A “Temporary Crisis Framework” allowing member state governments to financially support businesses impacted by the Ukraine war was adopted by the European Commission on Wednesday (23 March).
As the EU cuts more and more economic ties with the Russian economy through sanctions, companies that export to or import from Russia and companies vulnerable to commodity prices stand to suffer negative consequences.
“We need to mitigate the economic impact of this war and to support severely impacted companies and sectors,” said Executive Vice-President of the EU Commission Margrethe Vestager
“These sanctions also take a toll on the European economy and will continue to do so in the coming months,” she added.
Grants and loans
Member states can now introduce schemes to provide financial aid of up to €35,000 for companies in the agriculture, fisheries, and aquaculture sectors and up to €400,000 for those in the other sectors.
The aid can come in different forms, such as direct grants for the company. Member states can also support companies through state guarantees and subsidised loans to ensure that banks keep lending to affected companies at affordable rates.
Additionally, the Commission allows member states to compensate intensive energy users specifically for high energy prices. Here, state aid can go into the millions, with assistance for loss-making companies capped at €25 million per company and €50 million per company in strategically important sectors, for example, the production of fertilisers.
However, there are concerns that subsidising energy costs while still importing energy from Russia is equivalent to funding the Russian government and its war effort.
Reacting to fuel tax cuts that have been implemented in many EU countries, for example, Griffin Carpenter, an analyst of the NGO Transport & Environment, said: “EU governments claim they stand with Ukraine, but instead of taxing Russian oil, they’re subsidising it.”
Keeping a level playing field
After the global financial crisis in 2008 and the COVID pandemic in 2020, this is the third time the Commission has adopted such a framework allowing member states to exceptionally provide more state aid.
State aid is usually tightly regulated and discouraged within the EU to ensure a level playing field in the European market and avoid a ruinous contest of national industry subsidisation.
“In order to preserve the level playing field in the Single Market, the new Temporary Crisis Framework includes a number of safeguards,” Vestager said.
These safeguards include the need for the size of the compensation to be proportional to the scale of the company’s economic activity and its exposure to the crisis.
Moreover, the Commission “invites” governments to consider including sustainability requirements for the help they grant to companies.
No EU-wide solidarity yet
The temporary crisis framework for state aid will allow member state governments to react to the economic consequences of the war in Ukraine individually.
However, member states are impacted by the war and sanctions differently depending on their connections with Russia and Ukraine’s economies and their reliance on commodity prices.
This is why some countries argue for more common EU borrowing to compensate the more affected countries. “We need a European response,” Italian Prime Minister Mario Draghi said earlier this month. However, this position is not supported by more fiscally conservative member states like the Netherlands and Germany.
Graph by Esther Snippe
[Edited by Alice Taylor]