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Business Europe

Under fire, Brussels softens line on bank bailouts

Latest update : 2008-12-02

Criticised by several member states, the European Commission proposed softer rules for bank bailouts to EU finance ministers. France and Germany are still waiting for Brussels’ green light to implement national plans to help their banks.

Watch our Face Off debate: 'Brussels bureaucracy blocking bailouts?'

 

AFP - The European Commission, accused of being too "bureaucratic," caved into pressure from EU governments on Tuesday to take a softer line on state bailouts of troubled banks.
  
Europe's state aid watchdog pledged to revise its "guidelines" for assessing whether emergency rescues are in line with EU state aid and competition rules and said it planned to accept a broader range of measures for helping troubled banks.
  
"Our track record so far in this crisis has been honourable and we have already come some way in resolving banks' problems. But we need to do more," EU Competition Commissioner Neelie Kroes told EU finance ministers, according to a statement.
  
The commission was forced to become more flexible after countries including Germany, France, Italy, Spain, the Netherlands, Sweden and Austria griped about its hardline handling of bailout schemes.
  
French Finance Minister Christine Lagarde said, after chairing a meeting of EU finance ministers and Kroes, that the Dutch commissioner's promise to offer a softer touch was a "major advance."
  
"Kroes has accepted ... to take account of the urgency and the necessity of putting the financing of the economy before the absolute rules of competition law," Lagarde told reporters.
  
With a number of bailouts awaiting Brussels' blessing, Lagarde said Kroes would bring forward the revised guidelines by a December 11-12 summit of EU heads of state and government.
  
Earlier, German Finance Minister Peer Steinbrueck blasted the commission for dragging its feet in reviewing whether bank bailouts were in line with EU rules.
  
"You shouldn't react to such a financial crisis in such a bureaucratic manner," he said.
  
Likewise, his Swedish counterpart Anders Borg accused the commission of not being "constructive," adding: "We have to call off these legions of state aid bureaucrats."
  
In the face of the worst financial crisis in generations, many EU governments have rushed to prop up banks through measures ranging from nationalisation to recapitalisation and loan guarantees.
  
A senior French official said that when the commission demands too many conditions on state aid, some banks simply turn down the help and instead reduce their lending, which hurts the wider economy.
  
"If you tell (French) banks like BNP, Credit Agricole, Societe Generale and Unicredit (of Italy) that they have to stop giving dividends or do this, do that for public money ... they don't want it, they have another solution, which is restricting credit," he said.
  
The French official said critics of Kroes were irked that the commission had not provided clear enough guidelines for what measures it considered would ensure effective competition.
  
That was in turn leading to a general state of confusion and uncertainty on top of the stress the sector was already going through because of the financial crisis.
  
Kroes said Brussels would soon issue new guidelines detailing how governments should calibrate bank recapitalisation in order to ensure fair competition.
  
"The cost of capital is one of the main factors on which banks compete," she said.
  
"In order to prevent unfair competition between banks and subsidy races between member states, we need to preserve the level playing field," she added.
  
The commission has grated nerves in Berlin over its misgivings about a massive capital injection for Commerzbank, which Brussels fears was being made on too favourable terms.
  
Over the weekend, a cloud of uncertainty also hung over French plans to help troubled banks amid reports, later denied, that Brussels was preparing to reject them.

Date created : 2008-12-02

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