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€2bn Italian trade credit insurance guarantee scheme approved by EC

18th August 2020 - Author: Katie Baker

Under new EU State aid rules, the European Commission has approved a €2 billion (USD2.4billion) Italian scheme to support the trade credit insurance market throughout the COVID-19 pandemic.

Italy notified to the Commission a State guarantee scheme for the reinsurance of trade credit risks to support companies affected by the coronavirus outbreak.

Executive Vice-President, Margrethe Vestager, in charge of competition policy, said: “This €2 billion Italian scheme will contribute to ensuring that trade credit insurance remains available to all companies so that they can secure their commercial exchanges.

“This will help them address their liquidity needs and continue their activities during and after the crisis. We continue working closely with Member States to ensure that national support measures can be put in place in a coordinated and effective manner, in line with EU rules.”

Trade credit insurance is aimed at protecting companies supplying goods and services against the risk of non-payment by their clients. Due to COVID-19, the current economic environment has meant that the risk of insurers not being willing to issue this insurance has become higher.

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The Italian scheme, with an estimated budget of €2 billion, will ensure that trade credit insurance continues to be available to all companies, avoiding the need for buyers of goods or services to pay in advance, therefore reducing their immediate liquidity needs.

The scheme was specifically created for cases of extreme economic situations, such as the COVID-19 pandemic, which has caused an economic turmoil faced by all Member States and the UK.

The EU State will only allow Member States to grant types of aid if the country is under economic distress. However, Member States will have to commit to avoid undue cumulation of support measures for the same companies to limit support to meet their actual needs.

The Temporary framework can be granted by Member States and currently provides a number of different aids. Direct grants, equity injections, selective tax advantages and advance payments, can be accessed as well as guarantees for loans taken by companies to ensure banks keep providing loans to the customers who need them.

Other aids are available such as Subsidised public loans to companies are also accompanied with favourable interest rates. These loans enable businesses to cover immediate working capital and investment needs. There is also access for safeguarding of banks that channel State aid to the real economy.

This temporary structure will enable the Member States to combine all support measures with each other. However, Member States must avoid any undue influence of support measures for the same companies to limit support to meet their actual needs.

The scheme will be in place until the end of December 2020, although will be reassessed beforehand to see if it needs to be extended.

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