1. The role of EU State aid law in remedying “exposure”

At the outset of the crisis, Article 107(2)(b) TFEU was immediately identified as the primary derogation to facilitate the swift adoption of national aid measures. It is well known that Article 107(2) TFEU specifies a number of instances in which State aid is permissible (de jure derogations). The Commission does not enjoy any discretionary power in respect of aid assessed under this provision. If it verifies that the conditions laid down in the Treaty are met, the Commission considers the aid falling under the de jure derogations compatible with the internal market. Nonetheless, in ascertaining that those conditions are met, it exercises its interpretive authority. In particular, Article 107(2)(b) TFEU allows for “aid to make good the damage caused by natural disasters or exceptional occurrences”.^{Footnote 28} This provision entails that aid is allowed if three conditions are met: firstly, the event, further to which the aid is granted, qualifies as a natural disaster or exceptional occurrence; secondly, there is a direct link between the damage and the natural disaster or exceptional occurrence; and thirdly, the aid cannot overcompensate for the damage that occurred. In relation to the first (and preliminary) condition, while natural disasters encompass earthquakes, avalanches, landslides, floods and other adverse climatic conditions,^{Footnote 29} the categorisation of an event as an exceptional occurrence has always been made by the Commission on a case-by-case basis.^{Footnote 30} The Commission qualified as exceptional occurrences war, internal disturbances or strikes or major nuclear or industrial accidents,^{Footnote 31} and all of those events that fulfil three cumulative criteria: firstly, they are unforeseeable (or extremely difficult to foresee); secondly, they have significant economic impact; and thirdly, they are “extraordinary”. Notably, in the past, the Commission considered the outbreak of the bovine spongiform encephalopathy (BSE) disease as an exceptional occurrence.^{Footnote 32} With regard to the second condition, the damage can be provoked by a “physical loss” (ie to physical destruction of facilities or death of livestock) or can entail a financial loss, as long as this is attributed solely to the natural disaster or to an exceptional occurrence.^{Footnote 33} In order to avoid overcompensation, “as precise an assessment as possible must be made of the damage suffered by the producers concerned”.^{Footnote 34}

Having regard to its previous practice, the Commission could determine that the COVID-19 outbreak was not foreseeable. It argued that the World Health Organization (WHO) declaration of a pandemic, “associated with the public health risk deriving from the absence of therapeutics or vaccines for the novel COVID-19 determine the exceptional nature of the circumstances”.^{Footnote 35} It also acknowledged that the swiftness of the spread of this virus, as well as the necessity to “adopt and encourage the respect of measures aimed at interrupting transmission chains”, will result in a far-reaching disruption of various economic sectors, which is “clearly outside the normal functioning of the market” (ie extraordinary).^{Footnote 36} The Commission qualified the current COVID-19 epidemic as an exceptional occurrence for the purpose of Article 107(2)(b) TFEU in early March, in a decision adopted overnight.^{Footnote 37} Then, it generally found that all aid measures notified were compensating (part of) damages directly linked to the COVID-19 pandemic, which were suffered by relevant economic operators. The Commission has also considered that all measures were proportionate.

