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Commission approves €44 billion Italian recapitalization scheme to support large companies affected by #Coronavirus outbreak

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The European Commission has approved an Italian scheme, with an overall budget of €44 billion, to support large enterprises affected by the coronavirus outbreak. The scheme consist of four measures that were approved under the state aid Temporary Framework.

Executive Vice President Margrethe Vestager, in charge of competition policy, said: “This Italian recapitalization scheme will support large companies affected by the coronavirus outbreak by strengthening their capital base and facilitating their access to finance in these difficult times. Together with other previously approved measures, the scheme will ultimately be instrumental in supporting the Italian economy and labour market. We continue to work in close co-operation with member states to find workable solutions to mitigate the economic impact of the coronavirus outbreak, in line with EU rules.”

The Italian support measures

Italy notified to the Commission, under the Temporary Framework, a scheme consisting of four complementary measures to support large companies particularly affected by the coronavirus outbreak, through recapitalisation instruments, in particular equity, and hybrid capital instruments (convertible bonds and subordinated debt). Together with the Italian scheme intended for small and medium-sized enterprises, approved by the Commission on 31 July 2020, the Italian measures aim to support the solvency of a large spectrum of companies that have suffered from the coronavirus outbreak, thus helping them to ensure the continuation of their activities and supporting employment.

The scheme targets large companies that have faced a severe reduction of revenues in 2020. To be eligible, among other criteria, the companies should be considered strategic for the economy and for the labour markets.

The measures under the scheme consists of:

(1)  Equity injections;

(2)  mandatory convertible bonds;

(3)  convertible bonds, upon request of either the beneficiary or the bondholder, and;

(4)  subordinated debt.

The four measures are administrated by an ad-hoc special purpose vehicle, Patrimonio Rilancio.

The Commission found that the scheme notified by Italy is in line with the conditions set out in the Temporary Framework. In particular, with respect to recapitalisation measures, (i) the support is available to companies if it is needed to maintain operations, no other appropriate solution is available, and it is in the common interest to intervene; (ii) support is limited to the amount necessary to ensure the viability of beneficiaries and does not go beyond restoring their capital structure before the coronavirus outbreak; (iii) the scheme provides an adequate remuneration for the state; (iv) the conditions of the measures incentivise beneficiaries and/or their owners to repay the support as early as possible (inter alia through progressive increases in remuneration, a dividend ban as well as a cap on the remuneration of and a ban of bonus payments to management); (v) safeguards are in place to make sure that beneficiaries do not unduly benefit from the recapitalisation aid by the state to the detriment of fair competition in the internal markets, such as an acquisition ban to avoid aggressive commercial expansion; and (vi) aid to a company above the threshold of €250m has to be notified separately for individual assessment.

With respect to aid in the form of subordinated debt instruments, (i) aid will not exceed the relevant limits on turnover and wage bill of the beneficiaries set out in the Temporary Framework and (ii) support can only be granted until the end of 2020.

Finally, only companies that were not considered to be in difficulty already on 31 December 2019 are eligible for aid under this scheme.

The Commission concluded that the scheme is necessary, appropriate and proportionate to remedy a serious disturbance in the economy of a member state, in line with Article 107(3)(b) TFEU and the conditions set out in the Temporary Framework.

On this basis, the Commission approved the measure under EU state aid rules.

Background

In case of particularly severe economic situations, such as the one currently faced by all Member States and the UK due the coronavirus outbreak, EU State aid rules allow Member States to grant support to remedy a serious disturbance to their economy. This is foreseen by Article 107(3)(b) TFEU of the Treaty on the Functioning of the European Union.

On 19 March 2020, the Commission has adopted a state aid Temporary Framework to enable member states to use the full flexibility foreseen under state aid rules to support the economy in the context of the coronavirus outbreak. The Temporary Framework, as amended on 3 April 2020 and 8 May and 29 June 2020, provides for the following types of aid, which can be granted by Member States:

(i)          Direct grants, equity injections, selective tax advantages and advance payments of up to €100,000 to a company active in the primary agricultural sector, €120,000 to a company active in the fishery and aquaculture sector and €800,000 to a company active in all other sectors to address its urgent liquidity needs. Member States can also give, up to the nominal value of €800,000 per company zero-interest loans or guarantees on loans covering 100% of the risk, except in the primary agriculture sector and in the fishery and aquaculture sector, where the limits of €100,000 and €120,000 per company respectively, apply.

(ii)         State guarantees for loans taken by companies to ensure banks keep providing loans to the customers who need them. These state guarantees can cover up to 90% of risk on loans to help businesses cover immediate working capital and investment needs.

