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Playing by the rules - 14/10/2008

Euro coins and a pair of glasses lying on a newspaper

EU guidance on bank rescues to protect taxpayers' money and ensure fair competition.

In recent weeks Europeans have witnessed bank after bank being bailed out by governments. To ensure that taxpayers’ money does not confer an unfair advantage on those banks, the commission has published a list of recommendations for governments.

Government support must be temporary, clearly defined, limited in scope and not based on nationality. Shareholders cannot benefit at the taxpayer’s expense, and banks should contribute to the cost of the assistance. A code of conduct must be established to prevent abuse.

Government aid to the private sector must be approved by the commission. Countries that follow these guidelines could get the green light for a bank rescue within 24 hours. Germany, Denmark, Ireland and the UK are among countries that have won approval in recent days.

EU rules restrict the use of taxpayer’s money to prop up private companies so that those same companies are not given an unfair advantage over competitors. This was a concern recently when several EU governments increased guarantees on bank deposits, as this threatened to lure capital away from other countries.

Some governments have suggested the rules ought to be suspended during the financial crisis. But competition commissioner Neelie Kroes says they are an important part of the solution and complement Europe’s plan to coordinate national rescue efforts.

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