The Great Debate UK

from The Great Debate:

Don’t bank on EU’s tough state aid talk

paul-taylor-- Paul Taylor is a Reuters columnist. The opinions expressed are his own --

PARIS, April 20 (Reuters) - The European Union's antitrust czar is struggling to stop governments bending EU rules on state aid to business when they rescue banks with taxpayers' money.

But Neelie Kroes' threat to force some banks to the wall unless they offer viable restructuring plans within six months of receiving state cash was economically unwise and politically inept. It could fuel political pressure to suspend the rules and weaken the European Commission's crucial watchdog powers.

EU regulators in charge of policing state aid have given fast-track approval to more than 50 rescue schemes since last October, when the full force of the financial crisis hit Europe after the collapse of Lehman Brothers in the United States.

Kroes told Reuters in an April 7 interview that time was running out for some banks to propose restructuring plans that in most cases would mean slimming down and selling off assets to avoid distortions in competition.
"Brussels will not rubber-stamp such schemes and may even let banks go bankrupt if those plans do not satisfy the Commission," the EU Competition Commissioner said.
She is very unlikely to make good on her threat because of the depth of the crisis and fierce political pressure from big member states to go easy on the banks.
Brussels would do better to give banks and governments more time to get over the worst of the crisis before restructuring or repaying aid, rather than making banks divest now at fire-sale prices that would cause bigger losses for taxpayers.