Under EU State aid rules, Member States of the European Union may only grant subsidies or other financial aid to undertakings if the aid has been approved beforehand by the European Commission. In response to the severe economic downturn in 2008, the European Commission enacted an extraordinary State aid regime to facilitate the access of financial aid to banks and commercial enterprises during the crisis. The crisis aid for the financial sector, as well as the “Temporary Framework” for aid to commercial enterprises, was set to expire at the end of this year, but the Commission announced today that it will be extended through 2011. Under the crisis regime, Member States have granted hundreds of billions of aid (EUR353 billion in 2009 alone) to companies. This extension is good news for companies investing or operating in Europe.
Until the end of 2011, the extended Temporary Framework will allow aid in the following forms:
- Subsidized State guarantees not exceeding 80 percent of the loan can be granted until 31 December 2011 at rates set out in the Framework and depending on the rating of the beneficiary. Small and Medium-sized Enterprises (SMEs) may receive an additional reduction of 15 percent of the annual premium to be paid for the guarantee.
- Subsidized State loans for investments with the allowed interest rates depending on the rating of the beneficiary. SMEs may also receive subsidized loans for working capital.
- Aid for the production of “green products”, e.g. investment loans for financing projects consisting of production of new products which significantly improve environmental protection.
The conditions for aid under the extended crisis regime will be stricter than before. In particular, under the Temporary Framework “firms in difficulties” may no longer benefit from aid and large firms may only benefit from aid for investment projects and no longer from operational aid. As to the financial sector, as of 1 January 2011, every bank requiring state support in the form of capital or impaired asset measures will have to submit a restructuring plan. Until now this was limited to distressed banks.