International Law

Banking Crisis, State Aids and Commission Guidance

By Bartolus

As we announced a few days ago, the Commission has now issued its new guidance on how governments of member States can spend vast sums to try to save all those bankrupt banks in the EU. And get away with it.

The practical result is that the Commission all but suspends the application of the rules on state aids and backs off from trying to restrain the member States in any meaningful way.

The Commission paper states that the aim is to try to comply with the rules on state aid by approving any aid the states are likely to give on the basis of Article 87(3) b) EC if six basic conditions are fulfilled by the national measures :

- They give non-discriminatory access to the aid in order to protect the functioning of the Single Market by making sure that eligibility for a support scheme is not based on nationality;
- State commitments should be limited in time so that support can be provided as long as it is necessary to cope with the current turmoil in financial markets but will be reviewed and adjusted or terminated as soon as improved market conditions so permit;
- State support should to be clearly defined and limited in scope to what is necessary to address the acute crisis in financial markets while excluding benefits for shareholders;
- An appropriate contribution should be made by private sector by way of an adequate remuneration for the introduction of general support schemes (such as a guarantee scheme) and the coverage by the private sector of at least a significant part of the cost of assistance granted;
- The State imposes sufficient behavioural rules for beneficiaries that prevent an abuse of state support, like for example expansion and aggressive market strategies on the back of a state guarantee (that presumably is the abuse the Commission seeks to prevent, not the rule it seeks to impose);
- An appropriate follow-up by structural adjustment measures for the financial sector as a whole and/or by restructuring individual financial institutions that had to rely on state intervention should be foreseen.

So, if member States do that, the Commission promises to rubber stamp its approval, if possible in 24 hours.

Full post as published by EU Law Blog on October 14, 2008 (boomark / email).