The writer is Denmark’s acting minister for industry, businesses and financial affairs. Karel Havlicek, deputy prime minister of the Czech Republic, and Gernot Blümel, Austria’s minister of finance, co-authored
When the first Covid-19 wave hit Europe, the European Commission quickly adopted a series of measures needed to support businesses. The speed with which these temporary schemes were approved was testament to both the commission’s and EU member states’ willingness to find solutions in a difficult time. Crucially, the commission’s so-called State aid Temporary Framework enabled us to offer compensation to companies for the needed restrictions on their business that were put in place to fight the pandemic.
Across the world, similar protective measures by other countries ensured that their healthcare systems were not overwhelmed, while also preventing mass bankruptcies and the loss of countless jobs. The EU’s temporary state aid regime similarly allowed our economies to continue through the pandemic, although in a severely weakened state.
Now a second wave of infections is sweeping across much of Europe. Just as we thought we were beginning to see the end of lockdowns, businesses are being restricted again. Yet companies also find themselves unable to receive the aid they need, due to mandated EU ceilings on compensation. For direct grants and other limited amounts of aid, the current ceiling is €800 000 per business; the compensation ceiling for uncovered fixed costs is meanwhile €3m. The pandemic and economic crisis persists. But these ceilings on state aid remain the same. This needs to change.
European businesses will face severe economic consequences well into 2021. Yet each passing month raises the amount of Covid aid that businesses have received, bringing them ever closer to the state aid limits ceilings. Many companies have already hit the ceilings. Others will reach them soon. As they do, their risk of bankruptcy rises. Then everyone in the EU will be at risk of losing jobs, valuable knowhow and key infrastructure. The EU’s very competitiveness is at risk.
To end this uncertainty, we suggest that the ceilings for direct grants and uncovered fixed costs be raised significantly. This will provide the flexibility that member states need to get through the crisis, to protect jobs, keep companies afloat and, in the end, save lives.
At the same time, we also agree with the commission that state aid should be the exception and not the rule. The commission has continuously taken into account developments as it has become clear that the pandemic is still very much onging. However, there is still a genuine need for higher limits on state aid. Exceptional measures are required during exceptional times — as happened last year when Covid-19 first hit.
Many companies are in dire need of compensation for the losses and fixed costs that they have suffered due to lockdowns and other restrictions. Companies, de facto, cannot conduct business, thereby threatening their very existence. This has been especially true of the leisure and travel industries. Hotels, airlines, ferries and the entertainment industry have seen few or no customers since the first restrictions were introduced. Aircraft have been idled. Restaurants and theatres stand empty. But there are still bills to be paid.
Higher ceilings on temporary state aid would be especially helpful to those sectors most in need. As the restrictions have been prolonged, this would also be fair. It could be done in two ways: either new and higher ceilings could be put in place, or the EU could allow countries more flexibility to use “exceptional occurrence measures” for particular cases, as they did in the first wave.
It bears repeating: state aid should be the exception, not the rule. But if our economies are to spring back to life when the restrictions are eventually lifted, it will only be on the basis of well-functioning businesses. We cannot let otherwise solid companies go under.
If that happens, we risk losing the jobs and knowhow that will help speed economic recovery. If we allow bankruptcies now, when we have almost reached the pandemic’s finishing line, we could lose important sectors across the EU. In the short term, that would slow economic recovery. Over the long term, it could hurt the global competitiveness of industry across the EU.