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Temporary Framework for State aid measures to support the economy of the EU members in the current COVID-19 outbreak

Conte & Giacomini Avvocati > European and Competition Law  > Temporary Framework for State aid measures to support the economy of the EU members in the current COVID-19 outbreak

Temporary Framework for State aid measures to support the economy of the EU members in the current COVID-19 outbreak

The State aid matter is one of the most important area of the European legislation strictly linked to the competition framework.
Before evaluating the new national and European standard on the subject, it is appropriate to briefly clarify same general concepts.
In this context, competition law means the regulatory framework in force in the European Union. It promotes the maintenance of competition within the European Single Market by regulating anti-competitive conduct by companies to ensure that they do not create cartels and monopolies that would damage the interests of society.
European competition law today derives mostly from articles 101 to 109 of the Treaty on the Functioning of the European Union (TFEU), as well as a series of Regulations and Directives. Four main policy areas include:
-Cartels, or control of collusion and other anti-competitive practices, under article 101 TFEU.
-Market dominance, or preventing the abuse of firms’ dominant market positions under article 102 TFEU.
-Mergers, control of proposed mergers, acquisitions and joint ventures involving companies that have a certain, defined amount of turnover in the EU, according to the European Union merger law.
-State aid, control of direct and indirect aid given by Member States of the European Union to companies under TFEU article 107.

