COVID-19: European Commission proposes new SURE Regulation

COVID-19

20 Apr 2020

This piece forms part of a series of COVID-19 updates published by our firm in response to developments around the pandemic. 

For more on this series, please see here

On April 4, 2020, the European Commission tabled a new legislative instrument that would introduce temporary Support to mitigate Unemployment Risks in an Emergency(‘SURE’). First announced 2 days prior in a press release, the law is intended to be a regulation. The legislator’s choice to implement this by means of a regulation is warranted, considering the need for a speedy and direct applicability across the Union. This will be a temporary EU financial aid instrument. At this stage, the Commission is seeking swift approval to its legislative proposal by the Council of Ministers.

SURE is an ambitious initiative. The Commission has proposed allocating up to €100 billion in total financial assistance, in the form of loans to be made to those Member States most affected by the COVID-19 outbreak. The instrument will focus on sponsoring temporary work schemes that Member States are enacting in order to keep workers employed, including schemes applicable to self-employed persons. Due to the rushed nature of the proposal, no impact assessment or stakeholder consultations have been conducted.

The basic idea behind SURE will be that the Commission will acquire credit facilities on the financial market with the view of on-lending them to the requesting Member States. SURE has some resemblance to the still existing European Financial Stabilisation Mechanism (EFSM), albeit SURE has almost twice the budget.

This borrowing will be counterbalanced by the provision of credible, irrevocable and callable guarantee instruments by the Member States to the Commission. In theory this should mean that Member States have higher liquidity since there is no need to pay up-front cash to benefit from extra credit.

The Member States may request aid from the SURE scheme in circumstances where their national expenditures in the area of employment compensations are in fact or are foreseen to spike due to COVID-19-related redundancies. The entire process is designed to be as quick as possible. Once the aid is requested, the Commission will consult the Member State and verify the public expenditures related to short-term employment schemes and other relevant programmes to support Member State’s labour force. During this consultation process, the conditions of the SURE loan such as the maturity date, interest, etc. will be set.

The Commission bases this scheme on both arms of Article 122 of the Treaty on Functioning of the European Union. Sub-article (1) provides for the general power of the Council on the advice of the Commission to provide for the economic measures while sub-article (2) provides for the Council’s power to grant Union aid to Member States experiencing serious difficulties due to natural disasters or ‘exceptional occurrences’. Naturally, the current outbreak fits well under this Article. This is the second time Article 122 has been utilised by the EU, the first being during the 2008 financial crisis with the enactment of the above mentioned EFSM instrument.

Commentators have noted that one of the reasons for basing the instrument on Article 122, and not on the European Stability Mechanism, is to avoid ‘interference with the (divisive) debate on whether or not the ESM should be the vehicle for European solidarity in the corona crisis’.

The proposal and the Regulation note that the scheme is of a supplementary nature, and is intended to enhance Member States’ national measures as well as to work in conjunction with other EU aid initiatives. It mentions the European Unemployment Reinsurance Scheme, and hints that perhaps in the future a more permanent instrument could be implemented. The idea for implementing an EU-wide unemployment scheme has been in discussion for several years now, however there are no legislative proposals from the Commission as of yet.