European lawyers tracking the grants say more aid is likely to be directed to specific struggling firms and EU officials have shown themselves adept at turning around aid decisions quickly. The fast pace of aid issuances and the sheer volume of grants is also likely leading to ever-growing litigation.
As of June 9, the number of state aid approvals issued since the first clearance March 12 has grown on a near daily basis, with the European Commission counting 157 decisions clearing 195 measures proposed by 26 member countries and the United Kingdom, which is still bound by EU state aid rules until it completes its exit from the bloc.
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Just in the days since the commission provided Law360 with its latest approval numbers, the agency has issued five more approvals, including signing off on the first project for Cyprus in the form of a €33 million plan to defer value-added tax for all companies that weren't able to continue operations during the lockdown initiated to try and contain the pandemic's spread. Cyprus' approval now means that the commission has issued COVID-19 aid decisions, all of them signing off on the proposed projects, for all 27 EU members and the U.K.
Aid already approved has included direct grants, loan guarantees, tax payment deferrals and more supporting affected companies and those ramping up research and development, building or upscaling testing facilities, and producing vaccines, ventilators, protective equipment and more aimed at combating the pandemic directly.
And the commission isn't done. On Friday, the agency floated its third proposed expansion of the state aid temporary framework that was first adopted March 19. This version seeks to support startups already facing financial difficulty even before the existing cutoff for virus aid, while also proposing to incentivize private investors to participate in recapitalization measures being pursued by national governments.
The flurry of activity contrasts sharply with the common perception of EU state aid as a slow, sleepy area, according to Caroline Thomas, a London-based partner with Norton Rose Fulbright. The pandemic has demonstrated something else entirely from the decisions that typically take much longer than the lightning-fast turnaround for COVID-19 aid that has sometimes been issued within 24 hours of notification.
"When it needs to, the commission can move really fast," Thomas told Law360.
That speed may come with a price, according to some professionals who anticipate legal challenges for some aid, especially support for individual companies, which is a fairly small subset of overall approvals but may be set to grow in the weeks and months to come.
"The sheer volume of decisions is going to mean there will be some cases that will end up before the courts," Thomas said.
Some challenges are already circulating, with Ryanair vowing to contest the German government's planned €9 billion aid package for Lufthansa.
According to Thomas, such challenges may be difficult, with the commission's approach appearing in line with how it handled state aid during the 2008 financial crisis.
"That's all pretty standard, familiar kind of stuff," Thomas said.
The commission is not the only one moving fast. According to Brussels-based Skadden Arps Slate Meagher & Flom LLP partner Giorgio Motta, the European General Court, the first stop for any legal challenges, showed a willingness to prioritize aid challenges when it fast-tracked another Ryanair case, this one contesting a Swedish aid program for airlines.
The prospect of getting fast-track status, he said, can make a huge difference for companies that could otherwise languor as their cases move forward, and it may incentivize more challenges.
"Time is of essence under this crisis," Motta said.
The commission's current temporary framework considers 11 different types of aid to combat the economic impacts of a pandemic that as of Friday had killed more than 170,000 people in Europe and sickened over 1.46 million people in the bloc, according to European Centre for Disease Prevention and Control data. Other COVID-19 aid has been approved under existing frameworks.
The most common aid issued under the temporary framework has been in the form of direct grants, handed out to a variety of categories of suffering companies under an aid type that also allows for equity injections, tax advantages and advance payments. After that in order of frequency are state guarantees for loans.
Other types of aid include subsidized public loans, publicly provided short-term export credit insurance, research and development support related to the virus, assistance to build and upscale testing facilities, help with producing items relevant to tackling the outbreak, tax payment deferrals and social security contribution suspensions, targeted wage subsidies, and targeted recapitalization aid.
A key theme of all that spending, which is difficult to track precisely because member countries don't need to indicate a budget and because expenditures can increase in the future, has been an extreme imbalance among EU members.
According to the commission, as of June 9 roughly 45% of all aid had come out of Germany, while Italy and France each accounted for about 17% and Spain comprised 4.2%. The U.K. accounted for approximately 3.6%, Belgium amounted to some 2.5% and Poland's spending came out to roughly 2.4%. According to the commission, the remaining member states comprise between 0.1% and 1.5% of the aid so far.
"All state aid approved has been necessary and proportionate to support businesses and remedy the serious disturbance to the European economy due to the coronavirus outbreak," a commission spokesperson said in a statement. "At the same time, there are huge differences in the amount of state aid granted by member states, which appears linked to the fiscal space they have as well as the respective size of their economies."
Member countries typically discuss the aid they want to propose before giving formal notice, which may explain why there have been no rejections so far issued. Nor is there much room for countries themselves to contest the commission's approach, according to Maastricht University professor Phedon Nicolaides.
"The rules are so accommodating, I think it would be very difficult for a member state to complain," Nicolaides told Law360.
As for what's next for COVID-19 aid, experts have a few suggestions, with Motta anticipating a growing number of decisions focused on supporting specific companies after aid was initially spread across whole industries.
"I think that is going to be the trend now, more and more," said Motta.
Motta and Thomas both anticipated more activity in the recapitalization space, with the first such aid cleared only at the end of May after it was made a potential kind of support under a temporary framework expansion made earlier that month.
So far, only two recapitalization approvals have been issued. Motta and Thomas said those approvals in particular are likely to be subjected to intense scrutiny because of their potentially disruptive effects.
Recapitalization was on the commission's mind Friday in its proposed framework tweak trying to incentivize private investors to also participate in country efforts.
"First, the proposed changes would allow enterprises with an existing state shareholding to raise capital similar to private enterprises, whilst maintaining the same safeguards to preserve effective competition in the single market," the commission said in announcing the proposed tweak. "Second, the proposed changes would encourage capital injections with significant private participation also in private companies, limiting the need for state aid and the risk of competition distortions."
The announcement's main focus was on a tweak for startups and "micro and small enterprises," which were already facing difficulties before Dec. 31, 2019, the cutoff date under the existing framework for when financial straits could be eligible for coronavirus-specific aid.
Such small companies, the commission said, "have been particularly affected by the liquidity shortage" caused by the pandemic's economic fallout. Those impacts have exacerbated "existing difficulties to access financing compared to medium-sized and large enterprises," according to the announcement, which warned of a large number of bankruptcies in very small firms if not addressed.
"This amendment will effectively increase the possibilities to support start-up companies, especially innovative ones which may be loss-making in their high-growth phase, which are crucial for the economic recovery of the union," the commission said.
--Editing by Breda Lund.
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