EU Loosens Aid Rules for States to Cover More Coronavirus Losses

EU Loosens Aid Rules for States to Cover More Coronavirus Losses

© Bloomberg. A traveler walks over social distancing and protective face mask information floor signs at Frankfurt Airport, operated by Fraport AG, in Frankfurt, Germany, on Tuesday, May 12, 2020. The Covid-19 crisis has brought global air travel almost to a halt, with governments closing borders and urging populations to stay at home to contain the pandemic. Photographer: Alex Kraus/Bloomberg

(Bloomberg) — European Union aid rules were loosened again to allow governments to cover up to 3 million euros ($3.5 million) of companies’ fixed costs as the European economy suffers the steepest recession in living memory.

Subsidy rules that usually stop governments from funneling cash to companies were relaxed this year as lockdown measures shut down economic activity. The European Commission is now extending the looser rules until June 2021 with more ability for states to recapitalize virus-hit firms until September 2021, it said in a Tuesday statement.

For the first time, countries can cover operating losses for companies that have seen at least a 30% decline in revenue linked to the coronavirus outbreak compared to 2019. The EU said this “aims at preventing the deterioration of their capital, maintaining their business activity and providing them with a strong platform to recover.”

Economic output is projected to shrink by over 8% in the 27-nation bloc, according to the most recent forecast by the European Commission. Industries such as aviation and tourism are poised to suffer the biggest blow, after the pandemic brought leisure and business travel to a halt.

A recent flare up in infections following a brief summer respite has led to a tightening of social distancing measures across the continent, further exacerbating the pain in the retail and entertainment sectors.

Some 3 trillion euros in state subsidies for business have already been pledged. EU Competition Commissioner Margrethe Vestager has flagged concerns that those funds are “very unevenly distributed” with Germany accounting for around half of the loan guarantees, grants, subsidized loans and company rescues pledged.

The EU is also planning to issue bonds next year to raise money for a 750-billion euro pandemic fund that will try to pump cash into member countries that can’t easily fund aid programs.

©2020 Bloomberg L.P.

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