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Commission approves €3 billion French scheme to provide debt and capital support to companies affected by the coronavirus outbreak

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The European Commission has approved, under EU state aid rules, French plans to set up a €3 billion fund that will invest through debt, hybrid and equity instruments in companies affected by the coronavirus outbreak. The scheme was approved under the State Aid Temporary Framework.

Executive Vice-President Margrethe Vestager (pictured), in charge of competition policy, said: “This €3 billion recapitalization scheme will enable France to support companies affected by the coronavirus outbreak by facilitating their access to finance in these difficult times. We continue working in close cooperation with member states to find workable solutions to mitigate the economic impact of the coronavirus outbreak, in line with EU rules.”

The French support measure

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France notified to the Commission under the Temporary Framework a €3bn scheme to provide debt and capital support to companies affected by the coronavirus outbreak.

The scheme will be implemented through a fund, which goes under the name 'Transition Fund for enterprises affected by the COVID-19 outbreak', with a budget of €3bn. Under the scheme, the aid will take the form of (i) subordinated and participating loans; and (ii) recapitalization measures, in particular hybrid capital instruments and preferred shares without voting rights.

The measure is open to companies established in France and active in all sectors (except the financial one), which were viable prior to the coronavirus outbreak and have demonstrated the long-term sustainability of their business model. Between 50 and 100 companies are expected to benefit from this scheme.

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The Commission found that the measures are in line with the conditions set out in the Temporary Framework. In particular:

  • With respect to aid in the form of recapitalisation measures (i) support is available to companies only 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 to restore their capital position to before the coronavirus outbreak; (iii) the scheme provides an adequate remuneration for the state and it incentivises beneficiaries and/or their owners to repay the support as early as possible (including a dividend ban, and a ban on bonus payments to management); (iv) safeguards are in place to ensure that beneficiaries do not unduly benefit from the recapitalisation aid by the State to the detriment of fair competition in the Single Market, such as an acquisition ban to avoid aggressive commercial expansion; and (v) aid to a company above the threshold of €250 million has to be notified separately for individual assessment.
  • With respect to aid in the form of subordinated loans, and given that under the scheme only subordinated loans with a volume exceeding the relevant limits set out in the Temporary Framework will be provided, the aid will have to fully comply with above conditions established for recapitalisation measures, in line with the Temporary Framework.

Support will be granted no later than 31 December 2021. Finally, only companies that were not considered to be in financial difficulty already on 31 December 2019 are eligible for aid under this scheme.

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

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

Background

The Commission has adopted a 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, 8 May, 29 June, 13 October 2020 and 28 January 2021, 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 €225,000 to a company active in the primary agricultural sector, €270,000 to a company active in the fishery and aquaculture sector and €1.8 million 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 €1.8 million 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 €225,000 and €270,000 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 recapitalisation 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.

(xii) Support for uncovered fixed costs for companies facing a decline in turnover during the eligible period of at least 30% compared to the same period of 2019 in the context of the coronavirus outbreak. The support will contribute to a part of the beneficiaries' fixed costs that are not covered by their revenues, up to a maximum amount of €10 million per undertaking.

The Commission will also enable Member States to convert until 31 December 2022 repayable instruments (e.g. guarantees, loans, repayable advances) granted under the Temporary Framework into other forms of aid, such as direct grants, provided the conditions of the Temporary Framework are met.

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 2021. With a view to ensuring legal certainty, the Commission will assess before this date if it needs to be extended.

The non-confidential version of the decision will be made available under the case number SA.63656 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 Competition 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.

France

French envoy to return to US after fence-mending Biden-Macron call

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The US and French presidents moved to mend ties on Wednesday (22 September), with France agreeing to send its ambassador back to Washington and the White House acknowledging it erred in brokering a deal for Australia to buy US instead of French submarines without consulting Paris, write Michel Rose, Jeff Mason, Arshad Mohammed, John Irish in Paris, Humeyra Pamuk in New York and by Simon Lewis, Doina Chiacu, Susan Heavey, Phil Stewart and Heather Timmons in Washington.

In a joint statement issued after US President Joe Biden and French President Emmanuel Macron spoke by telephone for 30 minutes, the two leaders agreed to launch in-depth consultations to rebuild trust, and to meet in Europe at the end of October.

They said Washington had committed to step up "support to counter-terrorism operations in the Sahel conducted by European states" which US officials suggested meant a continuation of logistical support rather than deploying US special forces.

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Biden's call to Macron was an attempt to mend fences after France accused the United States of stabbing it in the back when Australia ditched a $40 billion contract for conventional French submarines, and opted for nuclear-powered submarines to be built with U.S. and British technology instead. Read more.

Outraged by the US, British and Australian deal, France recalled its ambassadors from Washington and Canberra.

"The two leaders agreed that the situation would have benefited from open consultations among allies on matters of strategic interest to France and our European partners," the joint U.S. and French statement said.

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"President Biden conveyed his ongoing commitment in that regard."

U.S. Secretary of State Antony Blinken and his French counterpart Jean-Yves Le Drian, interacting for the first time since the submarine crisis erupted, had a 'good exchange' on the margins of a wider meeting at the United Nations on Wednesday, a senior State Department official told reporters in a call.

The two top diplomats were likely to have a separate bilateral meeting on Thursday. "We do expect that they’ll have some time together bilaterally tomorrow," the official said, and added that Washington 'very very much welcomed' France and European Union's deep engagement in the Indo-Pacific.

