EU State Aid Rules to the Banking Sector amid the 2008 Financial Crisis: European Commission's reactions to national measures

Author Name TADA Hideaki  (Toyo University)
Creation Date/NO. April 2011 11-P-012
Research Project Comprehensive Research on International Trade System
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Member States of the European Union have tackled the financial crisis by adopting rescue measures such as guarantees on debt and capital injections into banks facing difficulty, some of which even went bankrupt. These measures are, however, bound by the state aid rules of the EU for the sake of competition in the Internal Market. Member states are therefore required to report rescue measures to the European Commission beforehand in order to obtain its approval. In response to a deterioration in the crisis, the Commission issued temporarily applicable rules in the form of communications, the first one of which is known as the Banking Communication. Rules and principles set out in the communications together constitute a flexible evaluation regime under which national measures are examined and approved in a more appropriate and prompt manner than would be under the conventional framework.

The new framework keeps the general principles of the state aid rules, even amid the financial crisis, i.e., the aid granted does not exceed what is necessary to achieve its legitimate purpose and that any distortion of competition is avoided or minimised as much as possible. So far the Commission has unconditionally approved all of the respective national measures except one case that was disapproved and seven cases that were conditionally approved. The temporal rules have made great contributions to tackling the problems of utmost urgency. However, the brevity of the approval decisions leaves some ambiguity of how the Commission applied the relevant communication and evaluated the compatibility of the proposed national measures with the Internal Market.