Brussels, 28/10/2008 (Agence Europe) - On 28 October, the European Commission approved the German state aid scheme to banks and other financial institutions. After cooperating closely with Berlin when the programme was being drawn up, the Commission felt the scheme to ease the situation of the banks which are suffering because of the financial crisis complied with Community law.
“The Commission found the scheme and the commitments to constitute an appropriate means to restore confidence in the creditworthiness of German financial institutions and to stimulate interbank lending. It considered that the measures are well-designed and that interventions will be limited to what is necessary to achieve the recovery of the Germany financial sector,” said the Commission in a press release.
After being submitted to the Commission on 14 October, the scheme underwent a number of amendments, including several commitments on the part of the German authorities in response to concerns expressed by the Commission in negotiations that were “extensive and fruitful”, according to Competition Commissioner Neelie Kroes, quoted in the same press release. In its final version, submitted on 27 October, the German plan sets out three points to bring assistance to banks affected by the financial crisis, and, in particular, seeks to get inter-bank lending, currently stagnating because of a lack of confidence among credit institutions, going once again. The first of these is the recapitalisation of the banks, trading (state) capital for shares to allow them to strengthen their balance sheets against possible losses; the second, a state guarantee scheme covering new issues of short and medium term debt, in return for market-oriented remuneration, to support sound banks that are unable to access interbank funding; and finally, the German state is considering temporary acquisition of assets from banks in difficulty on condition that these assets are bought back after 36 months maximum without the state making a loss.
These measures, the Commission says, are sufficient to prevent any undue distortion of competition. With regard to recapitalisation, access to any state aid will be conditional on the company's not paying dividends to its shareholders, a ceiling on the remuneration of its managers and restrictions on its future activities. Beneficiaries will not be allowed to use this aid to conclude new business. A restructuring (or winding-up) plan will also have to be submitted within six months of recapitalisation. As for the proposed guarantees, the banks which avail themselves of aid will not be allowed to use this aid to fund their expansion. Lastly, with regard to the provisional acquisition of assets, the state will hold the assets it acquires but will not assume the risk since it will resell them at a price no lower than the purchase price. Furthermore, as for the guarantees, the banks will have to pay a premium to benefit from this measure. German has undertaken to submit the scheme once again after six months and to report every six months to the Commission. This will enable the Commission to verify that the measures are not maintained when the financial crisis is over.
The Commission supports national assistance measures, but is watchful that state aid rules are not broken. The German scheme, the Commission says, is in line with the guidance document on national aid programmes for banks issued in mid-October (see EUROPE 9760). This text sets out the criteria to be met to ensure that state aid complies with the EC Treaty. If a member state complies with the criteria in the guidance document, says Philip Lowe, Director General at DG Competition, its plans can be approved “in a matter of days, or even hours”. Lowe was talking to press on 28 October at a conference organised by the think tank The Centre. Reading the speech on behalf of Neelie Kroes, who was suffering from eyes problems, Lowe said that the EU, faced with the financial crisis, had to have “a calm and clear Europe-wide response, not a series of divergent national responses. This is where state aid rules help” and prevent a “subsidy race”. The Commission particularly wanted to avoid any distortion of competition between member states through national initiatives. Lowe gave the example of the threat to the UK financial sector posed by the first version of the Irish aid to banks, which was later amended in the light of this problem (see EUROPE 9757). Lowe also highlighted the importance, and also the difficulty, of distinguishing between banks whose problems are due effectively to the current crisis and those who find themselves in a situation that is a result of their conduct well before the crisis. It was for this reason, he said, that the Commission authorised immediate assistance but demanded a review after six months. “It's when the water goes down that you realise who hasn't got any trousers on,” he said. After six months, it is up to the member state either to submit a restructuring plan, most often with a large reduction in capacity, to the Commission, or to wind-up the company in question.
Aid for the motor car industry? In response to a question from the press, Lowe came out against any review of the rules to allow state aid to be paid to the motor car industry. Such a possibility was raised at the last Council, particularly by Italy, to respond to US aid to its industry. Lowe was against this. “History shows that subsidy wars have always been to the common disadvantage of those that take part in them,” he stated. To those member states which want to protect their motor car industry, he pointed out that the forum for resolving these problems was the WTO, with its anti-subsidy code. (C.D./transl.rt)