Recognising the serious implications of the growing threat of COVID-19, the European Commission has on 13 March 2020 launched a series of proposed changes in legislation and budgetary allocation measures as part of its new "Coronavirus Response Investment Initiative". The initiative aims to aid small and medium enterprises ("SMEs") across the Union to cope with COVID-19-related losses as well as related expenditures on the part of Member States and funding of short-term employment schemes.
The focus of the aid is to alleviate the liquidity issues that many SMEs are currently experiencing due to public closures and reduction of market demand. The Commission plans to make available approximately €37 billion under the Cohesion policy, to be used in 2020, with an initial €8 billion to be released and made available to Member States right away. This will be done by forfeiting the obligation on the Member States to refund 2020 unspent pre-financing for European Structural and Investment Funds. The funds could be directed to the most immediate expenses required to tackle the outbreak, such as support to Member States' healthcare systems and liquidity for companies and businesses.
The initiative takes the form of a legislative proposal for a European regulation to amend the existing three Regulations establishing and regulating the European Regional Development Fund ("ERDF"), the European Social Fund ("ESF"), the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund.
Amendments to European Regional Development Fund Regulation
The proposed Regulation amends Regulation (EU) 1301/2013 by adding new purpose to the ERDF of supporting SMEs by providing working capital as a response to a public health crisis. Additionally, 'Investment Priorities' are amended by adding priority to invest into crisis response capacities in health services.
Amendments to European Structural and Investments Funds ("ESFI") Regulation
The amendments proposed for the Regulation (EU) 1303/2013 include:
- New derogation providing Member States with the discretion to transfer a maximum of 8% of the priority budget or 4% of the regular program budgets from ERDF, Cohesion Fund or ESF to another priority in the same fund or the same program, without need for approval by the Commission;
- The ESFI funds can be invested into using financial instruments as a means to provide the SMEs with a working capital as a temporary aid;
- The expenditures linked with improving crisis response to the COVID-19 outbreak are eligible for contribution from ESFI funds as from 1st February 2020; and
- The Commission shall forfeit recovery orders for the year 2020, and the funds not recovered must be spent on investments related to COVID-19 outbreak.
Amendments to European Maritime and Fisheries Fund ("EMFF") Regulation
The proposed amendments modify the Regulation 508/2014 by allowing the EMFF to provide for financial compensation to fishermen for the losses suffered due to public health crisis and safeguard the income of aquaculture producers by financing the stock insurance.
The eligibility for the compensation is met if the amount of losses is at least 30% of the annual turnover of the business calculated based on the 3-year average.
According to the Technical Briefing by Director-General for EU Budget, Malta would receive around €9 million in immediate liquidity funds with a corresponding €39 million of EU budget.
The feedback period is open until 12th May 2020. More information can be found here.
Proposal to amend European Union Solidarity Fund Regulation
The Solidarity Fund is intended to assist Member States and accession states which are suffering from natural disasters. It is now proposed to extend the use of the fund to provide financial aid to Member States and to those states negotiating accession with the EU which are experiencing major public health emergencies, since the current Regulation does not include health emergencies in its definition of 'natural disaster'.
The Commission also proposes to make the financing process more expedient by increasing the maximum advance payments from 10% of expected total contributions to 25%, for a maximum of €100 million. Thus, the affected states will have more liquid cash aid before the entire contribution is paid from the fund.
Finally, the Commission proposes to increase the overall EU advances to the budget of the fund itself from €50 million to €100 million, including for 2020.
The State requesting the aid must suffer a 'major natural disaster', which is defined as natural disaster (including now a major public health emergency) with direct damages suffered of either:
- €3 billion in 2011 prices (approximately €3.4 billion today); or
- 0.6% of the State's global national income.
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