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Law360 (July 8, 2020, 4:03 PM EDT) -- Europe's antitrust regulator has greenlighted Germany's plans to set up a €500 billion ($566 billion) fund to help keep afloat companies in the country that are struggling under the economic weight of the coronavirus pandemic.
The European Commission said Wednesday it was pleased with Germany's plan for the half-trillion euros' worth of aid, which would see the state "sufficiently remunerated for the risk taxpayers assume."
"In these difficult times, we continue to work in close cooperation with member states to find workable solutions to facilitate the access to finance of companies affected by the coronavirus outbreak, in line with EU rules," competition head Margrethe Vestager said in a statement.
The funds will go out three different ways, according to the regulator, but will only be available for companies that weren't already in trouble by the time the virus started stymying the economy. Even if the pandemic made things worse, companies that were struggling to stay afloat at the end of 2019 need not apply, it said.
The largest chunk of the funds, a whopping €400 billion, would go toward guaranteeing loans for businesses that have been hard hit by the virus' ripple effect on the economy.
Germany will only be handing out the guarantees for loans to meet companies' immediate needs, and the program will only operate until the end of the year. The guarantees also will only cover 90% of the risk, according to the commission.
Another portion of the funds would be set aside for subordinated loans, unsecured debts that generally aren't given precedence in cases of bankruptcy or default.
The last part of the money would go toward recapitalization instruments, specifically buying shares or convertible bonds in order to help companies offset their debt. When it came to state investments, the commission said it was comforted that the plan included "incentives for the state to exit as soon as possible."
Germany wasn't the only country to get an aid scheme approved by the commission Wednesday. Italy got the regulator's permission to put €6.2 billion toward small businesses and self-employed people who took a hit due to the pandemic.
With businesses across Europe shuttered as countries work to keep the populace at home, the European Commission unveiled a temporary framework earlier this year aimed at making it easier for member states to prop up their economies as they work to prevent the new coronavirus from further spreading in their states.
More than a half-million people have died from COVID-19 across the continent, according to the European Centre for Disease Prevention and Control.
Noting the "entire EU economy is experiencing a serious disturbance," the commission said the new framework will allow states to "use the full flexibility foreseen under state aid rules to support the economy in the context of the COVID-19 outbreak."
The framework creates an outline for several types of state aid — including state-guaranteed business loans, subsidized loans that see the government take on part of the interest, direct grants and tax advantages — that the commission hopes will keep member state economies afloat.
The regulator has already approved dozens of schemes under the new framework, adding up to trillions in state aid, and recently pushed back the expiration date on a slew of state aid rules in light of the crisis.
--Editing by Janice Carter Brown.
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