The Financial Crisis and State Aid

• Author: Ioana Eleonora Rusu,Phedon Nicolaides
• DOI: 10.1177/0003603X1005500404
• Date: 01 December 2010
• Published date: 01 December 2010
• Subject Matter: Article

The financial crisis and state aid

BYPHEDON NICOLAIDES*AND

IOANA ELEONORA RUSU**

After the outbreak of the financial crisis in September 2008, Member

States adopted a variety of policy instruments in order to protect

their financial institutions and national economies. Within a mere

couple of weeks after the outbreak of the crisis, it became obvious

that existing EU rules were not suitable for dealing effectively with

the problems facing financial markets, and single national measures

could lead to excessive distortions of competition and disruption to

the flow of resources between Member States. Instead of completely

putting aside the existing state aid rules, the European Commission

adopted special rules allowing it to act swiftly in times of financial

crisis. These newly adopted measures raise questions regarding not

only the integrity of the Internal Market but also the extent of the

Commission control under the new system, legal certainty, the

protection of competitors and the exit strategy.

THE ANTITRUST BULLETIN:Vol. 55, No. 4/Winter 2010 :759

* European Institute of Public Administration, Maastricht, The Nether-

lands.

** European Institute of Public Administration, Maastricht, The

Netherlands.

AUTHORS’ NOTE: We have written extensively on state aid and the enforcement of

state aid law, including the chapter in IOANNIS KOKKORIS & RODRIGO OLIVARES-

CAMINAL, ANTITRUST POLICY IN THE WAKE OF FINANCIAL CRISES (forthcoming

2010).

© 2010 by Federal Legal Publications, Inc.

1. INTRODUCTION

When the financial crisis broke out in September 2008, Member States

and EU institutions responded with a variety of policy instruments.

Member States primarily injected capital into banks and raised

deposit guarantees to assure the public and prevent runs on banks.1

European institutions also acted, but with varying degrees of speed

and effectiveness. The European Central Bank extended credit lines

immediately and increased liquidity in financial markets to prevent

them from freezing up completely.

The European Commission intervened to ensure that national

measures to prop up banking activities were not discriminatory. Then it

issued new guidelines on state aid to banks and committed itself to deal

with notified measures within record time, normally not more than a

couple of days. In December 2008, it broadened the new rules to cover

the real economy as well. The Council recommended that Member

States increase public spending by about €200 billion. However, most of

that money was not new. It was to come from accelerated uptake of

structural funds. Member States also shied away from establishing a

common European fund for rescuing banks in trouble.

The policy measures mentioned above have been coupled with

proposals for significant institutional changes. In 2009, the EU began

discussion on possible reform of the regulatory framework for

financial services. On the basis of recommendations made by the de

Larosière report,2the Commission proposed3in the autumn of 2009

the establishment of four new institutions: a European Systemic Risk

760 :THE ANTITRUST BULLETIN:Vol. 55, No. 4/Winter 2010

1Case N41/2008, Liquidation Aid to Bradford & Bingley, 2008 O.J. (C

290) (United Kingdom), NN 48/2008, Guarantee Scheme for Banks in Ireland,

2008 O.J. (C 312) (Ireland), NN 51/2008, Liquidity Support Scheme for Banks

in Denmark, 2008 O.J. (C 273) (Denmark), N 337/2009, Prolongation for the

Fund for the Acquisition of Financial Assets in Spain, 2009 O.J. (C 216) (Spain).

2Report of the High-Level Group on Financial Supervision in the EU

(Jacques de Larosière, Chair, Feb. 25, 2009), http://ec.europa.eu/internal

_market/finances/docs/de_larosiere_report_en.pdf.

3Commission Proposal for a Regulation on Community Macro

Prudential Oversight of the Financial System and Establishing a European

Systemic Risk Board, COM (2009) 499 final (Sept. 23, 2009).