(iii)        Subsidised public loans to companies (senior and subordinated debt) with favourable interest rates to companies. These loans can help businesses cover immediate working capital and investment needs.

(iv)        Safeguards for banks that channel State aid to the real economy that such aid is considered as direct aid to the banks' customers, not to the banks themselves, and gives guidance on how to ensure minimal distortion of competition between banks.

(v)         Public short-term export credit insurance for all countries, without the need for the Member State in question to demonstrate that the respective country is temporarily “non-marketable”.

(vi)        Support for coronavirus related research and development (R&D) to address the current health crisis in the form of direct grants, repayable advances or tax advantages. A bonus may be granted for cross-border cooperation projects between Member States.

(vii)       Support for the construction and upscaling of testing facilities to develop and test products (including vaccines, ventilators and protective clothing) useful to tackle the coronavirus outbreak, up to first industrial deployment. This can take the form of direct grants, tax advantages, repayable advances and no-loss guarantees. Companies may benefit from a bonus when their investment is supported by more than one member state and when the investment is concluded within two months after the granting of the aid.

(viii)     Support for the production of products relevant to tackle the coronavirus outbreak in the form of direct grants, tax advantages, repayable advances and no-loss guarantees. Companies may benefit from a bonus when their investment is supported by more than one member state and when the investment is concluded within two months after the granting of the aid.

(ix)        Targeted support in the form of deferral of tax payments and/or suspensions of social security contributions for those sectors, regions or for types of companies that are hit the hardest by the outbreak.

(x)         Targeted support in the form of wage subsidies for employees for those companies in sectors or regions that have suffered most from the coronavirus outbreak, and would otherwise have had to lay off personnel.

(xi)        Targeted recapitalization aid to non-financial companies, if no other appropriate solution is available. Safeguards are in place to avoid undue distortions of competition in the Single Market: conditions on the necessity, appropriateness and size of intervention; conditions on the State's entry in the capital of companies and remuneration; conditions regarding the exit of the State from the capital of the companies concerned; conditions regarding governance including dividend ban and remuneration caps for senior management; prohibition of cross-subsidisation and acquisition ban and additional measures to limit competition distortions; transparency and reporting requirements.

The Temporary Framework enables member states to combine all support measures with each other, except for loans and guarantees for the same loan and exceeding the thresholds foreseen by the Temporary Framework. It also enables Member States to combine all support measures granted under the Temporary Framework with existing possibilities to grant de minimis to a company of up to €25,000 over three fiscal years for companies active in the primary agricultural sector, €30,000 over three fiscal years for companies active in the fishery and aquaculture sector and €200,000 over three fiscal years for companies active in all other sectors. At the same time, member states have to commit to avoid undue cumulation of support measures for the same companies to limit support to meet their actual needs.

Furthermore, the Temporary Framework complements the many other possibilities already available to member states to mitigate the socio-economic impact of the coronavirus outbreak, in line with EU State aid rules. On 13 March 2020, the Commission adopted a Communication on a Coordinated economic response to the COVID-19 outbreak setting out these possibilities.

For example, member states can make generally applicable changes in favour of businesses (e.g. deferring taxes, or subsidising short-time work across all sectors), which fall outside state aid rules. They can also grant compensation to companies for damage suffered due to and directly caused by the coronavirus outbreak.

The Temporary Framework will be in place until the end of December 2020. As solvency issues may materialise only at a later stage as this crisis evolves, for recapitalization measures only the Commission has extended this period until the end of June 2021. With a view to ensuring legal certainty, the Commission will assess before those dates if it needs to be extended.

The non-confidential version of the decision will be made available under the case number SA.57612 in the state aid register on the Commission's competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.

More information on the Temporary Framework and other action the Commission has taken to address the economic impact of the coronavirus pandemic can be found here.

 

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Merkel plans circuit-break lockdown as German virus cases surge

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Chancellor Angela Merkel pressed regional leaders on Wednesday (28 October) to agree to a partial lockdown in Germany which would see restaurants and bars closed but keep schools open, a draft document seen by Reuters said, write and

The drastic measures, to take effect from 4 November, are aimed at curbing the spread of the coronavirus in Europe’s biggest economy as the number of new cases hit a record high.

Under the planned new restrictions people would only be able to go out with members of their own and one other household. Fitness studios, discos and cinemas would close, as would theatres, opera houses and concert venues.

Restaurants would only be allowed to offer takeaways, the document said. Shops could remain open if they implement hygiene measures and limit customer numbers.

Merkel will hold a virtual conference with the country’s 16 state premiers later to try to agree the nationwide rules and ditch a confusing patchwork of regional measures.

Almost all regions of Germany face an exponential increase in infection rates, said the document to be discussed, and local health authorities can no longer trace all infections.

