How the European Union is responding to the Covid crisis and its impact for electrical contractors

While more and more European countries were locking down, the European Union made several announcements to coordinate forces and bring support to the health care sector and all economic sectors, with a special focus on SMEs.

Some of these announcements still need to be clarified and adopted, and further instruments are coming.

1. More flexibility in the procedure of approval of State aid

The European Commission adopted on the 19th of March a temporary State aid framework which will be in force until the end of 2020. The goal is to encourage Member States to provide State aid to their companies in this time of crisis.

Indeed, the general rule in the EU is that national governments cannot implement a State aid before getting the approval of the Commission. The procedure has now been made faster.

In this new framework, Member States can:

  • set up schemes with direct grants (or tax advantages) up to €800,000 per company;
  • give subsidised State guarantees on bank loans;
  • enable public & private loans with subsidised interest rates;
  • use banks’ existing lending capacities as a channel for support to businesses – in particular to SMEs
  • introduce additional flexibility to enable short-term export credit insurance to be provided by the State where needed.

To date, 13 countries have received the approval of the European Commission for Covid 19-related State aid, with the aim to maintain liquidity for businesses of all sizes. The countries concerned are Germany, France, the UK, Denmark, Sweden, Luxembourg, Italy, Spain, Portugal, Ireland, Estonia, Latvia and Malta. Some schemes focus on SMEs or on self-employed workers, other are wider.

2. Financial support through the European structural funds (€37 billion) and -perhaps- the European Stability Mechanism

The EU institutions approved last week the Coronavirus Response Investment Initiative (CRII). It consists in enabling Member States to keep the amounts which have not been spent for the European Structural Funds in 2020 (and should normally be returned by the member States to Brussels) to reallocate them for health projects and to support SMEs currently facing difficulties as a priority. The UK is eligible for this initiative.

Overall, taking into account co-financing, the envelope for CRII totals EUR 37 billion.

EuropeOn federates associations whose members are mainly SMEs and even VSEs. We advise to get in touch as quickly as possible with each country’s government and regional managing authorities for European funds as they are responsible for defining who should be eligible for this Initiative.

Aside from this EUR 37 billion envelope, the Eurogroup announced that they were considering using some of the funds of the European Stability Mechanism, which was created in the aftermath of the 2008 financial and economic crisis. This Mechanism totals EUR 410 billion of fresh money. However, discussions are still ongoing and some countries appear to be opposed to using this instrument.

3. A new instrument for jobs preservation

In order to avoid massive unemployment in Europe, the President of the European Commission, Ursula von der Leyen, announced on the 1st of April that the Commission was preparing a “SURE” financial instrument designed to temporarily support part-time activity due to the Covid-19 pandemic. The SURE Instrument will take the form of a loan granted to the Member State concerned. The Commission will be empowered to contract loans on the capital markets or from financial institutions.

In particular, the support will consist of deferred payment of taxes and suspension of employer social security contributions as well as wage subsidies.

The maximum amount of the EU aid has been confirmed to be EUR 100 billion. This instrument is meant for all types of workers, including the self-employed. The UK is not part of this scheme and did not express a wish to be included in it.

On Tuesday the 7th of April, the proposal will be discussed by the Eurogroup.

To learn more about the SURE instrument, read the Q&A.

4. Financial support via the banks (European Central Bank and European Investment Bank)

The European Central Bank (ECB) has announced on 12 of March a EUR 120 billion asset purchase program, accompanied by long-term refinancing operations consisting of cheap loans with an even lower negative rate (-0,75%). Since this was judged insufficient by the markets and stakeholders, the ECB responded by releasing an additional EUR 750 billion “Pandemic Emergency Purchase Program”, to further expand purchases of both public and private bonds. This action aims to reassure sovereign debt markets and provide stimulus for economic recovery. The ECB has committed to remain flexible and to adjust the size and composition of its asset purchases.

Alongside the ECB’s actions, Member States are discussing special eurozone bonds, or “Coronabonds”, as a temporary measure. However, while States such as Italy and Spain are strong proponents of this solution, others such as Germany and the Netherlands are set to block this proposal.

In the meantime, the European Investment Bank (EIB) has announced it will mobilise EUR 40 billion to support SMEs and mid-caps during this crisis. The aim is to provide liquidity and working capital for SMEs, among others, by reliving national banks of risk and transferring the latter to the EIB. These EIB operations will work through national intermediaries and ‘promotional banks’.

5. Other actions

To prepare the recovery of the European economy, the European Commission announced that it was preparing a comprehensive Economic Stimulus Package to be presented in May 2020.

In light of this announcement, the European Council (representing Members states) has published on 26 of March a Joint statement calling on the European Commission to include a roadmap and an action plan in this Package. The Council considers that this package should enable Europe to get back to a “sustainable growth, integrating inter alia the green transition and the digital transformation”.

Furthermore, in order to encourage Member States when preparing their schemes to stop the pandemic and prepare the economic recovery, the European Commission decided to put on hold the Stability and Growth Pact.

As a reminder, this Pact obliges Member States to maintain their level of public debt below 60% of GDP (and deficit below 3%), and can lead to sanctions when requirements are not met. It is a way to keep economic and fiscal policies coordinated.

The Pact had never been suspended until now, even during the 2008 financial and economic crisis.

Moreover, on the 2nd of April, during the online audition of Thierry Breton, European Commissioner for the Internal Market, by the European Parliament’s Internal Market Committee (IMCO), the former called for the creation of an industrial European recovery fund to tackle the Covid-19 pandemic.

 

He also called on all Member States to prepare a national industrial recovery plan to help their businesses cope with the crisis and prepare for the recovery, taking the example of Germany, which adopted a plan of EUR 256 billion. “We must avoid that predators throw themselves on agonizing companies and that companies are sold at bargain prices“, he declared. He went as far as to encourage States to consider entering the capital of targeted companies in order to protect them and enable them to recover.

Finally, it is important to underline that “Engineering professionals such as energy technicians, engineers and electrical engineering technicians” have been included in the list of essential services in the New EU Guidelines concerning the exercise of the free movement of workers, which were published on the 30th of March.

The Commission urges Member States to establish specific burden-free and fast procedures for border crossings (for example through dedicated lanes at the border).

Member States should implement the same health screening for national and border workers, based on temperature checks. If the worker has fever, s/he will have equal access as national workers to the appropriate health care.

All in all, nearly EUR 2,770 billion are being mobilised by Member States and the European Union to tackle the coronavirus; President von der Leyen said that this is “the biggest European response to a crisis ever”.

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