On 15 September, Joaquin Almunia, the EU Commissioner for Competition, outlined his views on state aid control as a resolution tool in the EU. The speech was set against the backdrop of government support of the financial sector and austerity measures required to bring public finances under control.
Mr Almunia explained that state aid control had been used by the European Commission to preserve the integrity of the internal market and to ensure financial stability and that these rules would continue to play a pivotal role in relations between bank restructuring and future crisis-management regulation.
He noted that the special regime for the control of State aid introduced at the end of 2008 had guided Member States in their support to the financial sector and remains the only instrument available at EU level to restructure and resolve European banks in distress. The aim of this crisis regime was to prevent bank bailouts from disrupting the internal market, by forcing aided banks to restructure.
Mr Almunia also explained that the decisions of the European Commission allowing state aid were based on a number of principles, including that banks pay interest and eventually repay the public funds that they receive, that they restructure their businesses and that shareholders and hybrid-capital bondholders bear a fair share of the burden.
Mr Almunia concluded that:
- a regulatory framework needs to be put in place that will deliver stable and competitive financial markets, as the EU currently lacks the appropriate instruments and institutions to resolve banks in an orderly manner;
- integration of financial markets should be deepened; and
- a reinforced, closer monetary union is required to steer through the economic challenges of the future.
In essence, the Commissioner expressed the view that while the application of the state aid rules cannot replace a fully-fledged regulatory framework for crisis management, it will continue to serve as a resolution tool until such a framework is in place.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