“The aim is to interrupt the dynamic of the infection fast so no far-reaching limits on personal contact and economic activity are needed over the Christmas period,” it said.

Germany was widely praised for keeping infection and death rates below those of many of its neighbours in the first phase of the crisis but is now in the midst of a second wave. Cases rose by 14,964 to 464,239 in the last 24 hours, the Robert Koch institute for infectious diseases said on Wednesday.

Deaths jumped by 85 to 10,183, fuelling fears about the health system after Merkel warned on Tuesday it could hit breaking point if infections continue to spiral.

“If we wait until intensive care is full, it is too late,” Health Minister Jens Spahn, who last week tested positive for the virus, told broadcaster SWR.

The government has long insisted it wants to avoid a second blanket lockdown after an initial one this year hit economic growth, with the economy shrinking by a record 9.7% in the second quarter.

While economists expect a rebound for the July-Sept period, they warn that a further lockdown could wipe out growth in the last quarter. Third quarter data is due on 30 October.

Under the plans, the government aims to provide aid to firms hit by closures, including the cultural event sectors.

Only necessary overnight stays would be allowed, according to the document. Brothels, swimming pools, beauty and tattoo studios would close but physiotherapists and hairdressers could stay open. The steps would run until the end of November but are subject to review.

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Italy approves trial of osteoporosis drug to treat COVID-19

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Italy’s main medicines regulator gave the go-ahead on Tuesday (27 October) for human clinical trials on raloxifene, a generic osteoporosis drug that researchers hope may also help reduce COVID-19 symptoms and make patients less infectious, writes .

The drug was identified as a potential COVID-19 treatment by researchers using supercomputers to screen more than 400,000 molecules for chemical characteristics that might inhibit the virus, focusing on those already approved for use in humans.

Andrea Beccari, from Excalate4Cov, a public-private consortium led by Italy’s Dompé Farmaceutici, said researchers hoped that raloxifene - a generic drug known as a selective oestrogen receptor modulator - would block replication of the virus in cells and thus slow down progress of the disease.

“It inhibits virus replication, thus preventing the worsening of patients with mild symptoms, and also decreases infectivity, limiting the viral load,” said Marco Allegretti, head of research at Dompé Farmaceutici.

There was some evidence early in the coronavirus pandemic that oestrogen present in pre-menopausal women might have a protective effect against the virus. Some scientists think raloxifene, which is prescribed to strengthen the bones of older women with lower levels of oestrogen, the female hormone, may provide the same kind of protection.

The trial will involve 450 hospital and home patients at Rome’s Spallanzani Hospital and Humanitas in Milan in the initial phase.

They will be given a seven-day treatment of raloxifene capsules in a randomised sample and 174 more people may be added in the final stage. Enrolment will last 12 weeks.

The Excalate4Cov platform is backed by the European Commission and coordinates supercomputing centres in Italy, Germany and Spain with pharmaceutical companies and research centres, including the University of Louvain, Fraunhofer Institut, Politecnico di Milano and Spallanzani Hospital.

It uses a chemical library of 500 billion molecules and can process 3 million molecules per second using four supercomputers of more than 122 Petaflops, a unit of computing speed equal to one thousand trillion floating-point operations a second.

Researchers harnessed the power of the supercomputers to create a three-dimensional structure of 12 coronavirus proteins and conduct simulations to see where the proteins may be attacked by a drug.

“It took a million hours of calculation,” Beccari said, adding that, as research continued, it may be possible to develop second-generation drugs superior to raloxifene.

($1 = €0.8443)

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France sees highest number of COVID-19 patients going into hospital since April

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French hospitals registered 1,307 new coronavirus patients on Monday in the highest one-day increase since 2 April, which saw 1,607 new patients, as the health system comes under increasing stress from a runaway infection rate, writes Geert De Clercq.

French health ministry data showed that France now has a total of 17,784 coronavirus patients in its hospitals, compared with a record 32,292 on 14 April, at the height of the March-May lockdown.

The ministry also reported 26,771 new confirmed coronavirus cases in past 24 hours, from 52,010 on Sunday (25 October). On Monday, the tally usually drops sharply because of reporting lags over the weekend.

The death toll went up by 257, taking the cumulative total since the start of the epidemic to 35,018. The number of people in intensive care units rose by 186 to 2,770.

Several regions in France have implemented emergency plans in hospitals, delaying non-essential operations to make space in ICU units for COVID-19 patients and cancelling staff holidays.

Sources told Reuters that authorities were looking at options for still tighter measures to fight COVID-19, including starting a 9 p.m. to 6 a.m curfew earlier, confining people to their homes at weekends except for essential trips, and closing non-essential shops.

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