News

European Commission sets out coordinated response to counter the economic impact of COVID-19

On 13 March 2020, European Commission President Ursula von der Leyen announced a set of coordinated measures to fight the COVID-19 outbreak in the EU Member States.

The Commission will use all the instruments at its disposal to mitigate the consequences of the pandemic, in particular:

  • To ensure the necessary supplies to our health systems by preserving the integrity of the Single Market and of production and distribution of value chains;
  • To support people so that income and jobs are not affected disproportionally and to avoid permanent effect of this crisis;
  • To support firms and ensure that the liquidity of our financial sector can continue to support the economy;
  • To allow Member States to act decisively in a coordinated way, through using the full flexibility of our State Aid and Stability and Growth Pact Frameworks.

The Member States are encouraged to take all necessary measures to decrease an economic downturn. The Commission will apply flexibility in its supervisory role, allowing for the implementation of wide ranges of state aid schemes and flexibility in the EU fiscal framework (e.g. wage subsidies, suspension of payments of corporate and value added taxes or social contributions). Also, EU State aid rules enable Member States to help companies that are in need of urgent rescue aid or need to cope with liquidity shortages.

The Commission considers that the COVID-19 pandemic qualifies as an “unusual events outside the control of government”, which allows for accommodating exceptional spending to contain the COVID-19 outbreak such as health care expenditure and targeted relief measures for firms and workers.

In the coming weeks, €1 billion will be redirected from the EU budget as a guarantee to the European Investment Fund to incentivize banks to provide liquidity to SMEs and midcaps.

Coronavirus Response Investment Initiative

Besides measures stemming from national budgets, the European Commission will set up a Coronavirus Response Investment Initiative worth €37 billion to stimulate the economy. In addition, the Commission is proposing to extend the scope of the EU Solidarity Fund by also including a public health crisis within its scope, in view of mobilizing it if needed for the Member States that have been hit hardest.

Transport

The transport sector has been hit especially hard by the spread of COVID-19. According to Von der Leyen, Member States are encouraged to take all necessary measures to support people in certain sectors such as transport, through, for example, short term employment schemes. Article 107 of the Treaty on the Functioning of the EU enables Member States to compensate companies for the damage directly caused by exceptional occurrences, which is applicable to aviation and tourism.

On aviation, the Commission has proposed targeted legislation to temporarily alleviate airlines from the “use-it-or-lose-it” rule – whereby air carriers must use at least 80% of their airports slots within a given period in order to keep them within the corresponding period of the next year. This is done to lower the economic impact for airlines, as well as the ecological impact of flying empty airplanes to be able to keep the slots. This targeted legislation, however, still has to be approved by the Council (expected next week).