14 State Aid Scoreboard on the current
financial and economic crisis
| (30548)
8812/09
COM(09) 164
| Commission Report State Aid Scoreboard — Spring 2009 update: Special Edition on State Aid Interventions in the Current Financial and Economic Crisis
|
| Legal base | — |
| Document originated | 8 April 2009
|
| Deposited in Parliament | 20 April 2009
|
| Department | Business, Enterprise and Regulatory Reform
|
| Basis of consideration | EM of 12 May 2009
|
| Previous Committee Report | None
|
| To be discussed in Council | No date set
|
| Committee's assessment | Politically important
|
| Committee's decision | Cleared
|
Background
14.1 The Commission reports twice yearly on state aid issues,
the main aim of recent reports ("scoreboards") having
been to consider to what extent Member States have responded to
the Lisbon Strategy, particularly the specific commitments agreed
at the Stockholm European Council in 2001 to show a downward trend
in the level of state aid relative to Gross Domestic Product (GDP)
while redirecting aid from specific sectors to "horizontal"
objectives, such as research and innovation. In this special edition,
it has sought to provide an overview of the state aid measures
undertaken by Member States in response to the current financial
and economic crisis, and of the Commission's own coordinating
action in setting out the general principles governing these measures.
The current document
14.2 The Commission notes that the current crisis was initially
triggered in mid 2007 by problems with sub-prime mortgage lending
in the US, leading to a loss of confidence between financial institutions
and in particular to a freeze on inter-bank lending. It recalls
that a first analysis of these events was provided in the autumn
2008 edition of the scoreboard,[53]
which referred to the publication in October 2008 of its "Banking
Communication[54]"
on how Member States might best support financial institutions
whilst respecting state aid rules, and which also reported on
the first signs of a spill-over of the turmoil in the financial
sector to the rest of the economy.
14.3 It then goes on to deal with these and various
subsequent events under the following headings:
Early cases and application of the standard rules
on Rescue and Restructuring aid
The Commission notes that, as a result of the impact
which the problems with sub-prime mortgage lending in the US had
had on European
financial markets, some banks encountered severe difficulties
due to their exposure to collaterised debt obligations (CDOs)
or because of their unsustainable business models. This led Member
States to adopt the first rescue measures in favour of individual
banks, intended to prevent insolvency and possible contamination
or spill-over. The Commission says that it tackled the first rescue
cases — including the guarantees given to Northern Rock
— during this phase of the financial crisis using the existing
Community guidelines,[55]
published in October 2004 under Article 87(3)(c) of the EC Treaty,
on state aid for rescuing and restructuring firms in difficulty.
It also notes that the situation subsequently deteriorated with
the collapse of Bear Stearns, leading European central banks to
inject high amounts of liquidity into financial markets, but recalls
that, despite this, significant decreases in the market value
of portfolio investments meant that banks required more capital
in order to back up the assets in their balance sheets.
Worsening of the Crisis: difficulties in the application
of the standard rules on rescue and restructuring aid
The Commission recalls that the crisis of confidence
within the banking sector dramatically worsened following the
insolvency of Lehman Brothers, which indicated that there would
be no implicit rescue guarantee for banks considered "too
big to fail". This led to serious liquidity difficulties
affecting the sector as a whole, including banks which could normally
not be considered as "companies in difficulties" and
this in turn led to doubts over whether the rescue and restructuring
guidelines still provided an appropriate means of tackling the
crisis. Furthermore, urgent structural action became necessary
in many cases, including Northern Rock and Bradford and Bingley.
The need to coordinate support to financial institutions:
the Commission's Communications
The Commission notes that, with the deepening financial
crisis increasingly affecting the European financial sector, some
Member States had set up general support schemes to ensure financial
stability, and that the European Council
agreed in October 2008 to implement national rescue packages for
the banking sector. In view of this, the Commission says that
it decided to issue guidance on how Member States might take such
measures, whilst avoiding excessive distortions of competition
—
action which it claims has played an important role in containing
the crisis and in helping coordinated action between Member States.
The first such guidance was contained the "Banking
Communication" in October 2008, which it notes involved,
for only the second time since 1958, the use of Article 87(3)(b)
of the Treaty,[56] in
view of the exceptional circumstances and the systemic risks inherent
in the financial crisis, particularly where the rescue measures
affected the entire banking sector of a Member State. The Commission
says that it subsequently approved a number of recapitalisation
schemes, but that, since the growing liquidity crisis was affecting
an increasing number of banks, a number of Member States saw the
need for precautionary recapitalisation schemes. As these varied
considerably, the Commission put forward in December 2008 the
"Recapitalisation Communication[57]",
giving detailed guidance on the conditions under which specific
forms of recapitalisation would be acceptable under state aid
rules. However, the further deterioration in the market value
of portfolio investments towards the end of 2008 led several Member
States to complement their existing support measures by providing
some form of relief for impaired bank assets, and the Commission
responded to this by producing in February 2009 an "Impaired
Assets Communication[58]".
