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International Internet Magazine. Baltic States news & analytics Thursday, 04.06.2020, 01:13

Commission’s approval for Latvian loan and subsidies for SMEs

Eugene Eteris, Turiba University, visiting professor, 27.03.2020.Print version
In mitigating negative effects to the member states economy, the governments are facing numerous challenges: disruption of supply chains, lower consumer demand, production deficiencies, as well as decrease in investment and liquidity constraints for undertakings. The Commission has approved Latvian loan guarantee scheme and subsidize for companies affected by coronavirus outbreak.

On 19 March 2020, the Commission adopted a Temporary Framework to enable the states to use the EU state aid rules to support the economy in the context of the coronavirus outbreak. The Temporary Framework provides for five types of aid which can be granted by the states; it is up to the states which type of aids and in what dimension could be used:

= Direct grants, selective tax advantages and advance payments: states will be able to set up schemes to grant up to €800,000 to a company to address its urgent liquidity needs.

= State guarantees for loans taken by companies from banks: states will be able to provide state guarantees to ensure banks keep providing loans to the business customers who need them. These state guarantees can cover loans to help businesses cover immediate working capital and investment needs.

= Subsidized public loans to companies: states will be able to grant loans with favourable interest rates to companies; these loans can help businesses cover immediate working capital and investment needs.

= Safeguards for banks that channel state aid to the real economy: some Member States plan to build on banks' existing lending capacities, and use them as a channel for support to businesses: in particular to SMEs. The Framework makes clear that such aid is considered as direct aid to the banks' customers, not to the banks themselves, and gives guidance on how to ensure minimal distortion of competition between banks.

= Short-term export credit insurance: the Framework introduces additional flexibility on how to demonstrate that certain countries are not-marketable risks, thereby enabling short-term export credit insurance to be provided by the state where needed. The Commission will continue monitoring the situation and stands ready to amend the list of marketable risk countries if needed.


The “State aid Temporary Framework to support the economy in the context of the COVID-19” was adopted by the Commission on 19 March 2020. On Temporary Framework in: https://ec.europa.eu/competition/state_aid/what_is_new/sa_covid19_temporary-framework.pdf

The Temporary Framework will be in place until the end of December 2020 and might be extended.

 

On the eve of the critical period, i.e. on 13 March 2020, the Commission adopted a Communication on a coordinated economic response to the COVID-19 outbreak setting some possibilities for the states to make generally applicable changes in favour of businesses (e.g. deferring taxes, or subsidizing short-time work across all sectors), which fall outside the EU state aid rules. They can also grant compensation to companies for damage suffered due to and directly caused by the coronavirus outbreak. The Communications underlined, for example that: Member States can design ample support measures in line with existing EU rules. First, they can decide to take measures, such as wage subsidies, suspension of payments of corporate and value added taxes or social contributions. In addition, the states can grant financial support directly to consumers, for example for cancelled services or tickets that are not reimbursed by the operators concerned. Also, EU State aid rules enable member states to help companies cope with liquidity shortages and needing urgent rescue aid. Article 107(2)(b) TFEU enables the states to compensate companies for the damage directly caused by exceptional occurrences, including measures in sectors such as aviation and tourism.


Reference to: https://ec.europa.eu/commission/presscorner/detail/en/ip_20_459

 


Latvian supporting measures

The European Commission has approved (23.03.2020) Latvian loan guarantee scheme and subsidize for companies affected by coronavirus outbreak. With the guarantee scheme and subsidized loans Latvian companies affected by the coronavirus outbreak can mitigate the current extremely difficult situation. Latvian €250 million is an important contribution to reaching the timely, coordinated and effective action under the new State aid Temporary Framework, underlined Executive Vice-President M. Vestager, in charge of competition policy.

 

Latvian subsidized loan scheme and a loan guarantee scheme from the budget for companies affected by the coronavirus outbreak account for €200 million, out of which €50 million is envisaged from the State budget and the rest from the international financial institutions. The amount envisaged in the State budget for the loan guarantee scheme is €50 million. It is expected to be leveraged and cover guarantees worth over €200 million.

The schemes aim at enhancing the access to external financing for those companies that are most severely affected by the economic impact of the coronavirus outbreak. The objective of the measures is to ensure that these companies can continue their activities faced with the difficult situation caused by the coronavirus pandemic.


Latvian measures in particular entail: a) reduced guarantee fees on loans with limited maturity and size (the measure limits the risk per loan taken by the State to a maximum of 50%); and b) reduced interest rates for working capital loans with limited maturity and size (this measure is swiftly available at favourable conditions to those who need it in this unprecedented situation. To achieve this goal, the measures also involve minimum remuneration and safeguards to ensure that the aid is effectively channeled to the beneficiaries in need.


More information on the temporary framework and other action the Commission has taken to address the economic impact of the coronavirus pandemic can be found in:

https://ec.europa.eu/competition/state_aid/what_is_new/covid_19.html

 

Note: the non-confidential version of the decision will be made available in the State aid register on the Commission's competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.


More in: https://ec.europa.eu/competition/state_aid/newsletter/index.html


General reference: https://ec.europa.eu/commission/presscorner/detail/en/IP_20_508/23.03.2020

 

 

 






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