Regional Updates: Financial state support in COVID-19 crisis

Given the pandemic situation generated by the novel coronavirus (COVID-19), the existing subsidy system has to change its purpose. The present economic condition means less new projects, moreover the existing companies, workplaces, supply chains could be endangered by the economic effects of the pandemic. With this in mind, the European Commission (EC) stated (on 12 March 2020), that the COVID-19 outbreak qualifies as an exceptional occurrence, as it is an extraordinary, unforeseeable event having a significant economic impact. This statement is resulting a complete focus change in the existing state aid schemes.

The new status allows to implement exceptional interventions by the Member States to compensate for the damages linked to the outbreak. The EC communicated the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak on 19 March 2020. The Temporary Framework would allow to provide four new types of measure in addition to the existing rules:

1. Non-refundable aid and tax measures up to EUR 800,000 per company
2. State guarantees on loans
3. Subsidized interest rates for loans
4. Provision of liquidity support through credit institutions or other financial intermediaries
5. Short-term export credit insurance

Of course the economic effects of the COVID-19 outbreak does not even leave the on-going subsidized projects intact.

Depending on the status of the project, the implications could be various:

• in the contractual phase the impact of changing economic environment could result in the reconsideration of the contractual commitments or even the implementation of the project,
• in the project implementation phase the modification of the project’s schedule and/or the commitments may treat the current crisis period,
• in the monitoring period a well-balanced amendment of the incentive agreement can have a role or even the force majeure clause of the incentive agreement could serve as a base of negotiation.

With due process it may also be possible to keep the subsidy granted. In order to make this possible, each case should be individually reviewed regardless of phase and an action plan shall be prepared to ensure the granted subsidy or to avoid possible contract-breach and its consequences.