EU may look kindly on Irish plea for Brexit state-aid leeway

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6 November 2017. By Simon Taylor.

Irish businesses can be cautiously optimistic about EU approval for an Irish government request to grant aid to deal with the impact of Brexit. It is to be temporary, and there are precedents in EU law for such help to companies confronted with disruption because of exceptional economic events.

Frances Fitzgerald, Ireland’s minister for business, enterprise and innovation and deputy prime minister, will meet EU competition chief Margrethe Vestager in Brussels on Friday to lobby for a relaxing of EU state-aid rules to deal with the impact of Brexit on Irish businesses.

Ireland’s economy stands to be hardest hit by Brexit due to extensive historical Irish trade ties with Britain and to the high volume of Irish food and drink exports that transit through the UK on the way to continental Europe. Both would be affected if customs checks were imposed on goods entering UK territory.

A European Parliament study into the impact on Ireland found that its economy could shrink by 9 percent if the UK were to fail to strike a trade deal and ended up trading with the EU on World Trade Organization terms.

The Irish government has asked the European Commission to approve a special temporary state-aid framework to allow it to cushion Irish companies from the impact by providing up to 10 million euros ($11.6 million) per company in financial aid though state-backed credit guarantees and low-interest or interest-free loans.

Gerard Brady, head of tax and fiscal policy at the Irish Business and Employers Confederation, or IBEC, says his organization — which has been advocating the state-aid scheme — is “hopeful” that the EU will approve the request.

He points out that a so-called hard Brexit, meaning the UK leaving the customs union and the EU’s single market, would hit around 1,000 export-dependent Irish companies “particularly badly.”

These companies are predominantly in the food and manufacturing sector and account for around 300,000 jobs directly and indirectly, most of which are in economically disadvantaged parts of Ireland, Brady says.

Temporary

The Irish request is for a temporary scheme, intended to keep companies afloat and restructure their business models to adjust to the new trading environment. Once the crisis has passed, the scheme is then wound up.

Getting approval for a temporary scheme makes it easier and quicker for affected companies because the government does not have to apply to the EU for aid clearance on a business-by-business basis.

The good news for Irish businesses is that there are several precedents for such special schemes in the history of EU state aid.

In July the European Commission approved a Belgian scheme that helps SMEs with loans and guarantees. The program was notified in March and won approval a couple of months later. It will run until the end of 2020.

Separately, officials gave the green light late last month to a similar program in Spain that will rescue companies in difficulty. That, too, will run until the end of 2020.

Objections

One possible obstacle is objections from other EU countries, which might claim that the state-aid deal could distort competition in favor of Irish companies.

As the decision to approve the Irish scheme rests with Vestager, however, if other countries with significant UK trade such as the Netherlands, Belgium or Denmark objected, she could invite them to submit their own requests for greater state-aid flexibility.

A positive decision from Vestager to approve the Irish government’s request would clearly be welcome news for Irish exporters.

But it would at the same time be recognition of just how hard Irish exporters and the wider economy are expected to be hit by a hard Brexit.

	Eliot Gao