I’m sorry you’ve not heard from me for a week: it’s been a busy time. A busy time, too, for finance ministers, central bankers and treasury officials all over the western world as country after country started to break ranks and support its banks, the Irish taking the lead in Europe with a promise by the government to stand behind Irish banks; then a change of mind by Germany.
You might wonder whether all this doesn’t breach EU state aid rules; and yes, all this support for banks is clearly state aid, since it supports specific firms and sectors of the economy. In cases like that of Ireland, it even does so in a discriminatory manner, since it favours Irish banks, rather than any banks established or operating in Ireland.
However. State aid can be justified under articles 87 and 88 of the EC Treaty. Article 87 makes clear for instance that aid
to remedy a serious disturbance in the economy of a Member State
can be ruled by the Commission to be compatible with the common market. They already have ruled Britain’s support for Northern Rock compatible, for instance, and the Danish rescue of Roskilde Bank, in line with the Commission’s guidelines on state aid for rescuing and restructuring firms in difficulty.
Obviously the Commission is going to have to approve aid to banks – anything else would be madness given the current turmoil, and ultimately competition would not be helped if HSBC is the only bank left standing in Europe. But I think it’s right to stress that the rules are flexible and cannot simply be ignored. In fact, I’d go so far as to say that the Commission can play an essential role in this crisis, learning from member state’s proposals and insisting on adjusting each package to best practice, minimising the impact on competition in financial services. So I’m glad Neelie Kroes will as a matter of urgency be publishing guidelines this week specifically about state aid and bank rescues.
One of my best friends is the government’s top state aid lawyer; no wonder I haven’t seen him for a pint lately.
What do you make of GIOVANNI DI STEFANO‘s analysis of The Official Secrets Act 1911?
Of interest to G Di S note above, found on cryptome …
… which has some references to this exchange of letters.
In addition to massive aid to individual fiancial institutions, this crisis has the potential to affect government budgetary positions in a remarkable way.
I’m guessing that the govt’s best state aid lawyer is the guy from the North?