Brussels, 05/04/2002 (Agence Europe) - The European Commission has decided to open an investigation on the current guarantees given by the Austrian Government to provincial and local authorities for certain publicly owned credit institutions notably, the provincial mortgage banks and some savings banks. It has written to the Austrian government (the first stage in the proceedings) informing it of its doubts about the compatibility of existing state measures in the common market. These proceedings form part of the decision taken by the Commission on guarantees granted to German public banks for which a compromise was recently found (see EUROPE 2 March page 11). The deficiency guarantee (Ausfallshaftung) provided by the Austrian authorities is broadly equivalent to the German "institutional liability" guarantee means that the bank's public owners (the State, provinces, municipalities) assume unlimited secondary liability if a creditor is unable to obtain repayment from the principal debtor even through enforcement proceedings. The Commission believes that this measure gives a competitive advantage to beneficiary companies as it improves their credit rating and improves their financing terms given their investors demand a lower risk premium. It also gives them access to sources of refinancing not available to other institutions. The Commission also considers that the amount payable to some publicly owned banks to the guarantor for the "deficiency guarantee" does not reflect the true market position or offset the advantage gained, as the guarantee covers all liabilities, with no limit on the amount and time limit. In the light of these considerations the Commission believes that the Ausfallshaftung, covered by Article 87 (1) of the European Commissioner Treaty on State Aids favours certain undertakings, distorts competition and affects trade between Member States. The Austrian government is called on to submit its observations on the provisional conclusions of the Commission within the next thirty days.