This complemented and refined the Banking Communication as regards
a further framework for asset relief measures for financial institutions
to restore confidence in the financial sector and the economy
as a whole.
Overview of Member States measures in support
of financial institutions
The Commission says that, since the adoption of the
Banking and Recapitalisation Communications, 23 schemes have been
approved: 12 guarantee schemes, 5 recapitalisation schemes, 5
schemes combining several measures, and one fund for the acquisition
of financial assets (Spain). In addition, 10 Member States have
adopted individual measures in favour of specific financial institutions.
In the case of the UK, the Commission reports that it approved
guarantee schemes totalling £260 billion, and recapitalisation
schemes totalling £50 billion.
Real economy and financial crisis: The 'Temporary
Framework'
The Commission notes that, by the end of 2008, the
financial crisis had affected the rest of the economy, with even
healthy companies facing difficulties in finding credit. As a
result, some Member States had made capital injections to financial
institutions to prevent restrictions in the supply of credit;
and, in view of the downturn affecting the wider economy, many
had announced national recovery plans. This was accompanied in
November 2008 by the Commission's European Economic Recovery Plan,[59]
which included provision for state aid: and, in the light of concerns
that Member States might be tempted to introduce increasingly
protectionist measures, the Commission followed this in December
2008 by a "Temporary Community framework for State aid matters
to support access to finance in the current financial and economic
crisis[60]". This
granted Member States additional ways to deliver finance until
31 December 2010, including state
guarantees, subsidised loans, subsidised loans for greens products,
"small amounts of aid" and risk capital aid for SMEs.
So far, the Commission has approved 24 measures under that Framework,
including a UK scheme under which the car industry (as well as
other industries) can benefit from support in the form of State
guarantees.
Procedures
The Commission says that, in its response to the
financial crisis, it has been able to adopt speedy decisions on
emergency rescue measures, as compared with its assessment of
longer-term restructuring plans. It notes that the 'Banking Communication'
sets out the steps which it took to ensure the swift adoption
of decisions, including in particular simplified consultation
procedures within its Competition Directorate General, and in
relation to other services; and the use of an urgent written procedure
or a temporary empowerment of a Member of the Commission to take
a Decision without referring the case to the full College of Commissioners.
It also set up an Economic Crisis Team to provide guidance on
the application of the Temporary Framework in practice.
The Commission reports that, during the last quarter
of 2008, it adopted 18 decisions on banking schemes and 16 decisions
on individual banking cases (with a decision being taken in less
than a week in 9 out of the 22 banking schemes dealt with up to
March 2009). It notes that accelerated procedures apply as well
to measures under the Temporary Framework, provided Member States
supply all relevant information, and that they may also apply
to measures which fall outside the scope of that Framework, but
which are linked to the financial and economic crisis.
14.4 The Commission concludes by suggesting that
state aid should, where possible, be focused on long-term competitiveness,
and that the Temporary Framework should not be seen as a long-term
solution. It says that it will support restructuring in the context
of approval of state aid, but adds that such aid to banks has
to be accompanied by restructuring to address previous defects
in their business models.
The Government's view
14.5 In his Explanatory Memorandum
of 12 May 2009, the Minister for Trade, Development and Consumer
Affairs at the Department for Business, Enterprise and Regulatory
Reform (Mr Gareth Thomas) says that there are no direct policy
implications from this document, which is intended to increase
transparency and to emphasize the need for Member States to continue
their efforts to make "smart" investments, taking into
account economic instability. He adds that, as the Commission
continues to review the effectiveness of its rules and procedures,
the UK will continue to engage with it positively in order to
help ensure the delivery of its policy goals.
Conclusion
14.6 This Communication
provides an interesting insight into the developing financial
and economic crisis, and the steps taken both nationally and at
Community
level towards the end of 2008 and at the beginning of this year
to address it. Consequently, although it provides an essentially
factual account, which does not in our view require further consideration,
we think it right in clearing the document to draw it to the attention
of the House.
53 (30200) 15977/08: see HC 19-ii (2008-09), chapter
13 (17 December 2008). Back
54
(30053) 14306/08: see HC 16-xxxvi (2007-08), chapter 23 (26 November
2008). Back
55
2004/C 244/02. OJ No. C 244, 1.10.04, p.2. Back
56
This enables the Commission to allow state aid to remedy a serious
disturbance in the economy of a Member State, but has only been
used on one previous occasion (in relation to Greece in the 1980s). Back
57
(30257) 16960/08: see HC 19-iii (2008-09), chapter 19 (14 January
2009). Back
58
2009/C 72/01. OJ No. C 72, 26.3.09, p.1. Back
59
(30213) 16097/08: see HC 19-i (2008-09), chapter 4 (10 December
2008). Back
60
2009/C 16/01. OJ No. C 16, 22.1.09, p.1. Back
|
