Toespraak Eurocommissaris Kroes van mededinging over Europese overheidssteunregels: een deel van de oplossing? (en)

Neelie Kroes

European Commissioner for Competition Policy

EU state aid rules – part of the solution

EStALI conference

Luxembourg, 5th December 2008

Ladies and gentlemen,

It is a great pleasure to join you, President Jaeger (Marc Jaeger of CFI) in your home country, and distinguished audience members, to discuss these vital issues today.

The Commission has said many times that it wants to achieve a 'Europe of results'. There is no more important time to achieve those results than a time of crisis, such as now.

The causes of the crisis have been discussed at length, so I will not put you to sleep with more discussions about them today! But the solutions are still emerging and the results are far from final – so if you will allow me, that will be my focus in these remarks.

I will argue today that state aid reforms since 2005 have ensured the system is fit to meet the tests of this crisis; that we are doing all we can - having adopted more than 20 decisions in just 8 weeks – to adapt to the market conditions around us. But at the same time let me be clear that now is not the time to dismantle the state aid system or give up the benefits of European integration and cooperation.

I am the first to concede that these exceptional times are making new demands on the state aid system and that we have room to manoeuvre as we figure our way through this crisis.

But I think the presence of the CFI here today is a timely reminder that we must also respect the law as we seek to deliver the maximum possible support to the European economy. The basis of state aid is not only economically sound, it is also the law. And so we must remember that as we search out the limits of discretion available to us.

Banking crisis

That said; let me now turn to the specific situation our banks have been facing. Luxembourg's position as a banking "hub" means that it is particularly exposed to the banking crisis, and keenly interested in the fate of the many foreign banks that operate here.

In fact, through examples like Dexia and Fortis, the situation of Luxemburg shows us that Europe truly is a single market now and why we must work together to beat these challenges. Dexia and Fortis required three-state solutions: Cross-border solutions for cross-border banks.

Across all of Europe the European Commission is doing its utmost to support solutions for stabilising European banks.

We learnt a great deal from our early experiences with Northern Rock and the German Landesbanks in 2007 and the first half of 2008. This experience was put to good effect with quick approval of rescue measures for banks from September onwards.

I can assure you after many long hours of debates and discussions that the flexibility of our system and our experience really helped to deliver financial stability and legal certainty in the days when it was needed most.

By being flexible and transparent we are able to get to the heart of the market conditions and respond to them without harming either the banks or threatening the competition system that has helped our economy to grow. Our system has been a sound floor on which all parties could stand, knowing that everyone else was standing there with them. That is different to everyone getting what they want, but I am not here to wave a magic wand to fix all problems overnight.

Let's not fool ourselves. This crisis is not over and it took more than one day and one bank and one nation to create the problems we now face. So naturally it will take time to effectively deal with these problems.

But having avoided a dangerous subsidy race, we can say that so far we have helped to avoid the worst mistakes of the 1930s. Recent research by UCLA (the university) in the United States has demonstrated that weakening the competition laws in that country in the 1930s helped to prolong the Depression by an extra seven years. To be clear: weakening the competition system helped to keep unemployment near 20 per cent and slowed growth. I will not be part of repeating such a scenario.

It is easy to feel powerless because of the enormous economic forces moving around us, or because of the sheer size of the monetary losses we see on the TV news and which have been unknown to us in our lifetimes. But the European Commission is not powerless; in fact we have a great positive power in this situation and we have used it to help our citizens and support our businesses.

I will speak about the wider European Economic Recovery Plan later, but in banking alone the Commission has issued Guidance in the form of a Communication on how Member States can take action while respecting the State Aid rules. We remain hard at work on the Recapitalisation Paper you have no doubt heard of.

In terms of specific situations we have approved a number of schemes supporting financial stability. We have approved

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  guarantee schemes (DK, FI, PT, IRL, NL, SWE, FR, IT)
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  asset purchase schemes (ES)
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  holistic schemes with all of the above (DE, UK, GR)
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  We have also approved a number of individual cases such as individual cases of recapitalisation (ING, Parex), guarantees (Fortis and Dexia) and one insurance firm recapitalization (Aegon).

Our efforts are no rubber stamping exercise, because we must be careful to prevent the disintegration of the single market in financial services.

