Funcas | With the prolongation of the crisis, and the successive phases of opening and closing of the economy, the financial situation of many companies and small businesses has deteriorated, threatening the survival of part of the productive fabric. There is the prospect of massive bankruptcies and an increase in defaults, with the risk that this implies for financial institutions and for the financing of the economy as a whole. So European governments have been opting to implement direct aid and refinancing operations.
The aim of this note is to outline the recent initiatives in terms of direct aid from the governments of Germany, Spain, France and Italy.
Criteria for granting aid
In some countries, such as Germany and France, aid began to be granted in the autumn, in the middle of the second wave. But the scheme was restricted to companies facing administrative restrictions on their activities. Since the beginning of the year, however, aid has been extended to all sectors. Spain and Italy have followed suit, but with an important difference: while in Italy the aid has been extended to the whole economy, as in Germany and France, in Spain it is limited to the sectors most affected (commerce, hotels and restaurants, leisure, etc.).
On the other hand, the granting of aid depends on thresholds determined by the percentage of income lost due to the crisis. In Germany, Spain and Italy, only businesses which have reduced their turnover by at least 30% compared to 2019 can apply for aid. In France, the criteria are more flexible – especially in the sectors most affected by the crisis, which are allowed to receive a transfer from the first euro lost.
The viability requirement seems to have little importance in all countries, perhaps because it is not easy to establish objective criteria without excessively delaying the allocation of resources. Governments are mainly concerned with limiting the erosion of the productive fabric – even if this means perpetuating some unviable businesses. In Spain’s case, the regulations only exclude from aid those businesses already incurring losses before the crisis. And in Germany, the assessment of the degree of viability is undertaken by the Länder.
The German system is the most generous of the four examined, especially with regard to the aid ceiling that can be granted (up to 1.5 million euros). However, only fixed costs are taken into account for the calculation of benefits – as opposed to the other three countries, which are based on total loss of turnover.
The amount of aid is relatively low in Spain compared to the other three countries. Only 20-40% of the income lost by companies in the sectors most affected by the pandemic is compensated, compared to 20-60% in Italy and up to 100% for small businesses in France. The compensation rate can be as high as 90% in Germany.
However, Spain is the only country that grants a minimum benefit of 4,000 euros for all eligible businesses. This could be particularly beneficial for small businesses. Meanwhile, it is worth noting that in France, companies with a drop in turnover of more than 50% and which have not been affected by the activity restrictions or are part of the priority sectors (hotels, etc.) can receive a global benefit of 1,500 euros.
Budgetary cost and implementation
The estimated cost of the measures reflects the characteristics of the programmes, which are more generously designed in Germany and France, as described above. Moreover, in the case of France, no budgetary ceiling is determined, because the aid is considered to be part of the automatic stabilisers. So the total expenditure will fluctuate depending on the allocation of aid.
Finally, the management of the measures varies significantly between countries. In France and Italy, applications are made directly from the website of the tax office, which is the body in charge of granting the aid. In Germany and Spain, implementation is carried out by the regional administrations – in Spain’s case, following a call for applications by each of the Autonomous Communities.
Finally, and as a conclusion, in the case of Spain, the main objection to direct aid is that the regulation has come several months later than in the other three countries. Moreover, its coverage is relatively limited, as it applies only to the sectors most affected by the pandemic. But the main risk is that the implementation is more complex than in the other countries, which could significantly delay the arrival of aid. Furthermore, it could pose management challenges and create disparities between the different autonomous communities.