards for banks that channel State aid to the real economy; (v) Public short-term export credit insurance;(vi) Support for coronavirus related research and development (R&D); (vii) Support for the construction and upscaling of testing facilities; (viii) Support for the production of products relevant to tackle the coronavirus outbreak; (ix) Targeted support in the form of deferral of tax payments and/or suspensions of social security contributions; (x) Targeted support in the form of wage subsidies for employees.

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.This 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.

Arianna PODESTA