Silvio Berlusconi

Subject: Coronavirus emergency: measures to support SMEs

The fast spread of the coronavirus and the measures being taken to combat it are disrupting people’s lifestyles and habits in Italy and the EU, causing serious damage to our economic system. Last Friday alone, European stock exchanges lost EUR 310 billion. But it is small and medium-sized enterprises that are paying the highest price and also suffering a growing cash crisis.

Against this worrying background, it is essential that we support companies and protect jobs. It is therefore vital that we do not stop lending to businesses. Where SMEs are unable to repay their debts, the loans should not be considered uncollectible or irrecoverable. We therefore need a freeze on repayments, though banks should not be penalised. The rules governing the treatment of so-called non-performing loans thus need to be temporarily suspended.

What action does the Commission intend to take with regard to current EU lending rules?

Will it provide for any extraordinary measures to temporarily suspend arrangements for identifying and treating non-performing loans?

What measures does it intend to take in order to have a set of rules that facilitate a continuous flow of credit to European SMEs, in particular to those in the areas affected by the coronavirus?

Answer given by Executive Vice-President Dombrovskis on behalf of the European Commission (6 July 2020)

In the wake of the COVID-19 emergency, besides mobilising all EU budget resources, the Commission introduced a temporary state aid framework to allow Member States to support their citizens, their companies and their economies overcome this extraordinary exogenous shock.

As to funding of small and medium-sized enterprises (SMEs), which account for 2 out of 3 jobs in the EU, the European Central Bank (1), the European Banking Authority (2) and the European Securities and Markets Authority (3) have all issued guidelines clarifying that loans subject to a temporary moratorium in combination with guarantees would neither become automatically non- performing (NPLs), nor result in increased bank capital requirements.

In the same vein, the Commission has proposed to give on an exceptional and temporary basis a more favourable treatment to publicly guaranteed loans under the NPL prudential backstop and to bring forward several agreed measures incentivising banks to finance SMEs (4) (as well as employees, pensioners, infrastructure projects and investment in software).

The Commission also extended a EUR 1 billion guarantee to the European Investment Fund, which Italian banks can, for example, use to provide working capital loans to Italian SMEs.

It is estimated that this guarantee will unlock up to EUR 8 billion in working capital loans and liquidity to at least 100 000 SMEs and small mid-caps in Europe. The Commission has also proposed an unprecedented flexibility for the use of EU funds, including for supporting SMEs. This includes the possibility to apply 100% EU co-financing rate and flexibility to transfer resources between the cohesion policy funds, and between different regions.

The Commission’s proposal for the next Multiannual Financial Framework also has a clear focus on supporting SMEs, in particular through the new REACT-EU initiative (total budget of EUR 55 billion), which according to the Commission’s proposal will be operational already this year, and the expansion of the Just Transition Fund by EUR 32.5 billion to a total of EUR 40 billion.

Finally, the European Investment Bank has set up a Pan-European Guarantee Fund of EUR 25 billion, which could support EUR 200 billion of financing, with special focus on supporting SME recovery.

|(⋅1∙|) See https://www.bankingsupervision.europa.eu/press/pr/date/2020/html/ssm.pr200312~43351ac3ac.en.html |(⋅2∙|) See https://eba.europa.eu/eba-statement-actions-mitigate-impact-covid-19-eu-banking-sector |(⋅3∙|) See https://www.esma.europa.eu/sites/default/files/library/esma32-63-951_statement_on_ifrs_9_implications_of_covid- 19_related_support_measures.pdf |(⋅4∙|) COM(2020)169 .