Edited by Kern Alexander and Rahul Dhumale
Chapter 9: The New Course of EU State Aid Rules during the 2007–09 Financial Crisis
Costanza A. Russo1 Editors’ abstract: Dr Costanza Russo analyses EU state aid rules and bank bailouts in light of the financial crisis. Since October 2008 European Member States have been implementing recapitalisation and guarantee plans to support the banking sector. These bailout plans, although different, are based on common principles agreed by EU Finance Ministers, stating that they should be limited in scope and time, state involvement must be confined to a minimum, shareholders should bear the consequences of intervention, and governments should protect competition. The European Commission has provided guidance regarding how bailout plans can be assessed to be compatible with EU state aid rules. Bailout plans are compatible with state aid rules if they are temporary, non discriminatory, and receive significant private sector support. Although the EU national plans have been ruled compatible with EU state aid rules, the chapter argues that a closer analysis of these plans suggests that they are longer than temporary, not profitable for taxpayers, and lacking effective sanctions to induce banks to repay. The chapter further suggests that the result of the EU compatibility decisions will paradoxically lead to a new financial market structure where competition is seriously hindered and direct state involvement in the banking sector does not end as soon as the Commission would wish. I. THE STATE AID EMERGENCY LEGISLATION Given the sharp diffusion of the financial crisis to European markets in the second half of 2008, EU Member States were forced to intervene to bolster banks’ capital, to prevent...
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