Damage Control of the Covid-19 Crisis or Imprudent Softening of EU State Aid Rules?

The outbreak of Covid-19 continues to have a significant impact on our economies. Already in March 2020, the Commission recognized the risk of a “major economic shock” within the internal market due to the disruption caused by the pandemic.[1] Several Member States have announced their willingness to support their economies and citizens by implementing economic measures in the form of state aids. 

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Figure 1: Estimated impact of the COVID-19 pandemic on the EU economy: scenario in 2020 (source: Commission)

The Treaties generally prohibit arbitrary state aids unless they are justified by reasons of economic development.[2] This is because arbitrary state aids give unfair advantages to the benefitting undertakings. European rules aim to ensure effective competition in the internal market, eluding the risk of “Member States with deeper pockets to outspend their neighbouring states.”[3] The prohibition of state aid is provided for under article 107(1) TFEU: “any aid granted by a Member State … which distorts or threatens to distort competition by favouring certain undertakings …, in so far as it affects trade between Member States, be incompatible with the internal market.” Despite the general rule, exceptions are considered for a number of policy objectives.

The Covid-19 crisis was recognized as an available exception to European state aid rules in March 2020.[4] The Commission has always emphasized the importance of supporting coordinated measures to tackle the economic impact of the pandemic.[5] For example, the necessary support measures to tackle the effects of Covid-19 can be exempted from the prohibition of arbitrary state aid via article 107(2)(b) TFEU: aid to make good the damage caused by natural disasters or exceptional occurrences; and via article 107(3)(b) TFEU: aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State.[6]

Moreover, in light of the current situation, the Commission has decided to adopt a new State Aid Temporary Framework to face the upcoming challenges on 20th March 2020. The special framework is based on 107(3)(b) TFEU.[7] The framework complements the existing state aid rules with additional measures deemed to be compatible under 107(3)(b) TFEU.[8] From the first Commission communication, there have been four amendments to the framework.[9] The framework has already been prolonged from the initial expiration date on 31st December 2020 to the new one on 30thJune 2021.[10]

Examining previous ‘states of emergency’ that had an economic impact on the EU internal market, such as the financial crisis in 2008,[11] academics have already identified some similarities in the Commission’s response in so far as the EU state aid regime is concerned.[12] Nonetheless, differences can be found on the widespread economic impact of Covid-19, while the financial crisis in 2008 was limited to the financial and banking sector.[13] Therefore, it is safe to say that the effects of the Covid-19 Temporary Framework will also be far reaching, and this will make state aid surveillance by the Commission more challenging.[14]

The aim of the framework is to grant economic help to well-run businesses who could not have foreseen the damages that they have suffered. Therefore, an inextricable causal link between the Covid-19 crisis and the struggling business should be found.[15] In light of this, certain Commission’s decisions can be seen as ambiguous. For example, one of the decisions of approval of state aids regarded Alitalia and a direct grant of 199.45 million.[16] Alitalia is the Italian national airline, and the grant was approved in September 2020 as compensation of damage caused by natural disasters or exceptional occurrences, on the basis of article 107(2)(b) TFEU.[17] The ambiguity of the decision can be seen in the fact that meanwhile Alitalia is under investigation for other grants received by the Italian State in 2017 and 2019, as allegedly infringing European state aid rules.[18] Those previous grants – from 2017 and 2019 – would lead to suggest that Alitalia was not a well-run business as in need of the state’s support even preceding the Covid-19 outbreak.  

The critique that could arise is whether the line should be drawn at least for companies which were already struggling before the crisis. Alitalia is the perfect example of an allegedly ‘imprudent softening’ of the EU state aid rules in front of an undertaking that was already subject to state measures in order to stay ‘alive’. Moreover, a further consideration that may be worth exploring is lack of ‘strings attached’ on benefitting undertakings of the Temporary Framework. For the new year the Commission may reconsider this possibility in order to better safeguard the effects of the framework on our economies. 

