The global financial crisis that has taken hold in the latter half of 2008 has given rise to a flurry of activity in the State-aid field as a number of financial packages have been put in place in order to save struggling European banks and to ensure the stability of the financial systems of various EU Member States. These packages necessarily need prior EC clearance as State aid to ensure that the aid does not confer on the beneficiary undertakings, an unfair advantage over their competitors within the EU.
In order to protect financial stability and avoid spill-over effects on the rest of the economy, new temporary arrangements were put in place by the European Commission Oct. 1 to allow quicker approval decisions on proposed emergency rescue measures in favor of financial institutions. This has seen, for example, the recent approval of rescue aid to Hypo Real Estate in Germany within a couple of days of notification, and the approval of aid to Bradford & Bingley in the UK within just 24 hours of formal notification following urgent informal discussions with UK authorities on how to structure the package to limit distortions of competition.
The European Commission has also published guidance (in the form of a Communication) to EU Member States as to how they can structure support schemes, such as guarantees or recapitalization schemes, in a way that would be compatible with EU State-aid rules. The Communication considers that Article 87(3)(b), under which the Commission may allow State aid “to remedy a serious disturbance in the economy of a Member State,” is available as a legal basis for aid measures undertaken to address the financial crisis in light of the level of seriousness that the current crisis in the financial markets has reached, and of its possible impact on the overall economy of EU Member States. The Commission has recently approved a number of support schemes under Article 87(3)(b) in the UK and other EU Member States.
The Commission’s recent activity in this field shows its willingness to adapt its usual procedures in exceptional circumstances. While the above measures have helped a number of struggling financial institutions, struggling firms in other sectors are unlikely to have support approved on the same basis in the absence of a comparable risk to the wider economy.