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Temporary framework for State aid measures to support access to

By Willie Cole,2014-01-06 19:41
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Temporary framework for State aid measures to support access to

    Temporary framework for State aid measures to support access to finance in the

    current financial and economic crises

Summary

    The EC has adopted a temporary framework to help Member States address the exceptional difficulties of companies to obtain financial in the current financial and economic situation. In particular, it enables Member States to grant, under certain conditions, and until the end of 2010:

    ; aid of up to ?500,000 per company for the next two years;

    ; state guarantees for loans at a reduced premium;

    ; subsidised loans, in particular for the production of green products (meeting

    environmental protection standards early or going beyond such standards); and

    ; risk capital aid up to ? 2.5 million per SME per year (instead of the current ?1.5m) in

    cases where at least 30% (instead of the current 50%) of the investment cost comes

    from private investors.

Background

    In November 2008, the EC adopted ‘A European Economic Recovery Plan’ to drive Europe’s recovery from the current financial crises. The plan is based on short-term measures to boost demand, save jobs and restore confidence, as well as smart investment to yield higher growth and sustainable prosperity in the longer term. The EC recognised that under current conditions there is a need for new temporary aid to help guarantee continuity in access to finance and encourage continued investment. In response, it has produced this framework setting out temporary State aid measures to support access to finance in the current financial and economic crises. The framework is valid until 31 December 2010.

State aid Temporary New Measures

    Over the last few years the EC has significantly modernised the State aid rules and a range of instruments are available to target public support on sustainable investment to contribute to the Lisbon Strategy for growth, jobs and competitiveness. However in light of the seriousness of the current financial crises and its impact on the overall economy of the Member States, certain categories of State aid are justified for a limited period, to remedy these difficulties and may be declared compatible on the basis of Article 87(3)b of the Treaty which is to remedy a serious disturbance in the economy of a Member State. These are summarised below

Extension of De Minimis

The current De Minimis Regulation enables aid of up to ?200,000 to be awarded to a single

    undertaking over a 3 year period. This is considered too little to distort competition. Under the framework, the EC has introduced a temporary new measure enabling a limited but higher amount of aid to be given as compatible State aid. The following conditions apply:

    ; Aid must not exceed ?500,000 per undertaking

    ; The measure must be an aid scheme

    ; Aid can be granted until 31 Dec 2010

    ; To ensure that the maximum threshold is not breached, a declaration must be obtained

    from the undertaking about other de-minimis received

    It does not apply to fisheries sector, undertakings active in the primary production of agricultural products, export aid or aid favouring domestic product.

Aid in the form of Guarantees

    The Commission Notice on State aid in the form of guarantees sets out the EC approach to State aid granted in the form of guarantees. For a limited period, under this framework, the EC will consider subsidised loans as compatible State aid provided the following conditions are met:

    ; A reduction of up to 25% for SMEs (15% for large companies) of the annual premium

    to be paid for new guarantees granted in accordance with safe harbour provisions as

    set out in the notice, or to guarantees calculated through methodologies already

    accepted by EC

     The reduction shall be applied for a maximum of 2 years ;

    ; The maximum loan must not exceed the total annual wage bill of the beneficiary

    ; Guarantees can be granted until 31 December 2010

    ; Guarantees may not exceed 90% of the loan and may relate to both investment and

    working capital

Aid in the form of subsidised interest rates

    The EC communication on the method for setting reference and discount rates sets out the method for calculating the reference rate for a company. The rate depends on the credit worthiness of the company and the level of collateral offered and where Member States use this methodology the interest rate does not contain State aid. The EC has deemed that under certain conditions the difference in rate will be considered compatible provided certain conditions are met:

    ; The interest rate must be at least equal to the central bank overnight rate plus a

    premium equal to the difference between the average 1 year interbank rate and the

    average of the central bank overnight rate (over the period 1/1/07 to 30/6/08), plus the

    premium corresponding to the risk profile of the recipient as per the EC

    communication on setting reference rates

    ; This applies to all loans, of any duration, until 31 December 2010. The reduced rates

    may be applied for interest payments before 31 December 2013

Aid for the production of green products

    As the EC considers that environmental goals should remain a priority and offers the possibility of granting aid in the form of an interest rate reduction to encourage production of green products. Such aid will be compatible based on the following conditions:

    ; It must relate to investment loans for financing projects consisting of production of

    new products which significantly improve environmental protection

    ; It must be necessary for launching a new project, or in case of existing projects, be

    necessary, due to the economic situation, to pursue the project

    ; Be granted only for projects involving early adaption to or going beyond future

    Community product standards which increase the level of environmental protection

    but are not yet in force

    ; The investment must start in 2010 and aim to put the product on the market at least 2

    years before the standard enters into force

    ; Loans may cover the costs of investment in tangible and intangible assets

    ; Loans must be granted until 31 December 2010

    ; An interest rate reduction of 50% for SMEs (25% for large companies) can be applied

    for 2 years

    ; Aid must not directly or indirectly transfer to financial institutions.

Risk Capital Measures

    The EC Guidelines on State aid to promote risk capital investments in SMEs set out conditions under which state id for risk capital investments may be allowed. In light of the current situation, the following temporary adjustments can be applied to these guidelines:

    ; Maximum level of financial tranche increased to ?2.5m per target SME over a 12

    month period

    ; Private investment contribution reduced to 30%

    These changes do not however apply to risk capital measures covered under the General Block Exemption Regulation, although Member States may adapt approved risk capital schemes in line with the above.

Short term export credit insurance

    The EC has also relaxed its rules regarding the use of an escape clause and demonstration of

    ck of market with regard to short term export credit insurance and use of the escape the la

    clause under the EC Communication on Short Term Export Credit Insurance.

Common conditions

    The temporary aid measures allowed under this framework may not be cumulated with De Minimis aid for the same eligible costs

    The beneficiary firm must not have been in difficulty on 1 July 2008. It may apply to firms that have entered into difficulty thereafter as a result of the global financial and economic crises.

Notification, Monitoring and Reporting

    The application of State aid measures referred to in this framework must be notified to the EC, and the EC is committed to ensuring swift authorisation

    Member States must provided the EC with a list of schemes put in place under the framework by 31 July 2009, followed up by a report on the measures put in place by 31 October 2009.

Detailed records of aid granted must be maintained for 10 years.

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