By Sofia Ghezzi 

[1] COM (2020) 112 final, Communication from the Commission: Coordinated Economic Response to the COVID-19 Outbreak, p. 1. The social-economic consequences can be found in part. II and Annex I on the Economic Impact of the Coronavirus Pandemic. 

[2] State Aid Control, European Commission Website: Competition Law – State Aid, available at: https://ec.europa.eu/competition/state_aid/overview/index_en.html last accessed 24th December 2020. 

[3] Supra (n. 1) p. 9. 

[4] OJ 2020/C91 I/01, Communication from the Commission: Temporary Framework for state aid measures to support the economy in the current COVID-19 outbreak.

[5] Supra (n. 1).

[6] Ibid p. 9. 

[7] Supra (n. 4) OJ 2020/C91 I/01. F Costa-Cabral, H Leigh, G Monti, A Ruiz Feases, “EU Competition Law and Covid-19” Tilburg University: TITLEC Discussion Paper (2020) available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3561438 p. 3 last accessed 24th December 2020. 

[8] Ibid OJ 2020/C91 I/01 §§ 16-18. 

[9] OJ 2020/C 112 I/01, Communication from the Commission: Amendment to the Temporary Framework, p. 1–9 (first amendment). OJ 2020/C 164/03, Communication from the Commission: Amendment to the Temporary Framework, p. 3–15 (second amendment). OJ 2020/C 218/03, Communication from the Commission: Amendment to the Temporary Framework, p. 3–8 (third amendment). OJ 2020/C 340 I/01, Communication from the Commission: Amendment to the Temporary Framework, (fourth amendment). For the informal consolidated version of the framework, see the following text available at: https://ec.europa.eu/competition/state_aid/what_is_new/TF_consolidated_version_amended_3_april_8_may_29_june_and_13_oct_2020_en.pdf last accessed 24th December 2020. Within those amendments the Commission recognized a further legal basis that would exempt a Covid-19 related-state aid from the prohibition of article 107 TFEU, namely article 107(3)(c) TFEU, see Ibid informal consolidated version § 16bis. 

[10] Supra (n. 4) OJ 2020/C91 I/01 § 39. Supra (n. 9) OJ 2020/C 340 I/01 (fourth amendment) § 3. Except for recapitalization measures for which the framework will continue until 30th September 2021, see Ibid OJ 2020/C 340 I/01 (fourth amendment).

[11] State aid temporary rules established in response to the economic and financial crisis, European Commission Website: Competition Law – State Aid, available at: https://ec.europa.eu/competition/state_aid/legislation/temporary.html last accessed 3rd January 2020. 

[12] Supra (n. 7) Costa-Cabral and al. 

[13] Supra (n. 7) Costa-Cabral and al. 

[14] Ibid. 

[15] SA.56685 Denmark Compensation scheme for cancellation of events related to Covid-19 (13th March 2020) available at: https://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=3_SA_56685 last accessed 27th December 2020, §§ 31-40. 

[16] SA.58114 Alitalia Damage Covid-19, Commission Decision: State Aid (4th September 2020) available at: https://ec.europa.eu/competition/elojade/isef/index.cfm?fuseaction=dsp_result&policy_area_id=1,2,3 last accessed 27th December 2020. The public version of the decision is not yet available. It will be displayed as soon as it has been cleansed of any confidential information. 

[17] Ibid. 

[18] State Aid: Commission approves support to compensate Alitalia (4th September 2020), European Commission Press release, available at: https://ec.europa.eu/commission/presscorner/detail/en/IP_20_1538 last accessed 24th December 2020. See also State Aid: Commission opens in-depth investigation into Alitalia for a grant in 2019, European Commission Press release, available at: https://ec.europa.eu/commission/presscorner/detail/en/IP_20_349 last accessed 24th December 2020. See also State Aid: Commission opens in-depth investigation into Italian State Loan in 2017 to Alitalia, European Commission Press release, available at https://ec.europa.eu/commission/presscorner/detail/en/IP_18_3501 last accessed 24th December 2020.