Kroes: state aid rules "part of the solution" to banking crisis

Date

07 Oct 2008

Sections

Euro & Finance
Competition

Competition Commissioner Neelie Kroes told MEPs on Monday that an EU-wide response to the banking crisis would be preferable to unilateral action. Competition rules were part of the solution rather than an obstacle to it, she argued.

Speaking to the Economic and Monetary Affairs Committee, Ms Kroes stressed the speed with which the Commission was acting to approve rescue plans. But she made a clear distinction between such rapid decisions and the subsequent, essential, proposals for restructuring or liquidating the bank, where the state aid system applied as normal: “This situation does not mean that competition rules will not be applied. They are the way to ensure a common framework, even when governments have to act at national level.”

Unilateral action was not the way forward, she said: “Ignoring state aid rules would tempt governments into a subsidy race, with healthy companies being put out of business because others get subsidies.”

On government guarantees for bank deposits, she said “In this specific context, general guarantees can be a legitimate component of public policy response.”  The Commission would be looking to provide legal certainty on this subject in the days ahead.  “My preference would be for an EU solution – that is the best way to coordinate national actions, make them more effective and limit spillovers.”

Irish and German government guarantees

On the Irish guarantee scheme, she said concerns had been raised about its “very large scope,” and at first it had seemed to discriminate according to nationality, but “I welcome their willingness to apply the scheme to other banks with significant operations in Ireland.  It could do with some fine tuning to be put in line with EU law.”  Ms Kroes stressed that she was in contact with the Irish authorities.  The German guarantee policy for retail deposits, she said, was similarly being discussed with the German authorities, but “at first sight it does not seem problematic for competition.”

Hypo Real Estate and Fortis
The revised plan to rescue Hypo Real Estate did not appear to need any change to the positive decision given by the Commission on the previous plan, as it was only the private participation that was being increased, she said.  On Fortis, on the other hand, the rescue plans were now completely different from the previous approach and the Commission would have to consider them afresh.  Ms Kroes encouraged all Member States to involve her team as soon as possible in developing any rescue plans as this would make it simpler to ensure they were compatible with competition rules. 

MEPs’ react on competition issues
Jonathan Evans (EPP-ED, UK) asked if it was really true that competition rules were still in place, with Ireland offering a 100 per cent guarantee and, in the UK, Bradford and Bingley and Northern Rock owned by the state.  Would it not be better just to say directly that the rules were suspended during the crisis, he asked. 

Ieke van den Burg (PES, NL) said that whether the rules were suspended or action presented as rescue separate from restructuring was a matter of formulation, but “I fully support the intention to be part of the solution.” She wanted an investigation of the influence of Wall Street investment banks: “We have seen how devastating their activities have been.”

Sophie In’t Veld (ALDE, NL) wanted to know whether the Netherlands’ government takeover of the Dutch part of Fortis and ABN AMRO was really in line with state aid rules: “We all realise the need to act quickly,” she said, “but how can we ensure everything is balanced and proportionate?”  

Treaty allows for rescues – rules remain in place
Ms Kroes insisted that there was no doubt at all that competition rules remained in place: “without them we are lost in a wilderness; a jungle without a level playing field.” Article 87 of the Treaty allowed for rescues in cases such as the present one, she said: “We all agree that we are in a serious situation, we can use Article 87 and stick to the competition rules.  That was the message I took from Paris [the meeting of French, German, British and Italian leaders on Saturday].”  

In general, the question of state or private ownership was not a competition issue, she said, although in banking, “we need to take account of the impact on the level playing field when the shareholder is the government,” and whether there was a state aid aspect, but it was too early to finalise the Commission’s view on this.  

The Competition Commissioner noted that there were no major investment banks left on Wall Street: they had all collapsed, changed status or been taken over. But there were things to be concerned about: "There needs to be more transparency, better supervision and better standards."

06/10/2008
In the chair : Pervenche BERÈS (PES, FR)
Economic and Monetary Affairs Committee

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