It seems evident that Article 107(2)(b) TFEU has proven to be the primary avenue to address the economic risk linked to the “exposure” of certain sectors of the economy to the immediate and detrimental effects of COVID-19 lockdown actions adopted by national governments by redressing the damages incurred by economic operators. The earliest and primary example of aid approved under Article 107(2)(b) TFEU is the Danish scheme to compensate damage caused as a result of the cancellation of large public events due to the COVID-19 outbreak,^{Footnote 38} which was notified by the Danish government on 11 March 2020 and rapidly approved by the Commission. Under that scheme, worth €12 million, economic operators would be entitled to compensation for the losses suffered as a consequence of the cancellation or postponement of public events, for which tickets were already sold. A similar scheme was notified to the Commission by the Swedish government and was approved in April 2020.^{Footnote 39} The latter scheme (worth €38 million) was targeted at cultural events that were cancelled or pushed back. Other more general measures addressed the significant damages caused to companies by “exposure” to the COVID-19-related lockdown, such as the Danish scheme to support all of those businesses that “have been impacted by … containment measures some of which, more immediately and directly exposed, faced a massive decline in demand leading to a partial or full non-utilization of their facilities or services”.^{Footnote 40} Other examples are the €650 million Dutch scheme intended to compensate companies in the floriculture, horticulture and potato sectors for the loss of revenue or additional costs related to the collapse in demand for their products,^{Footnote 41} as well as the Austrian scheme to compensate for the economic damage resulting from the containment and lockdown measures and suffered by companies.^{Footnote 42} A handful of measures to compensate the losses of revenues to certain airlines, caused by “exposure” to temporary travel bans or the limitation of free movement, were also speedily approved by the Commission.^{Footnote 43} This is the case for the €550 million public loan in favour of the German airline Condor,^{Footnote 44} of the guarantee for Scandinavian Airlines,^{Footnote 45} of the French scheme deferring payment by airlines of certain taxes,^{Footnote 46} and of the most recent aid to Austrian Airlines.Footnote ⁴⁷

Exposure to COVID-19 lockdown measures appears sufficiently counterbalanced by schemes intended to compensate businesses’ damages (including both damnum emergens and lucrum cessans) approved under Article 107(2)(b) TFEU. As noted in the Temporary Framework, under this derogation, Member States could also provide compensation to those companies that had already received “rescue aid, restructuring aid or temporary restructuring support” under Article 107(3)(c) TFEU within the meaning of the “Rescue and Restructuring Guidelines”.^{Footnote 48} Therefore, the Commission, in assessing aid under Article 107(2)(b) TFEU, has given Member States wide leeway to tackle the current losses suffered by companies and to provide them with the liquidity necessary to afford certain fixed costs. However, as contended by Nicolaides, it might be difficult “to disentangle the impact of the exceptional occurrence from other factors in the economy”,^{Footnote 49} and more so when the pandemic will be over. The derogation under Article 107(2)(b) TFEU is, hence, of use for losses caused primarily and directly by the exposure to COVID-19 during the peak of the pandemic or in its immediate aftermath. Moreover, compensation measures alone are not capable of addressing the full impact of COVID-19 on the economy of a Member State. They need to be combined with public support schemes that mitigate specific vulnerabilities and enhance the resilience of many economic sectors by injecting liquidity that goes beyond the compensation of direct damages while increasing trust in the overall macroeconomic stability.

2. The role of EU State aid law in reducing “vulnerability” and increasing “resilience” of different economic sectors

Given that compensation measures are ictu oculi insufficient to address the economic risks linked to the pandemic, it almost immediately became evident that Article 107(3) TFEU was to be invoked.

Under Article 107(3)(b) TFEU, the Commission can declare compatible with the internal market aid aimed “to remedy a serious disturbance in the economy of a Member State”. Existing rules concerning the application of this derogation would have permitted the adoption of an array of measures.^{Footnote 50} However, the Commission acknowledged the need to boost the potential for Article 107(3)(b) TFEU to allow for heavy State intervention within national economies, at the beginning referring only to the situation in Italy and Spain,^{Footnote 51} and subsequently to that of all EU Member States. In order to ensure a coherent application of Article 107(3)(b) TFEU, the Temporary Framework was enacted. This Temporary Framework, by offering a clear (and looser) interpretation of Treaty rules, gives Member States a wider lineal space within which to address liquidity shortages. It also provides a uniform and pan-European roadmap for national funding, allowing for better management of the economic risk linked to COVID-19.

