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    EC Approves Italian State Guarantee Scheme in Context of COVID-19

    March 25, 2020

    EC approved the Italian State guarantee supporting a debt moratorium from banks to small and medium-size enterprises (SMEs) affected by the COVID-19. The scheme was approved under the State aid Temporary Framework, adopted by EC on March 19, 2020, to enable member states to use the full flexibility foreseen under State aid rules to support the economy in the context of the COVID-19 outbreak. The Temporary Framework will be in place until the end of December 2020. Italy notified to EC under the Temporary Framework a State guarantee to support a debt moratorium for SMEs, which includes the postponement of repayments of overdraft facilities, bank advances, bullet loans, mortgages, and leasing operations.

    EC found that the Italian measure is in line with the conditions set out in the Temporary Framework. In particular, the guarantee covers a well-defined set of financial exposures and is limited in time. The scheme runs until September 30, 2020 and the guarantee extends for 18 months after the end of the moratorium. Furthermore, the guarantee covers the payment obligations falling under the moratorium. The risk taken by the State is limited to 33%. In any case, before calling on the State guarantee, financial intermediaries must make recovery efforts themselves. To ensure that the measure benefits only SMEs, who experience difficulties due to the COVID-19 outbreak, eligible beneficiaries must not have non-performing exposures prior to March 17, 2020. They also need to certify that their business activity has suffered due to the economic effects of the COVID-19 outbreak. 

    EC concluded that the guarantee to provide liquidity for SMEs under the moratorium will contribute to managing the economic impact of the COVID-19 outbreak in Italy. The measures are necessary, appropriate, and proportionate to remedy a serious disturbance in the economy of a member state, in line with Article 107(3)(b) Treaty on the Functioning of the European Union and the conditions set out in the Temporary Framework. On this basis, EC approved the measures under EU State aid rules.

     

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    Keywords: Europe, EU, Italy, Banking, COVID-19, SME, State Aid Rules, Temporary Framework, Credit Risk, EC

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