Ukraine conflict European Commission adopts State aid crisis framework
24 March 2022
24 March 2022
The aggression against Ukraine by Russia, the sanctions imposed by the EU and its international partners and the retaliatory counter-measures have created significant economic uncertainties, and disrupted trade flows and supply chains in many sectors. They have also led to exceptional price hikes, especially in gas and electricity, but also in numerous other inputs, raw materials and primary goods.
In response to these unprecedented challenges, the European Commission ("Commission") has adopted on 23 March 2022 a Temporary Crisis Framework ("Temporary Framework") to enable EU Member States to make full use of the flexibility foreseen under State aid rules to support the EU economy in the context of Russia's invasion of Ukraine (for further information on the EU State aid regime, see our State aid Quickguide). As with the similar framework adopted in the context of the COVID-19 crisis, the Temporary Framework provides for several types of aids deemed to be compatible under Article 107(3)(b) TFEU, which allows measures to remedy a serious disturbance in EU economies. It also reminds Member States that they have the possibility under Article 107(2)(b) TFEU to mitigate damage directly caused by the conflict in Ukraine.
This briefing note sets out the EU State aid legislative framework within which EU Member States may adopt measures to support their national economies in the context of the current crisis.
The Temporary Framework recalls that a number of measures do not fall within the scope of State aid control or are exempted from notification to the Commission. These include:
Subject to the Commission's prior approval, Member States can design a number of other measures to cope with the immediate effects of the crisis which will be considered compatible under EU State aid rules. Depending on the type of measure envisaged, Member States can rely mainly on two different legal bases, namely:
The Temporary Framework confirms that the conflict in Ukraine qualifies as an 'exceptional occurrence' under Article 107(2)(b) TFEU. As a result, Member States can adopt measures directly under this provision to compensate companies particularly hard hit for the damage suffered due to this exceptional occurrence.
To be compatible under this provision, any aid must be:
Where these conditions are satisfied, the Commission has no discretion but to declare the aid compatible with the internal market. In the context of the COVID-19 crisis, the General Court has confirmed that aid under this provision can be declared compatible even if it is targeted at companies which are important to a Member State's national economy and does not extend to all companies active in a given sector (see our May 2021 newsletter article).
As regards the scope of application of this provision, the Temporary Framework clarifies that such aid can be granted to (i) undertakings in difficulty and (ii) credit institutions. Credit institutions will however only be able to receive aid under this provision if the aid does not have the objective of preserving or restoring their viability, liquidity or solvency. If, due to the current crisis and sanctions, credit institutions were to need extraordinary public financial support (e.g. in the form of liquidity or recapitalisation), such measures would need to be assessed under the EU legislation and State aid rules specifically applicable to the banking sector.
Article 107(3)(b) TFEU enables the Commission to approve national support measures "to remedy a serious disturbance in the economy of a Member State".
The Temporary Framework recognises that the crisis originating from the Russian aggression against Ukraine as well as the related sanctions and counter-measures is causing a serious disturbance in EU economies. To complement the existing State aid toolbox, it provides for several types of aids deemed to be compatible under Article 107(3)(b) TFEU where specific conditions are met.
Where all the conditions of the Temporary Framework are not satisfied or where the measure is not covered by it, Member States can still obtain clearance directly under Article 107(3)(b) TFEU.
Scope of application
The measures covered by the Temporary Framework intend to support undertakings affected by the Russian military aggression and/or the consequences of the economic sanctions and the retaliatory counter-measures. Undertakings subject to sanctions adopted by the EU are excluded.
Importantly, and in contrast with the COVID-19 Temporary Framework, aid will be available to companies that qualified as undertakings in difficulty before the start of the crisis.
The Temporary Framework applies from 1 February 2022 to 31 December 2022.
Types of aid under the Temporary Framework
The Temporary Framework covers three different types of aid and sets the specific conditions for their assessment under Article 107(3)(b), namely:
Safeguards
The Temporary Framework includes a number of safeguards to limit the negative consequences to the level playing field within the EU internal market. For example:
The Temporary Framework confirms that aid under Article 107(2)(b) TFEU and aid under the Temporary Framework can be cumulated provided that there is no overcompensation of damage suffered by the beneficiary.
These measures can also in principle be cumulated with aid granted under the COVID-19 Temporary Framework (subject to the specific cumulation rules laid down in that document). However, in the event Member States provide to the same beneficiary loans or guarantees under both the COVID-19 Temporary Framework and the Temporary Framework, they must ensure that liquidity needs are covered only once with aid.
The Temporary Framework and the qualification of the Ukrainian conflict as an "exceptional occurrence" echo the mechanisms put in place two years ago to help EU Member States support their economies in the context of the COVID-19 outbreak. Like the COVID-19 Temporary Framework, which has been amended six times and has now been in force for over two years, the Temporary Framework will likely be reviewed and amended in light of the development of the Ukrainian conflict and its impact on energy markets, other input markets and the general economic situation.
Just as for aid notified to remedy the consequences of the COVID-19 crisis, the Commission is expected to approve swiftly aid notified under the Temporary Framework and to provide rapid and pragmatic guidance to Member States (including on aid which may not fall within the scope of State aid rules). Member States are recommended in the Temporary Framework to inform the Commission of their intentions and to notify plans to introduce State aid measures "as early and comprehensively as possible".
With thanks to Jessica Bracker, Cecilia Borelli and Emma Nekelson for their contribution.
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.