Today, the European Commission (EC) announced its approval, under EC Treaty state aid rules, of Germany’s €500 billion financial rescue package, which is “intended to stabilise financial markets by providing capital and guarantees to eligible financial institutions.” The EC found the German rescue plan to be “in line with its Guidance Communication on state aid to overcome the current financial crisis,” as it “provides for non-discriminatory access, is limited in time and scope and foresees adequate safeguards to minimise distortions of competition.” EU Competition Commissioner Neelie Kroes stated that “the German rescue package is an efficient tool to boost market confidence, but at the same time is ring-fenced against abuses.”

In summary, the rescue package consists of the following measures:

  • Recapitalization scheme – Injection of new capital into banks and insurance companies in exchange for shares to strengthen their balance sheets against potential losses;
  • Guarantee scheme – Guarantee of new issuances of short- and medium-term debt to support healthy banks unable to access interbank funding; and
  • Temporary acquisition of troubled assets – Acquisition of troubled assets under the condition that these assets are bought back after 36 months without the state incurring a loss.

The EC noted with approval a number of conditions imposed under the rescue package, including restrictions on dividends and on remuneration of bank executives and requirements (where troubled assets are purchased) that the beneficiary bank repay a minimum premium similar to that of the guarantee and the costs for the provision of liquidity. The EC found these measures to “constitute an appropriate means to restore confidence in the creditworthiness of German financial institutions and to stimulate interbank lending.” Germany has agreed to report to the EC every six months on the implementation of the scheme to allow the EC to verify that these measures are eliminated when the financial crisis comes to an end.