Recapitalisation

But events move quickly. From an early focus on rescuing banks, Member States are now increasingly focusing on the risk of a credit crunch, which in turn means we need to refine to Commission approach to designing recapitalization schemes.

The cost of capital is one of the main factors on which banks compete, so we must ensure that such State recapitalisations do not become a permanent feature of European financial markets.

The Commission will adopt, before the European Council, a communication giving detailed guidance on how to assess such recapitalisations under the State aid rules.

This guidance will, of course, reflect extensive consultations with the European Central Bank and Member States.

As I explained at the ECOFIN Council, it will be based on these principles:

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  First, the individual situation of each bank should be taken into account. Some banks may be recapitalised because they are on the verge of insolvency. Some others because they are exposed to distrust in the market. Some banks finally may be recapitalised to support lending to the real economy. Ex-ante differentiation may be possible on the basis of some indicators, but in all cases viability plans will have to be notified to the Commission within 6 months. The Commission accepts the pricing formula proposed by the ECB for fundamentally sound banks at a minimum price, but this has to be adjusted upwards depending on the risk profile of each beneficiary bank.
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  Second, the schemes must include incentives for the State capital to be redeemed, once market conditions have returned to normality.
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  Third, behavioural safeguards are needed to limit distortions of competition. If the objective of recapitalisation is lending to the real economy, I would therefore expect commitments to lend from the banks benefiting from State aid. In any case, the State capital should not be there to increase profits or distort competition.

Let me stress that the Commission is trying to be flexible but at the end of the day the various schemes will have to fit together and not give one national banking sector an undue advantage over the others through State aid.

Looking even farther afield, I think we are all of the view that this is a global financial crisis that ultimately requires a global response.

That global response includes global efforts to stimulate demand and a new global regulatory architecture. We look forward to helping shape that as the work of November's G20 summit in Washington moves forward.

European Recovery plan and role of state aid measures

The first big European contribution to these efforts is the European Economic Recovery Plan. The plan is necessary because there is no longer any doubt that events in the financial sector are hurting the real economy.

In this environment bold action has been essential, and bold action is what the Commission has delivered. You will already know that on 26 November the Commission adopted the European Economy Recovery Plan. This plan rests on two pillars:

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  a boost to purchasing power that increases demand and confidence in the economy and
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  immediate actions that will boost long-term competitiveness: like investing in a greener economy through the technologies and the products that will be the lifeblood of it.

Most of the measures do not involve state aid, but some do, including some efforts to assist SMEs and fiscal aid proposals.

Because we share this situation, as well as a single market, we must operate the state aid contribution to these recovery efforts on a level playing field. Those of us involved in the state aid system can best express our solidarity with those affected by this crisis by ensuring a level playing field that protects all - instead of allowing an uneven playing field that protects only a lucky or greedy few.

As I mentioned earlier, transparency is also paramount. The transparency of the level playing field will help to breed confidence.

With the current state aid rule Member States have a great tool-box with which to get to work to improve Europe's competitiveness while preserving a level playing field.

In fact, with the introduction of the General Block Exemption Regulation in July they can simply go ahead without notification in 26 categories of aid. Just do it, is what I say!

Only in relation to access to finance there seems to be a need for new measures. Therefore, I have proposed to:

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  allow guarantees at a premium below the market price in order to unblock the lending by the banks;
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  raise the current €1.5 Millions safe harbour threshold for risk capital to € 2.5 Millions to leverage more private investments; and
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  allow subsidised loans for the development of green products that comply early or go beyond future Community product standards to avoid that development is not put on hold due to lack of finance.

All measures are based on Article 87.3(b) and are only justified due to exceptional difficulties to raise finance right now. Thus the measures are temporary. You can see my detailed proposal on DG Comp's website. We must act quickly. So, it will be discussed with Member States already on 8 December and I aim for an adoption before Christmas.

Conclusion

I can't predict with any certainly how events will unfold from this point, but what I can do today is guarantee that we are doing all we can to help the situation.

We understand that speed is essential, but we also understand that this crisis is about more than one bank and one country, and we understand that state aid is just one part of a European and global effort to help our economy to recover.

What is clear is that we have a better chance to succeed if we act in common. And we have a good starting point. A common market, a common currency and a common will to act in a coordinated manner.

Through the single market and good investments we can keep Europe competitive and steer her back to growth. A united Europe rather than a divided Europe, in both bad times and good, is a result worth cooperating for.