The Russian aggression in Ukraine has a broad impact on the business in Europe and globally. Besides the humanitarian crisis, the war harms the production in Ukraine and affects directly the supply of, e.g., wheat, corn and oilseeds. The war has also caused an increase in oil, gas and fertiliser prices. The sanctions imposed against Russia are unprecedented and, as a side effect, they will most probably further increase prices for said goods.
The Impact of the Sanctions
The sanctions affect the economy in many ways. The export of several items to Russia has been prohibited, including electronics, vessels, engines and luxury goods. Transfer of payments has been made at least very difficult by imposing sanctions directly against large Russian banks and by excluding certain banks from the SWIFT system. As the value of the rouble plunges and access to finance is strongly limited, undertakings may not be able to fulfil their payment obligations even if the sanctions would not directly concern them. Moreover, some operators refrain also from permitted transactions merely to be on the safe side. This has to do with the large number of different new sanction schemes, the perceived uncertainty of their exact scope and unpredictability of their application.
At the moment, the restrictions on imports from Russia concern only steel and iron products. It remains to be seen whether the EU will prohibit import of raw materials from Russia more broadly, including oil and gas, and what the actual consequences would be in that case.
In Finland, we have seen a drastic drop in trade with Russia. When the new list of prohibited items was adopted on 25 February under the EU’s sanction regime (Annex VII of Regulation (EU) No 833/2014), the customs authorities estimated that the included items would make up around 7 % of the Finnish exports to Russia, amounting to around 250 million euros. However, as a consequence of the combined effect of the sanctions explained above, what we saw in reality was a collapse of 60 % in declaration outwards between 7 and 20 March compared to the previous two-weeks period (Customs press release of 22 March). We have also seen that companies withdraw broadly from Russia, if at all possible even if the sanctions would not directly prevent their activities.
The Bank of Finland has estimated that the war will cut the GDP growth this year by 0,6 percentage points to 2,0 %. However, according to a worse scenario, the GDP growth would remain only 0,5 %.
New Temporary Crisis Framework for State Aid
The European Commission adopted the communication “Temporary Crisis Framework for State Aid measures to support the economy following the aggression against Ukraine by Russia” on 23 March. The Commission considers that the war, sanctions and counter measures taken have had and will have severe effects on the economy of the Member states, e.g., significant economic uncertainties, disrupted trade flows and supply chains, large price increases in natural gas, electricity, numerous input and raw materials and primary goods. Thus, the Commission considers that the following aid measures will be compatible with the common market until the end of this year.
- Limited amount of aid. The maximum aid amount is 400 000 euros per undertaking and can be granted to undertakings that have been affected by the crisis. Aid can be granted also to the primary production of agricultural products but in that case the aid ceiling is 35 000 euros.
- Guarantees on favourable terms. A guaranteed loan shall not exceed
- 15% of the beneficiary’s average total annual turnover over the last three closed accounting periods; or
- 50% of energy costs over the 12 months preceding the month when the application for aid is submitted; or
- (Upon appropriate justification) the liquidity needs from the moment of granting for the coming 12 months for SMEs and for the coming 6 months for large enterprises.
The Guarantee shall not exceed 90 % of the loan principal.
- Loans on favourable terms. The maximum loan amount is defined in the similar way as the amount of guaranteed loan as defined in section 2) above.
- Aid for additional costs due to exceptionally severe increases in natural gas and electricity prices. Under this measure, Member States may compensate undertakings a part of the increase in prices of natural gas and electricity. The maximum aid is 2 million euros, but an energy-intensive undertaking may, under certain conditions, receive up to 50 million euros. Member States are “invited to consider” setting requirements related to environmental protection or security of supply before granting this compensation.
Under Article 107 (3) (b) of the Treaty of the Functioning of the European Union (TFEU), the Commission may approve aid to remedy a serious disturbance in the economy of a Member State. The publication of the Framework does not give Member States any automatic right to grant aid, but they have to first notify the aid measures to the Commission which will assess the measures in accordance with the Framework.
The aid measures resemble those adopted in the context of the Covid-19 pandemic. However, some conditions have been modified in order to target specifically the current crisis. It remains to be seen, e.g., how strictly the Commission aims to ensure/control that the limited amount of aid will be targeted to undertakings affected by the crisis (the first aid measure) and that Member states actually set requirements related to environmental protection or security of supply for granting compensation under the fourth measure.
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We at Waselius monitor the situation closely and follow the daily development of the sanction regimes. We are pleased to provide assistance in any questions you may have related to the sanctions and State aid rules.