The Temporary Framework is premised on the assumption that “[w]ell-targeted public support is needed to ensure that sufficient liquidity remains available in the markets, to counter the damage inflicted on healthy undertakings and to preserve the continuity of economic activity during and after the COVID-19 outbreak”.^{Footnote 52} In that connection, it allows for aid in the form of direct grants, repayable advances or tax advantages under the threshold of €800,000 per undertaking, or €120,000 per undertaking active in the fishery and aquaculture sector, and €100,000 per undertaking active in the primary production of agricultural products. In order to ensure that companies have access to adequate liquidity, it permits public guarantees on loans for a limited period,^{Footnote 53} as well as subsidies to public loans,^{Footnote 54} and it sets out a series of criteria that those guarantees must fulfil. Aid in the form of public guarantees and reduced interest rates can also be provided through credit institutions and other financial intermediaries.^{Footnote 55} The Temporary Framework introduces additional flexibility on short-term export credit insurance and enables Member States to support such insurance where needed.^{Footnote 56} It also establishes that the Commission will consider as compatible with the internal market on the basis of Article 107(3)(b) TFEU aid measures that provide for temporary deferrals of taxes or of social security contributions with regard to undertakings particularly affected by the COVID-19 outbreak.^{Footnote 57} Finally, the Temporary Framework addresses the social impact of this sudden economic downturn, and in order to prevent a massive rise in unemployment, it allows Member States to enact specific aid measures in certain sectors or with regard to specific undertakings to cover the wage costs of these undertakings (including self-employed individuals).^{Footnote 58} Those wage subsidies must be granted over a period of no more than twelve months and shall not exceed 80% of the monthly gross salary of the benefitting personnel.^{Footnote 59}

The identification of aid ceilings and clear criteria aims to ensure that national aid measures are proportionate and do not unnecessarily distort competition. It is evident that the Commission has estimated the proportionality of State aid ex ante, on the basis of its long-standing practice and the experience gained in 2008. Nonetheless, it is also apparent that, during this crisis, State aid rules have prioritised reducing the vulnerability and supporting the resilience of the economy over avoiding distortions to competition. At present, amidst a crisis whose contours are rather uncertain, it is difficult to evaluate whether the current framework is truly “proportionate” and whether stricter rules (and lower ceilings) would have tamed the economic risk brought by COVID-19 in a similar way, with arguably fewer distortions. However, the Commission’s intention to revise the Framework periodically and, seemingly, to come back to a stricter level of scrutiny after this economic storm should ensure respect for the principle of proportionality. In that connection, it seems likely that State support would be gradually withdrawn in 2021, as soon as market conditions improve.

As yet, a large number of schemes, approved by the Commission under the Temporary Framework, address the “vulnerability” of various economic sectors determined by a lack of liquidity, mostly in the form of guarantees and loans.^{Footnote 60} Interestingly, a few schemes aim to support small and medium enterprises (SMEs),^{Footnote 61} recognising that they are particularly vulnerable during the COVID-19 outbreak and, in a disrupted demand–supply chain, are most likely to be acutely affected. It appears that aid to SMEs exempted from notification under the GBER is no longer a viable option given the large amount of public money to be injected. Among those measures, the Italian State guarantee to support a debt moratorium by banks to SME borrowers^{Footnote 62} and the Danish guarantee scheme for SMEs^{Footnote 63} were approved at the beginning of the crisis. Several other schemes were approved between April and July 2020,Footnote ⁶⁴ such as two Belgian-Flemish loan schemes for SMEs and start-ups,^{Footnote 65} a French guarantee for SMEs with export activities that are affected by the coronavirus outbreak^{Footnote 66} and a Bulgarian scheme worth €88 million to support micro and small enterprises.^{Footnote 67} The latter scheme tallies with the Bulgarian public guarantee scheme to support SMEs in the context of the coronavirus outbreak (the so-called “Intermediated SME Loan Guarantee Program”). Furthermore, the Irish “Restart Grant” scheme addresses “liquidity shortage faced by micro and small enterprises because of the outbreak”, and aims to ensure their viability and economic continuity.^{Footnote 68} In a similar vein, the Netherlands enacted a new scheme for public guarantees on small individual loans from banks or other financial institutions to SMEs to support enterprises in the current COVID-19 outbreak and facilitate their access to external finance in a disrupted credit market,^{Footnote 69} alongside a direct grant scheme to support the fixed costs for SMEs.Footnote ⁷⁰ These were further complemented by general schemes targeting both SMEs and large enterprises.^{Footnote 71} Moreover, to mitigate the risk liked to the particular vulnerability of SMEs, national schemes are accompanied by pan-European liquidity measures. In that connection, the Commission has mobilised financial support for SMEs through the Programme for the Competitiveness of enterprises and SMEs (COSME) 2014–2020,^{Footnote 72} which is worth €2.3 billion. While COSME has been deemed successful overall in the mid-term evaluation,^{Footnote 73} its effectiveness for enhancing access to finance at this critical time remains unclear. The combination of State aid and EU funding for SMEs is fundamental to addressing the well-known difficulty in accessing finance, which has only been exacerbated during the pandemic and that SMEs have faced since the 2008 crisis.^{Footnote 74} The use of the Temporary Framework is consequently in line with the Union’s broader policies in this field. The Commission is well aware that those measures are ultimately vital to the survival of the whole internal market, given that SMEs are the “backbone” of the EU economy and account “for 99.8% of total enterprises”^{Footnote 75} and “for 85% of new jobs created in the last five years”.^{Footnote 76} The achievement of the EU objective of reinforcing the role (and competitiveness) of SMEs is conditional on their businesses remaining viable during the pandemic. This has been made evident by the latest Commission proposal to expand the Temporary Framework to further support micro-enterprises and SMEs, as well as start-up companies.^{Footnote 77} In that regard, Commissioner Vestager reiterated that SMEs “are crucial for the economic recovery of the Union”.^{Footnote 78} It therefore seems that State aid is only one of the tools within the overall Commission policy on SMEs, and it fits well with the general objectives of improving market access and access to financing within the SME Strategy for a sustainable and digital Europe.^{Footnote 79} After the peak of the pandemic, it will also be important for the Commission to nudge State aid towards supporting (more overtly) digitisation and committing to the sustainability of those enterprises.

