EU could suspend state aid rules to allow coronavirus action

Out-Law News | 12 Mar 2020 | 6:41 pm | 2 min. read

The European Commission is considering whether to relax state aid rules in certain sectors, giving member states more flexibility to support businesses struggling with effects related to the coronavirus outbreak.

Ursula von der Leyen, president of the Commission, said that state aid could be permitted in "exceptional circumstances" as a way of mitigating the impact of the Covid-19 virus on the European economy. Commissioners are proposing "targeted options" that EU member states could direct to particular sectors requiring specific support, according to the Financial Times (registration required).

In a statement, von der Leyen said that the Commission would "use all the tools at our disposal to make sure the European economy weathers this storm".

"We will make sure that state aid can flow to companies that need it," she said. "We will clarify the rules of the game for member states very quickly."

Brendan Ryan

Senior Associate

There may be a number of ways in which national governments could support struggling businesses within the existing state aid rules

Targeted government financial support such as direct subsidies, interest-free or preferential loans or tax breaks or payment deferrals may breach EU rules on state aid where they are only made available to certain businesses.

Speaking at a conference in Dublin last week, EU trade commissioner Phil Hogan said that the current regime allows the Commission to relax the rules in exceptional circumstances if a member state can provide evidence that a particular business or sector required support.

"There is provision made in the legislation for exceptional measures to be taken in the event that there is an exceptional set of circumstances – coronavirus clearly comes into that category," he told the Irish Times.

State aid expert Brendan Ryan of Pinsent Masons, the law firm behind Out-Law, said that there may be a number of ways in which national governments could support struggling businesses within the existing state aid rules.

"State aid rules can be disapplied for certain measures and schemes if the EU Council, on application from a member state, decides unanimously to do so in 'exceptional circumstances' – this would avoid the need to notify and seek the approval of the Commission, before implementing the aid", he said. "The coronavirus outbreak would likely qualify as exceptional circumstances, and the reported statements by the commissioners over the past few days seem to confirm this."

"An alternative approach would be to notify the Commission which will approve the aid if it is considered to be necessary to 'make good the damage caused by natural disasters or exceptional occurrences'. The Commission has already approved the first such scheme within just 24 hours of its notification by Denmark – this shows that there is a real determination in the Commission to act swiftly in approving schemes designed to mitigate the economic impact of the pandemic," he said.

"The Commission can also decide to approve the aid if it is designed to 'remedy a serious disturbance in the economy of a member state'. Arguably, this could be applied flexibly to authorise measures intended to prevent a future economic crisis," he said

The UK announced a package of measures to support public services, individuals and businesses affected by the coronavirus outbreak as part of this week's Budget.