Approval of the new Pan-European Fund in support of European Businesses
Legal Alert no. 141
On the 14th of December of 2020, the European Commission gave green light to the previously announced creation of a € 25 billion Pan-European Guarantee Fund (henceforward “Fund”) managed by the European Investment Bank (henceforward “EIB”) to address the economic implications of the Coronavirus outbreak. According to the announcement, the fund is expected to mobilise up to € 200 billion of additional financing to support mainly small and medium-size enterprises (henceforward “SME”).
The Pan-European Guarantee Fund announced on April 2020 by the EIB and European Commission is part of the overall EU response to the coronavirus outbreak. The fund is open to all the Member States and currently there are 21 participating Member States, including Portugal.
The fund’s operation will be jointly guaranteed by the Member State’s budget and the contributions are proportionate to the contribution of each Member State to the EIB capital. The fund is to be managed by the European Investment Bank and will provide guarantees on debt instruments, as loans, and equity instruments to European companies, (mainly SMEs) which are expected to be viable in the long-term and currently face economic difficulties.
These contributions, which amount up to € 25 billion in total, take the form of guarantees that will cover part of the losses incurred by the beneficiaries in the operations supported by the Fund. The average cost of the Fund will be significantly reduced compared to national schemes by pooling credit risk across all participant Member States.
Even though the management mandate of the Fund belongs to EIB and the European Investment Fund, the participating Member States can take part of the Contributors Committee whose main function is to decide on the use of the guarantee.
The fund is temporary in nature and will be able to guarantee previously granted loans until the 31st of December of 2021.
The 21 participating Member States notified their respective contributions to the Fund and the downstream interventions by the Fund in the form of guarantees on loans to the Commission under EU State aid rules. Thus, the Commission decided on the legality of these mechanisms.
In order to streamline Article 107 (3) (b) TFEU on EU State aid rules, which allows Member States to grant support to remedy serious disturbances to their economy, the Temporary Framework (no. 2020/C 91 I/01) of 19th March of 2020 was published. In addition to the aid instruments allowed at a Community and State level, this framework envisaged temporary state aid measures that States could adopt under this article in the form of: direct grants repayable advances or tax advantages; subsidised interest rates for loans; guarantees and loans channelled through credit institutions or other financial institutions and short-term export credit insurance and, important here, guarantees on loans.
In this context, The European Commission considered that these remedies fulfil the requirements laid out in article 107 (3) (b), namely: (i) the Fund is temporary in nature; (ii) the guarantees cover up to 70-90% of the underlying loans; (iii) their maturity is limited to up to 6 years; and (iv) the financial intermediaries are obliged to pass on the advantage to the final beneficiaries to the largest extent possible. Considering that these remedies are necessary, appropriate and proportional under article 107(3) (b) of TFUE and the general principles set out in the State aid Temporary Framework, the Commission approves the Fund as an aid measure allowed under EU State aid rules.
This Press Release of the European Commission only concerns the admissibility of the fund to provide guarantees of loans; the European Commission has still yet to reflect on the possibility of the Fund to provide equity instruments.
To access the European Commission’s full press release click here.