Remarkably, some of the measures approved specify that the beneficiaries of the schemes must reside for tax purposes in the European Economic Area (EEA). This is the case, for example, of a Polish aid in the form of a repayable advance to undertakings.^{Footnote 80} This scheme specifies that the main beneficiary of the aid cannot have tax residence in “tax havens” (which includes, among others, Cayman Islands, Panama, Seychelles and US Virgin Islands).^{Footnote 81} In its assessment, The Commission noted “that the clause according to which beneficiaries of this scheme need to be tax residents in the EEA … does not constitute a breach of intrinsically linked internal market rules because of its non-discriminatory effect”.^{Footnote 82} Still, Member States cannot exclude from the beneficiaries of the aid schemes companies with a tax residency in a different EU country, as this would undermine the internal market. However, the approach adopted by the Commission is noteworthy in that it allows Member States not only to tackle COVID-19-related “vulnerabilities”, but also to achieve tax policy objectives and discourage tax evasion and tax avoidance. While this remains outside the scope of this article, this decision confirms the indissoluble link between State aid and fiscal policies.^{Footnote 83}

The Temporary Framework, whilst proving to be a vital instrument in addressing the risk liked to vulnerability, has not (yet) allowed Member States to tackle the increased weakness of undertakings that were already (and for various reasons) in a difficult position, long before the COVID-19 outbreak. In that vein, the Commission has sought to limit the potential for Member States to use the Framework as a smokescreen for indiscriminate subsidisation that might further endanger the already precarious status of the internal market. It intended to discourage national measures not necessarily prompted by the pandemic and to ensure that national governments only use aid with the view to addressing economic risks directly connected to the COVID-19 outbreak. Nonetheless, it transpires that the Commission has approved national aid to rescue companies on the verge of collapse and whose viability was questionable long before December 2019, after having assessed it under Article 107(3)(c) TFEU within the scope of the “Rescue and Restructuring Guidelines”.^{Footnote 84} This is the case for the Portuguese €1.2 billion rescue loan in favour of Transportes Aéreos Portugueses (TAP), which should allow TAP to address its current liquidity needs.^{Footnote 85} The Portuguese authorities have ensured that TAP will repay the loan granted or release a restructuring plan within six months. However, interestingly, the Commission continued to justify the necessity and proportionality of the measure, taking into account its potential to avoid disruptions for passengers in view of the easing of travel restrictions, and it considered that it indirectly supports the Portuguese tourism sector, which has been hit hard by the coronavirus outbreak. It remains to be seen whether this loose approach (which arguably is questionable in terms of protecting competition in the internal market) will be adopted in other cases, such as the tricky Alitalia renationalisation, which largely predates the COVID-19 crisis and is the latest of numerous rescue operations, and on which the Commission has opened an in-depth investigation.^{Footnote 86} Certainly, the new proposal under discussion, which would enable, if approved, Member States to support at least certain small enterprises that were already in difficulty before the cut-off date of 31 December 2019,Footnote ⁸⁷ might contribute to supporting an even more relaxed approach to rescue packages for larger vulnerable companies.

