Last week, the European Commission (EC) announced its approval, under EC Treaty state aid rules, of the Republic of Slovenia’s guarantee scheme for credit institutions. Under the scheme, the Slovenian government will guarantee up to €12 billion of new short term and medium term non-subordinated debt of solvent credit institutions, which is a €4 billion increase from the budgetary cap that was initially proposed. The Slovenian government noted that the financial measures adopted were aimed at “thaw[ing] the frozen credit market by ensuring Slovenian banks gets loans from other banks.”

The EC found the Slovenian scheme to be “in line with its Guidance Communication on state aid to overcome the financial crisis.” EU Competition Commission Neelie Kroes, noted that “the bank support scheme strikes the right balance between ensuring that banks in Slovenia will have access to financing and making sure the beneficiaries do not enjoy an unfair competitive advantage.”

The state guarantee will cover “the issuance of new short and medium term non-subordinated debt with a maturity between 90 days and five years.” Under the scheme’s framework, all solvent domestic credit institutions (including domestic subsidiaries of foreign credit institutions) will be eligible to participate in the guarantee program by paying a ‘market-oriented fee.’ Participating banks however, “will be subject to behavioral commitments to avoid an abusive use of state support. These include limitations on expansion and marketing and conditions for staff remuneration or bonus payments.” The Slovenian government will be required to report to the Commission on a periodic basis with regard to the scheme’s implementation. The Commission’s approval of the scheme remains valid for period of six months. After that time the Slovenian government can decide either to “terminate the scheme or renotify its extension to the Commission.”

The ECB has cautioned the Slovenian government that such emergency financial measures adopted by the government in light of the crisis may be premature. Prime Minister Borut Pahor, however, dismissed the ECB’s warnings and noted that experience gained from similar crisis situations has taught the government to make “far-reaching decisions.” He further emphasized that “the Slovenian government was also doing everything in its power in a bid to act quickly and ambitiously.”

In other Slovenian news, the Slovenian government last week proposed legislation that, if approved by parliament, would provide for direct government loans to “credit institutions, insurance companies, reinsures and pension companies,” on top of the €12 billion credit institution debt guarantee scheme. Under the proposed legislation the government may require participating institutions to set “limits on dividend pay-outs and management bonuses” and also prohibit them from using the proceeds of the government loans to “finance management buyouts.”