New EU state aid-schemes on the horizon

In many countries state-aid schemes to mitigate particular economic shocks have only recently been launched to overcome the COVID-19 crisis. As a response to various economic repercussions of Russia’s war against the Ukraine, in particular the rapidly emerging energy-price inflation, the EU has introduced its new Temporary Crisis Framework (TCF) on 22 March 2022. The TCF creates the underlying legal framework for the EU’s Member States to implement national state aid programmes. The TCF defines the criteria which the EU considers compatible with the common market based on Art. 107 (3)(b) of the Treaty on the Functioning of the European Union. The TCF will be in place initially until 31 December 2022 and allows Member States to implement four different types of state-aid measures.

• Limited subsidies which can be granted in any form. This type of aid does not need to be linked to an increase of energy prices. However, it is limited to up to €400,000 per recipient (up to €35,000 if recipient is active in the agriculture, fisheries and aquaculture sectors).

• Subsidies for high energy prices. For energy-intensive recipients thresholds may be extended to €25 million or €50 million for companies active in specific sectors (e.g. production of aluminium, casting of iron, manufacture of glass fibre or production of chemicals).

• State guarantees which can be provided for new loans from the private sector and which are limited to a maximum of six years and may secure up to 90% of the loan principal.

• State loans which may be granted at reduced interest rates and which is limited to a maximum of six years. However for both liquidity support measures (subsidised loans and guarantees) there are limits regarding the maximum loan amount, which are based on the operating needs of the recipient (taking into account its turnover, energy costs or specific liquidity need).

State-aid under the TCF can be cumulated with state-aid under the pre-existing COVID-19 Framework. In contrast to the COVID-19 Framework, state-aid under the TCF may also be granted to recipients which were already in financial difficulties.

Member States wishing to make use of the TCF need to provide an outline of their intended state-aid schemes and need to seek approval from the European Commission (EC). As of May 2022, the EC had approved six national state-aid schemes, including France, Poland, Germany, Italy, Ireland and Spain.

Ukraine Protective Shield (Germany)

The German government made use of the TCF and notified the EC on 8 April 2022 of its intention to provide up to €20 billion in support of affected recipients (Ukraine Protective Shield). The EC found that the Ukraine Protective Shield is in line with the conditions set out in the TCF and approved it on 19 April 2022.

Similar to the measures provided under Germany’s COVID-19 Scheme the Ukraine Protective Shield provides a government loan programme, a guarantee programme and a federal subsidy programme. In addition equity and hybrid capital measures will also be available. In addition the Ukraine Protective Shield also includes measures to bridge liquidity shortfalls caused by margin calls in futures trading on the energy markets.

The volume of the government loan and guarantee programme is suggested to be at €7 billion. The government currently plans to provide direct subsidies in an amount of up-to €5 billion. Liquidity bridges for margin calls in the futures markets are supposed to be up to €100 billion.

It has been announced that the individual measures under the Ukraine Protective Shield will be implemented as soon as possible with the KfW loan and guarantee programme. On 9 May 2022 the KfW has announced that the KfW loan and guarantee programme has been officially launched and that applications can be made as of today.

Federal subsidies will need to be implemented through the parliamentary process and will presumably take until the beginning of July 2022 to be up-and-running. While the loan and guarantee programmes are in the government’s focus, state subsidies and equity or hybrid capital measures are rather seen as secondary or even ultima-ratio measures.

Please see appendix for a detailed overview of the state-aid measures under the Ukraine Protective Shield (Germany).