The European Commission has proposed activating the general escape clause of the Stability and Growth Pact to aid member states in combating the economic effects of the coronavirus pandemic.
The proposal would allow member states to depart from general budgetary requirements under the EU’s fiscal framework and take adequate measures to deal with the crisis, the commission said in a March 20 release. “These measures, together with the fall in economic activity, will contribute to substantially higher budgetary deficits,” the commission said.
The commission emphasized that flexibility is needed to mitigate the effects of the pandemic on the European economy and asked the EU Council to quickly endorse its proposal to activate the general escape clause. "Member States can use the full flexibility provided for in the fiscal framework to tackle the health crisis and address its direct economic consequences," it said in a separate release.
The announcement came a day after the commission adopted a state aid temporary framework that will allow member states to provide companies with direct grants, select tax advantages, and advance payments of up to €800,000 to address urgent liquidity needs — an increase of €300,000 from the proposal put forth March 17. All figures used must be gross, before any tax deductions or other charges. The temporary framework is intended to provide relief to small and medium-size businesses affected by the pandemic.
“The economic impact of the COVID-19 outbreak is severe. We need to act fast to manage the impact as much as we can. And we need to act in a coordinated manner. This new Temporary Framework enables Member States to use the full flexibility foreseen under State aid rules to support the economy at this difficult time,” said Margrethe Vestager, the commission's executive vice president in charge of competition policy, in a March 19 release.
Aid under the temporary framework will only apply to businesses that experienced difficulties after December 31, 2019, and the commission has imposed a December 31, 2020, deadline for member states to administer the aid. That deadline does not apply to aid granted in the form of tax advantages, the commission noted, and such aid will be considered granted when 2020 tax payments are due.
The relaxed state aid rules enable member states to take immediate and effective action to support their residents and businesses in times of need. Member states may defer taxes or subsidize short-time work across all sectors, which typically falls outside EU state aid rules.
The commission is also allowing aid in the forms of guarantee schemes to support bank loans taken out by businesses; subsidized interest rates for private and public loans to companies; safeguards for banks; and short-term export credit insurance.
The commission has urged member states to work together rather than take unilateral measures to lessen the economic shock of the pandemic. It has also encouraged member states to immediately act through public support measures, such as suspending corporate taxes and VAT payments.