Primary authority for applying competition law within the EU rests the European Commission and its Directorate General for Competition, although State aids in some sectors, such as agriculture, are handled by other Directorates General. The Directorates can mandate that improperly-given State aid be repaid, as was the case in 2012 with Malev Hungarian Airlines.The constitutive legislative act in Competition Law was Council Regulation 17/62 EEC (now Regulation 1/2003 EC as amended over time). The wording of Reg. 17/62 was developed in a pre Van Gend en Loos period (C-26/62 Court of Justice) in EC legal evolution, when the supremacy of EC law was not yet fully established. To avoid different interpretations of EC Competition Law, which could vary from one national court to the next, the Commission was made to assume the role of central enforcement authority.
The first major decision under Article 101 (then Article 85) was taken by the Commission in 1964.They found that Grundig, a German manufacturer of household appliances, acted illegally in granting exclusive dealership rights to its French subsidiary. In Consten & Grundig [1966] the European Court of Justice upheld the Commission’s decision, expanded the definition of measures affecting trade to include “potential effects.”
Nonetheless, the arrangements in place worked fairly well until the mid-1980s, when it became clear that with the passage of time, as the European economy steadily grew in size and anti-competitive activities and market practices became more complex in nature, the Commission would eventually be unable to deal with its workload.
To face the new challenges also due to the enlargement of Europe the Commission has responded with a strategy to decentralise the implementation of the Competition rules through the so-called Modernisation Regulation. EU Council Regulation 1/2003 places National Competition Authorities and Member State national courts at the heart of the enforcement of Arts 101 & 102. Decentralised enforcement has for long been the usual way for other EC rules, Reg 1/2003 finally extendeds this to Competition Law as well. The Commission still retained an important role in the enforcement mechanism, as the co-ordinating force in the newly created European Competition Network (ECN). This Network, made up of the national bodies plus the Commission, manages the flow of information between NCAs and maintains the coherence and integrity of the system. At the time, Competition Commissioner Mario Monti hailed this regulation as one that will ‘revolutionise’ the enforcement of Arts 101 & 102. Since May 2004, all NCAs and national courts are empowered to fully apply the Competition provisions of the EC Treaty. In its 2005 report, the OECD lauded the modernisation effort as promising, and noted that decentralisation helps to redirect resources so the DG Competition can concentrate on complex, Community-wide investigations.
Because the logic of competition is most appropriate for private enterprise, the core of EU competition regulation targets profit making corporations. This said, regulation necessarily extends further and in the TFEU, both articles 101 and 102 use the ambiguous concept of “undertaking” to delimit competition law’s area. In Höfner and Elser v Macrotron GmbH case the European Court of Justice described “undertaking” to mean any person (natural or legal) “engaged in an economic activity”, which potentially included state run enterprises in cases where they pursued economic activities like a private business.
Leaving aside the sectors of the “Mergers and acquisitions”, “ Abuse of dominance”, “Oligopolies, “Cartels and Collusion”, some general comments should be made on the specific State aid issue
Article 107 TFEU, similar to Article 101 TFEU, lays down a general rule that the State may not aid or subsidise private/public parties in distortion of free competition, but has the power to allow exceptions for specific projects addressing natural disasters or regional development. The general definition of State Aid is set out in Article 107(1) of the TFEU. Measures which fall within the definition of State Aid are unlawful unless provided under an exemption and/or notified.
For there to be State Aid under Article 107(1) of the TFEU each of the following must be present:
-There is the transfer of Member State resources;
-Which creates a selective advantage for one or more business undertakings;
-That has the potential to distort trade between in the relevant business market; and
-Affects trade between the Member States.
Where all of these criteria are met, State Aid is present and the support shall be unlawful unless provided under a European Commission exemption. The European Commission applies a number of exemptions which enable aid to be lawful. European Commission can also approve State Aid cases under the notification procedure but its interpretative criteria are extremely rigid.
State Aid law is an important issue for all public sector organisations and recipients of public support in the EU because unlawful aid can be clawed back with compound interest.
The exceptions are very limited and mainly concern the so-called “de minimis aid”.
To deepen the interpretative criteria adopted by the Commission, it can be very useful to study the “Commission Notice on the notion of State aid as referred to in Article 107(1) of the Treaty on the Functioning of the European Union” (2016/C 262/01). I just want emphasize that this very detailed and complex act also examines the healthcare sector.
In this rigid regulatory context rigorously studied in every detail by the jurisprudence of the Court of Justice, many European countries and Italy with particular harshness have been hit by the Covid 19 catastrophe.
The negative effects on the economy are enormous and will be long and unpredictable.
All this requires the intervention of the States without limitations with colossal immediate public resources that must be directed in the health sector and for the benefit of the enterprises of good and services, also private, that have had to stop their activity.
Apart from the effects on national debts and deficit which are not limited by current extraordinary European rules, it is clear that the issue of State aid to the economy also had to be changed at European level.
Starting March 17 (DL- Law Decree- n.18/2020) the Italian Government enacted emergency rules to support private companies and professionals.
In particular the articles 49, 55, 56, 57 and the Title IV of the DL n. 18/2020 , set up a State support Fund for the Companies ( large, medium, small and micro enterprises) whose activities are suspended or reduced as a result of the Covid-19.
These are direct liquidity support measures and tax and contribution measures.
Even more important economic measures are then planned in these days to help public and private companies overcome the crisis and to save strategic sectors of the national economic system.
In a normal situation many of these economic interventions would be State aid and would not be allowed under current European law.
But this moment is absolutely extraordinary and requires to rediscuss many European constraints.
This is exactly the reason and purpose of the Communication from the Commission 19.3.2020 for the State aid measures to support the economy in the current COVID-19 outbreak ( C-2020- 1863 final).
I wont to underline some fundamental points of this communication:
1. State aid is justified and can be declared compatible with the internal market on the basis of Article 107.3.b TFEU to remedy the liquidity shortage faced by undertakings. Provided they are necessary, appropriate and proportionate to remedy a serious disturbance in the economy of the Member State concerned.
2. The aid can be in form of direct grants, repayable advances or tax advantages given no later than 31 Dicember 2020.
3. For agricultural,fisheries and acquacultural sectors specific conditions apply.
4. Public guarantees on loans can be given by the State for a limited period ( no more then 6 years) and in relation to precise economic data relating to the beneficiary company.
5. The State can promote subsidised interest rates and this measure cannot be cumulated with the previous measure.
6. Such a loans/benefits may be granted only to undertakings not in difficulty on 31 December 2019.
7. Aid in the form of guarantees and loans channelled through credit institutions or other financial institution can be promoted with adeguate saveguards in relation to the possible indirect aid in favour of the credit/financial institutions themselves.
8. The State can cover the short-term export credit risk in case of unavailability of the private insurance at market conditions.
9. In any case the State must do clear and complete notification of measures covered by this Communication
This very important new discipline will have to be implemented with technical and legal competence by both the State and the beneficiary companies.

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