In the wake of the financial crisis in 2008, the Commission has adopted several Communications setting out a Temporary Framework for the compatibility of certain support measures with Article 107 (3) (b) TFEU; namely an exceptional legal basis that allows aid to remedy a serious disturbance in the economy of a Member State. The Temporary Framework for State aid measures to tackle the crisis was set to expire on 31 December 2010.

The Commission has considered that the European financial markets are in robust health, the recovery has begun to take hold as can be seen from the return to profit of a number of banks and the gradual easing of credit availability throughout the EU. Therefore, the Commission wishes to undertake a “cautious and progressive” withdrawal of the State aid crisis Framework. In parallel, however, the Commission wishes to avoid the threat of an EU-wide “double-dip” recession and is willing to prolong the availability of support; thereby reassuring businesses and encouraging economic investment.

Extension of the Framework

On 1 December 2010, the Commission published a Communication stating that it has agreed to extend the duration of its State aid crisis Framework up until the end of 2011, subject to tighter controls in order to promote the gradual phasing-out of aid and allowing for a smooth return to normal State aid conditions1.

The Framework supporting access to finance for businesses maintains measures that seek to address the continued shortage of capital caused by market failure in the financial sector. The measures still need to be necessary, appropriate and proportionate to remedy a serious disturbance in the economy of a Member State.

The extension of the Temporary Framework will ensure the continued availability of aid measures aimed at facilitating access to finance for in particular SMEs, which will continue to face more favourable State aid terms than larger companies. However, stricter conditions for gaining access to such measures are intended to enable a return to normal State aid rules in due course while also limiting the negative effect on competition that the extension of measures will have.

More importantly, contrary to the previous version of the Framework which allowed aid to firms that got into difficulty post-1 July 2008, firms in difficulty are now excluded from the scope of the extended Temporary Framework to ensure an appropriate restructuring of the economy with emphasis on long term viability. Overall, firms in difficulty should be able to restructure their activities or exit the market to ensure fair competition and limit distortions of competition that support to such firms usually entails.

The limited amount of compatible aid available under the original Temporary Framework was considered to have resulted in great disparities in the internal market and will, therefore, be discontinued after 31 December 2010. This is without prejudice to applications made before the end of this year2 on the basis of Temporary schemes approved by the Commission and subject to certain strict conditions such as, inter alia, that the aid: does not exceed a cash grant of € 500 000 per undertaking; is granted to firms which were not in difficulty on 1 July 2008; is granted in the form of a scheme; does not apply to firms active in certain sectors (e.g. fisheries); does not constitute export aid or aid favouring domestic over imported products; is granted no later than 31 December 2011. Declarations with regard to any other aid received during the current fiscal year and ensuring that the total amount of aid received by the business between 1 January 2008 and 31 December 2011 is below the ceiling of EUR 500 000 -and of EUR 15 000 for undertakings active in the primary production of agricultural products- are necessary.

The extended Temporary Framework will also allow aid in the form of subsidised loan guarantees in accordance with safe harbour provisions provided in an Annex to the Framework. Guarantees are granted until 31 December 2011 at the latest and should not exceed 80% of the loan for the duration of the loan. The maximum loan should not exceed the total annual wage bill of the beneficiary for 2010. SMEs may get a reduction of up to 15% of the annual premium to be paid for new guarantees and the guarantee may cover both investment and working capital loans. The reduction of the guarantee premium for SMEs is applied for up to two years. If the underlying loan term exceeds two years, Member States may apply safe-harbour premiums for up to 8 years. For large companies, a maximum period of 10 years is applied. When the aid element in guarantee schemes is calculated through certain methodologies approved by the Commission, Member States may also grant similar reductions of up to 15% of the annual premium to be paid for new guarantees for SMEs.

The extended Temporary Framework will continue to allow aid in the form of subsidised interest rates for all contracts concluded on 31 December 2011 at the latest and may cover loans of any duration. The reduced interest rates may be applied for interest payments until 31 December 2013. Regarding SMEs the reduced interest rates may relate to both investment and working capital loans. As with all forms of aid, firms in difficulty are excluded from the scope of application of the measure.

In addition, aid for the production of green products may be provided since environmental objectives remain a priority for the Commission, subject, however, to conditions, such as, inter alia, that the aid: should relate to investment loans for the production of new products which significantly improve environmental protection, be necessary for launching a new project, be granted for the production of products involving early adaptation to or going beyond future Union environmental protection product standards. The investment must start on or before 31 December 2011 with the objective of marketing the product at least two years before the standard enters into force.The loans must be granted on 31 December 2011 at the latest. Subsidised interest rate may apply during a maximum period of two years following the grant of a loan. Again firms in difficulty are excluded from the scope of application of this measure.

The Commission has finally proposed certain modifications of the Risk Capital Guidelines following its initial temporary adaptations that were introduced in the wake of the crisis, in particular regarding the increased amounts of finance per SME over a period of 12 months, which should be applied also outside the crisis framework. The Commission has also extended the procedural simplifications on short-term export credit insurance introduced by the Temporary Framework because companies are still experiencing difficulties in finding adequate private insurance coverage in several sectors.

This extended Temporary crisis Framework is welcome by most businesses in particular SMEs, who continue to suffer the most as a result of the recent crisis and the current market conditions. Allowing certain forms of crisis aid subject to strict conditions, whilst ensuring the long term viability and fair competition between the various players and a gradual State aid phase out process are all positive steps. Indeed, the market has indicated signs for recovery and we are entering the final stage where aid should be gradually phased out. Striking the right balance between the need to continue to support the economy and ensuring long term viability without State support will continue to be a difficult, but necessary and ongoing task for the Commision.