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The effects of temporary State aid rules adopted in the context of the financial and economic crisis

Commission Staff Working Paper (October 2011) en

On 5 October 2011, the Commission issued a Staff Working Paper on the effects of the temporary State aid rules adopted in the context of the financial and economic crisis. The Paper provides a detailed account of the State aid control measures adopted by the Commission in the period from September 2008 until the end of 2010.

It does not, therefore, discuss the interaction of the sovereign debt crisis, which worsened in the summer of 2011, with the financial sector. However, those adverse developments do not affect the findings of the Paper. State aid control has proven to be an essential coordination tool to ensure the effectiveness of Member States' rescue packages, and is also bound to have contributed to their sustainability in terms of public finance.

  • In the reporting period the Member States used more than 10 % of EU GDP in State aid in order to restore financial stability and normal functioning of financial markets, including EU companies' continued access to credit. The financial market indicators analysed in the Paper show that these State aid measures, along with other policy responses, were effective in meeting these objectives.
  • The amounts of State aid granted and their strong concentration on a limited number of financial institutions had the potential to create significant distortions of competition. The Paper finds that State aid control by the Commission has been effective in mitigating distortions of competition arising from the crisis aid. Indeed, available market data suggest that to date, State aid granted in the context of the crisis has not had significant negative effects on the competitive structure of the financial markets overall.
    • Importantly, State aid control has forced the financial sector both to restructure and to share the burden of its rescue with the taxpayers. It ensures that banks must remunerate and eventually repay the aid they receive and take measures to address the distortions of competition associated with the aid. Through burden sharing measures it helps to curtail moral hazard in the future.
    • The Commission has scrutinised the business models of banks that received large amounts of aid and imposed on them tough measures such as divestments and deleveraging to ensure their long term viability without State aid. This is particularly important for financial stability in the longer term.
  • The Temporary Framework of aid to the real economy complemented the framework put in place to allow a swift and coordinated response during the crisis. Whilst its take-up has been limited, it has been a useful safety net allowing for an emergency response tailored to tackling the difficulties stemming from financial turmoil.
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