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Economic recovery in France: 30 billion euros in the form of loans

publié le 2 July 2020

Under the temporary framework, the European Commission authorises France to use a system of loans to businesses in all sectors except the financial sector. These loans, for a total amount of €30 billion, are intended to support European businesses to deal with the consequences of the Covid-19 epidemic.

The Commission has adopted a temporary framework to allow EU Member States to make full use of the flexibility provided on the state aid rules to counter the disastrous consequences of the coronavirus pandemic for the European economy. The temporary framework allows Member States to grant different types of aid:

– Direct grants, equity injections and selective tax advantages of repayable advances
– Government guarantees on loans taken out by companies
– Subsidised public loans granted to companies
– Support for research and development, manufacturing of coronavirus-related products and support for the construction and development of testing facilities
– Guarantees for banks geared to the real economy
– Targeted support in the form of wage subsidies for employees
– Targeted recapitalisation aid for non-financial enterprises

 

The scheme of subsidised public loans granted to firms by France will be under the authority of the central government, the territorial administrations and the other authorities responsible for granting aid. In order to be in line with the EU’s Temporary Framework for European Economic Recovery, the French’s proposal had to respect a number of principles:

– Loans for large companies will not be allowed to exceed two-thirds of the wage bill or 8.4% of annual turnover in 2019
– Loans for SMEs may not exceed the payroll or 12.5% of turnover in 2019.
– The risky nature of subordinated loans requires higher pricing than the pricing applied to ordinary subsidised loans
– The temporary EU framework sets a maximum duration of 6 years for subordinated loans; France proposes a duration of 7 years but compensates for this longer duration by increasing the credit margin due to subordination

The Commission’s agreement means that this new French loan scheme is justified and necessary but also that it does not risk to disturb the Union’s economy.

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