Brussels signals extension of looser Covid-era state aid rules

Brussels is seeking to extend its relaxation of state aid rules beyond the end of the year as it comes under pressure from businesses to keep the temporary measures introduced to help them survive the pandemic.

Margrethe Vestager, the EU’s competition chief, said the bloc was looking to extend the relaxation deadline, “hopefully” just one last time, but that arrangements for certain industries would remain after special exemptions were phased out.

Her comments come as some governments across the EU try to extricate themselves from the costly support schemes they used to prop up businesses struggling in the face of Covid-19 lockdowns.

Speaking to the Financial Times, Vestager said: “We want to present what we are doing with hopefully the last version of the temporary state aid framework,” but that there would be “tools that will help the recovery in these sectors that are still struggling”.

She said future state aid would target industries particularly badly hit by the pandemic, such as airlines and the hospitality sector. But she warned that, rather than “pouring in” taxpayers’ money, the bloc needed to use “a little bit of taxpayers’ money to incentivise private investment”.

Last June, the European Commission approved a €9 billion bailout to help Lufthansa, Germany’s largest airline, survive a dramatic drop in demand.

The extraordinary state aid measures needed to be tapered off gradually, Vestager said, while businesses grappled with a drop in demand. “We will phase out the temporary framework but with a relationship to reality…we have new challenges coming up that may have a relationship with the pandemic.”

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She added some of the new features (such as enabling small and medium-sized businesses to access private funding instead of a bank loan) might be given a longer life, “because we consider them to be pro-innovation, pro-competitive”.

Since the pandemic, Brussels has granted exceptional aid in more than 650 cases, totalling €3.09 trillion. So far, however, only a quarter of that amount has been spent because companies in some countries have not needed to use all the funds available. But the commission has also faced criticism that support from the state is distorting competition across the EU.

Ryanair has filed legal complaints against the commission’s approval of state aid for airlines, including Germany’s Condor and Austrian Airlines. Some member states, including the Netherlands, Sweden and Finland, are opposed to the extension, according to multiple people with direct knowledge of the matter.

Despite the opposition, the commission is expected to extend the relaxation of state aid rules until spring next year, according to two people with knowledge of the plans. “The picture points to a targeted limited prolongation,” said a person working on the extension. “The plan is to extend it just one more time unless the situation changes.”

Asked about the difficulties of removing temporary aid, Vestager said: “When there is a crisis you spend more and in good times you have to spend less. That is something you need to realise in these kinds of jobs. People don’t like that [BUT]it comes with the job description.”

An official announcement of the extension is expected in the next few weeks, according to two people with direct knowledge of the matter. – Copyright The Financial Times Limited 2021

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