French President Emmanuel Macron delivers a speech during a collective award ceremony at the Elysee Palace, in Paris, France September 20, 2021. Stefano Rellandini/Pool via REUTERS
French President Emmanuel Macron delivers a joint statement with Chile's President Sebastian Pinera (not seen) after a meeting at the Elysee Palace in Paris, France, September 6, 2021. REUTERS/Gonzalo Fuentes/File Photo

Earlier on Wednesday, White House spokeswoman Jen Psaki described the call as "friendly" and sounded hopeful about improving ties.

"The president has had a friendly phone call with the president of France where they agreed to meet in October and continue close consultations and work together on a range of issues," she told reporters.

Asked if Biden apologized to Macron, she said: "He acknowledged that there could have been greater consultation."

The new US, Australian and British security partnership (AUKUS) was widely seen as designed to counter China's growing assertiveness in the Pacific but critics said it undercut Biden's broader effort to rally allies such as France to that cause.

Biden administration officials suggested the US commitment to "reinforcing its support to counter-terrorism operations in the Sahel" region of West Africa meant a continuation of existing efforts.

France has a 5,000 strong counter-terrorism force fighting Islamist militants across the Sahel.

It is reducing its contingent to 2,500-3,000, moving more assets to Niger, and encouraging other European countries to provide special forces to work alongside local forces. The United States provides logistical and intelligence support.

Pentagon spokesman John Kirby said the US military would continue to support French operations, but declined to speculate about potential increases or changes in U.S. assistance.

"When I saw the verb reinforce, what I took away was that we're going to stay committed to that task," he told reporters.

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France

EU backs France in submarine dispute, asking: Is America back?

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European Union foreign ministers expressed support and solidarity with France on Monday (20 September) during a meeting in New York to discuss Australia's scrapping of a $40 billion submarine order with Paris in favor of a US and British deal, write Michelle Nichols, John Irish, Steve Holland, Sabine Siebold, Philip Blenkinsop and Marine Strauss.

Speaking after the closed-door meeting on the sidelines annual U.N. gathering of world leaders, EU foreign policy chief Josep Borrell said "more cooperation, more coordination, less fragmentation" was needed to achieve a stable and peaceful Indo-Pacific region where China is the major rising power.

Australia said last week it would cancel an order for conventional submarines from France and instead build at least eight nuclear-powered submarines with US and British technology after striking a security partnership with those countries under the name AUKUS. Read more.

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"Certainly, we were caught by surprise by this announcement," Borrell said.

The decision enraged France and earlier on Monday in New York French Foreign Minister Jean-Yves Le Drian accused US President Joe Biden's administration of continuing his predecessor Donald Trump's trends of "unilateralism, unpredictability, brutality and not respecting your partner."

The United States has sought to assuage the anger in France, a NATO ally. French President Emmanuel Macron and US President Joe Biden are due to speak on the phone in the next few days.

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"We are allies, we talk and don't hide elaborate different strategies. That's why there is a crisis in confidence," Le Drian said. "So all that needs clarifications and explanations. It may take time."

White House spokeswoman Jen Psaki said on Monday that she expected Biden to "reaffirm our commitment to working with one of our oldest and closest partners on a range of challenges that the global community is facing" when he speaks with Macron.

It is not clear if the dispute will have implications for the next round of EU-Australia trade talks, scheduled for 12 October. Borrell met with Australian Foreign Minister Marise Payne in New York on Monday.

European Council President Charles Michel said that he found it difficult to understand the move by Australia, Britain and the United States.

"Why? Because with the new Joe Biden administration, America is back. This was the historic message sent by this new administration and now we have questions. What does it mean - America is back? Is America back in America or somewhere else? We don't know," he told reporters in New York.

If China was a main focus for Washington then it was "very strange" for the United States to team up with Australia and Britain, he said, calling it a decision that weakened the transatlantic alliance.

Top officials from the United States and European Union are due to meet in Pittsburgh, Pennsylvania, later this month for the inaugural meeting of the newly established US-EU Trade and Technology Council, but Michel said some EU members were pushing for this to be postponed.

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coronavirus

Commission authorizes French aid scheme of €3 billion to support, through loans and equity investments, companies affected by the coronavirus pandemic

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The European Commission has cleared, under EU state aid rules, France's plans to set up a € 3 billion fund that will invest through debt instruments and equity and hybrid instruments in companies affected by the pandemic. The measure was authorized under the Temporary State Aid Framework. The scheme will be implemented through a fund, titled 'Transition Fund for Businesses Affected by the COVID-19 Pandemic', with a budget of € 3bn.

Under this scheme, support will take the form of (i) subordinated or participating loans; and (ii) recapitalization measures, in particular hybrid capital instruments and non-voting preferred shares. The measure is open to companies established in France and present in all sectors (except the financial sector), which were viable before the coronavirus pandemic and which have demonstrated the long-term viability of their economic model. Between 50 and 100 companies are expected to benefit from this scheme. The Commission considered that the measures complied with the conditions set out in the temporary framework.

The Commission concluded that the measure was necessary, appropriate and proportionate to remedy a serious disturbance in the economy of France, in accordance with Article 107 (3) (b) TFEU and the conditions set out in the temporary supervision. On this basis, the Commission authorized these schemes under EU state aid rules.

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Executive Vice President Margrethe Vestager (pictured), competition policy, said: “This €3bn recapitalization scheme will allow France to support companies affected by the coronavirus pandemic by facilitating their access funding in these difficult times. We continue to work closely with member states to find practical solutions to mitigate the economic impact of the coronavirus pandemic while respecting EU regulations.”

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