Legal

EU approval for Irish €2bn COVID-19 loan guarantee programmeOn 14 August 2020, the European Commission approved, under the EU State aid rules, a €2bn loan guarantee programme by Ireland to support businesses affected by COVID-19.

The programme applies to companies in Ireland with less than 500 employees that suffered from a shortage of liquidity due to the coronavirus crisis. The scheme involves these businesses getting Irish state guarantees on new loans which the businesses take out from banks etc.

The programme is designed to improve access to external financing for these companies and as it involves a State guarantee, it could potentially involve State aid. So Ireland notified the scheme to the European Commission and on 14 August 2020, the scheme was approved by the European Commission under its State aid Temporary Framework to deal with COVID-19 State aid.

European Commission Vice-President Margrethe Vestager, in charge of competition policy, said: “this scheme, which is expected to mobilise €2bn of liquidity, will enable Ireland to support companies affected by the coronavirus outbreak through the provision of State guarantees. The scheme will help these companies address the liquidity shortages they face due to the crisis by enhancing access to external financing. In these difficult times, we continue to work in close cooperation with Member States to find workable solutions to facilitate the access to finance of companies affected by the coronavirus outbreak, in line with EU rules.”

The Commission found that the measure is in line with the conditions set out in the Temporary Framework because, in  particular, the scheme:

  • relates to new loans with a maximum maturity of six years
  • involves loans which will be granted before the end of 2020
  • provides guarantees limited to 80% of the loan principal
  • provides for minimum remuneration of the guarantee
  • contains adequate safeguards to ensure that the aid is routed effectively by the financial intermediaries to the beneficiaries in need

With the exception of micro and small companies, companies that were already in difficulty on 31 December 2019 will not be eligible for aid under the scheme.

The Commission approval follows its assessment that the scheme is necessary, appropriate and proportionate to remedy a serious disturbance in the economy of a Member State, in line with Article 107(3)(b) Treaty on the Functioning of the European Union (TFEU) and the conditions set out in the Temporary Framework. Article 107(3)(b) of the TFEU provides that "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" may be considered to be compatible with the internal market. This means such assistance amounts to aid but is not automatically valid (unlike aid under Article 107(2) of the TFEU); instead, the Member State (or the UK during the transition period) must notify it to the European Commission and seek the latter's approval.

This scheme is another step by Ireland to assist businesses experiencing difficulties but its nature needs to be understood: it is not a grant scheme, rather it is guarantee of loans from third parties.

Article supplied by Dr Vincent Power, A&L Goodbody