Brexit without an agreement would have important consequences for the economy, the labour market and public finances in the Member States that have particularly close trade and financial relations with the United Kingdom.

The European Commission has therefore proposed the adoption of financial support measures to mitigate the impact of no agreement in the most affected areas and sectors (especially small and medium-sized companies with a significant exposure to the United Kingdom and public administrations in Member States).

The measures will be granted by the European Union Solidarity Fund (EUSF), established in 2002 to support EU Member States and accession countries affected by major natural disasters such as floods, storms and earthquakes. The EUSF can be mobilized at the request of the country concerned if the scale of the disaster warrants intervention at European level.

The Commission’s proposal aims to extend the scope of the EUSF to certain types of additional public expenditure as a result of a withdrawal of the United Kingdom from the European Union without an agreement.

To this end, on 4 September 2019 the European Commission published its proposal for a European Parliament and Council Regulation amending Council Regulation (EC) No 2012/2002 in order to provide financial assistance to Member States facing serious financial burdens following a withdrawal of the United Kingdom from the Union without an agreement.

1. Objectives of the proposal

In order to support their economy in this context, Member States will have to create new aid schemes to support companies to manage change or to take measures to preserve employment levels. The Commission thus encourages states to use the existing European legal bases provided for in the General Exemption Regulation, under which there is no requirement for a prior notification to the European Commission: aid for SMEs, de minimis aid, aid for airports and ports, etc. In extreme cases, under Article 107.2, (b) TFEU, Member States can create aid schemes in the event of a serious disruption to the economy. This option was used during the financial and economic crisis in 2007–2008. These aid schemes will have to be notified to the Commission before being implemented.

Furthermore, additional public resources will have to be put in place following increased public expenditure caused by Brexit without an agreement, especially in the short term, as well as following the negative effects on Member State public administrations owing to implementing complementary infrastructure and recruiting additional human resources in certain areas such as customs and indirect taxation, sanitary and phytosanitary controls.

2. Eligible expenditure for EUSF financial assistance

The EUSF is based on the principle of subsidiarity, which means that this aid can only be used if the Member State is unable to cope with a crisis and actually needs this aid. In the case of natural disasters, the amount of aid is limited to direct damage exceeding a certain threshold, set at the lower of 0.6% of gross national income (GNI) and EUR 3 billion (at 2011 prices).

However, this direct damage criterion is not sufficient to allow access to EUSF assistance in the event of Brexit without an agreement. The Commission therefore proposes taking into account the financial burden on the budgets of Member States after Brexit and directly linked to a withdrawal without an agreement. Therefore, the Commission proposes to set the threshold for EUSF assistance at half the threshold for natural disasters, i.e. a Member State can request EUSF assistance if its financial burden is either more than 1.5 billion EUR (at 2011 prices) or more than 0.3% of its GNI. The Member State must provide evidence of these expenses and demonstrate that they are directly attributable to Brexit.

Eligible expenditure includes:

  • financial support for businesses affected by a withdrawal without an agreement, including support for State aid measures for those businesses and related interventions and measures to preserve existing employment;
  • costs of measures to ensure the functioning of border, customs, sanitary and phytosanitary controls, including additional personnel and infrastructure; and
  • costs relating to preparing and implementing measures to mitigate financial burdens, including costs relating to essential technical expertise,

provided that these operations are compatible with European law and State aid regulations.

However, the following will not be considered as eligible expenditure:

  • expenses relating to VAT;
  • loss of revenue by the Member State; and
  • costs of technical assistance for the purposes of risk management, monitoring, information and communication, complaint settlement, and control and audit that are not considered essential for assistance from the EUSF.

3. Budget allocated to aid and potential advance for Member States

With regard to the allocated budget, a maximum of 50% of the available budget between 2019 and 2020 would be made available to Member States facing financial burdens after Brexit without an agreement. This maximum amount would be EUR 591.65 million. In addition, the aid granted to each Member State fulfilling the eligibility criteria would not exceed 5% of that Member State’s financial burden.

The Commission also plans to increase the level of advances in the event of disasters, both natural and directly attributable to Brexit. This will reduce the length of the procedure and thus speed up the payment of all the aid. The level of advance would therefore amount to 25% of the contribution allocated to the Member State, with a maximum of EUR 100 million.

4. Steps to follow to receive financial assistance

In order to ensure equal treatment, the Commission proposes a single deadline, i.e. 30 April 2020, applicable to all Member States for submitting their applications for financial contribution, without any option to extend it for additional expenditure. With regard to eligible expenditure, only additional public expenditure generated between the date of withdrawal without an agreement and 31 December 2020 may be sent to the Commission. The application should include:

  • all relevant information on the Member State’s financial burden;
  • a description of the measures taken by public authorities following a withdrawal without an agreement (including their net costs up to 31 December 2020 and the reasons why such costs could not have been avoided through preparedness measures); and
  • the justification concerning the direct effect of a withdrawal without an agreement.

Finally, the same rules for implementation, monitoring, reporting, control and audit as any other EUSF interventions applicable to natural disasters will also have to be followed as well as other provisions of EU law given the nature of public spending.

In order to ensure greater clarity, the Commission is preparing guidance on how to access and implement financial assistance from the EUSF effectively. Guidance for natural disasters is available on the Commission's website and already provides an overview of the elements to be communicated and the evidence to be provided1.

This proposal must now be examined and approved by the Parliament and the Council.

The proposal is available via the following link (English version):