A few measures aimed primarily at increasing “resilience” and allowing undertakings to bounce back more easily after the crisis have also been approved under the Temporary Framework. These include, for instance, schemes that secure rent relief for companies. An example is the Lithuanian aid in the form of direct grants to compensate part of the rent for the undertakings most affected by the COVID-19 outbreak, especially for those whose activities were banned during the quarantine period.^{Footnote 88} Similar measures was adopted in Slovenia,^{Footnote 89} Estonia, Czech Republic and Slovakia.Footnote ⁹⁰ These measures tally with other schemes to ensure that undertakings have sufficient liquidity to remain in the market and to preserve the continuity of economic activity after the COVID-19 outbreak. While rent relief schemes for commercial tenants might be a good option in the short term and might effectively increase the resilience of strained commercial sectors, their viability in the medium/long run is questionable. The Commission will have to monitor this kind of national scheme very closely to ensure that their positive effects outweigh the distortion of competition in the commercial rental market.

Thus far, only one scheme among those approved under Article 107(3)(b) TFEU in light of the Temporary Framework was intended to support undertakings in coping with a peak in demand for health-related goods. This is the Italian support scheme for the production and supply of medical equipment and masks during the coronavirus outbreak.^{Footnote 91} Under this scheme, financial support is made available to companies that set up new facilities for or expand the production of medical devices and personal protective equipment (PPE). Another interesting (but isolated) example of a measure aimed at enhancing the resilience of the health sector (beyond the production of health-related goods) is a Dutch scheme providing for direct grants to set up e-health applications.^{Footnote 92} The Dutch authorities highlight that “the health care sector, providers of social support services, health care services and youth care are confronted with the measures of social distancing and quarantine, which have led to the urgent need to invest in e-health applications^{Footnote 93} to ensure the provision of these services at home”, and that they “incur extra and unforeseen costs to purchase and implement e-health applications”.^{Footnote 94} In order to prevent financial difficulties, the scheme provides for grants to be awarded “for activities related to the purchase, lease, licensing and implementation of e-health applications” commenced after 27 February 2020.^{Footnote 95} The Commission considered the measure necessary to remedy a serious disturbance in the Dutch economy and deemed it appropriate to address the “shortage or unavailability of liquidity and [preserve] the continuity of economic activity in the health care sector confronted with the measures of social distancing and quarantine”.^{Footnote 96}

On the whole, the Temporary Framework has facilitated the deployment of State aid to support businesses that are particularly vulnerable to the lockdown measures due to an ensuing lack of demand and the consequent scarcity of liquidity. Some aid schemes, such as those related to rent reliefs, seem to be primarily aimed at stimulating resilience by way of preventing arrears, but their potential for market disruption seems high. Interestingly, Article 107(3)(b) TFEU has not served the purpose of increasing the preparedness of the health sector and has been sparingly used in this context. In that regard, as it will be discussed in the remainder of this article, the role of the derogation provided for in Article 107(3)(c) TFEU has been much more impactful. It is evident from the decisions adopted that the Commission is keen on preventing the collapse of entire segments of the economy put under strain because of the COVID-19 outbreak and on strengthening their resilience in the medium term. While, as yet, the Framework has not been used to allow for the rescue of weak companies, the assessment of the Portuguese aid to TAP under “Rescue and Restructuring Guidelines” and the recent proposal to further extend the scope of the Temporary Framework to enable the provision of aid to small enterprises in difficulty before the pandemic seem to open the door wide to further flexibility, far beyond the rules set out in the current Framework.