Competition policy and economic recovery
Tackling the financial crisis
The turmoil in the financial markets which was triggered by the financial crisis in 2008 called for the intervention by European governments in order to limit the adverse effects of the shock. State aid to financial institutions was crucial as a means of restoring confidence in the financial sector with the aim of avoiding a systemic crisis.
In the period between 1 October 2008 and 1 October 2011, the Commission approved aid to the financial sector for an overall amount of € 4.5 trillion (36.7% of EU GDP).
The control of these aids by the Commission ensured these measures did not destroy the level playing field between aid recipients and their competitors: banks who benefit from government support have to pay back the aid received. Without State aid rules, we would have seen a subsidy race and unfair damage to healthier companies. State aid rules also limit the amount of taxpayers' money going into failed financial institutions, for example requiring that existing shareholders and hybrid capital holders participate in the restructuring costs. On the treatment of hybrid capital, see the press release and explanatory note .
The Commission set out standards and safeguards for the assessment of State aid to financial institutions during the crisis. It also set out guidance on dealing with the impaired assets held by banks and on the assessment of restructuring plans for banks that have received assistance. See the legislation page for more details. In view of the renewed tensions in the markets, these rules will apply as long as required by market conditions. As soon as the market conditions allow, the Commission will adopt a permanent regime for State aid to the financial sector.
A comprehensive account of how the Commission's State aid policy responded to the financial and economic crisis is available in the staff paper "The effects of temporary State aid rules adopted in the context of the financial and economic crisis". An up-to-date list of measures approved is available in the cases page.
In the longer term the banking sector needs new business models and new regulation has been adopted to strengthen the sector and its supervision. Deeper economic integration could also be a way to exit the crisis: in June 2012 the Commission has put forward its political vision of a banking union to complement the monetary union. This new concept will be discussed by EU leaders at the end of June.
The proper application of the merger control rules is as necessary as ever. These rules play an important role in ensuring the protection of consumer welfare in terms of lower prices, better products and services and increased innovation. The necessity of maintaining or restoring competitive markets in the medium to long term is not at odds with the need for financial and economic stability in the short term. On the contrary, it forms part of the solution to the problem of market inefficiencies and, as we have seen, market failures. The Commission is therefore committed to continue to apply the existing merger control rules, while taking full account of the economic environment.
Acquisitions by States of majority stakes in banks are scrutinised under the Merger Regulation where control is acquired and the State does not maintain the acquired entities as independent commercial entities. With one exception involving the take-over of a bank in Germany (Hypo Real Estate) all cases on which the Commission has been consulted in this respect have been provisionally considered not to fall under the Commission's jurisdiction.
The existing merger control rules allow for all the necessary flexibility to deal with sometimes rapidly evolving market conditions. As regards procedure, transactions that require fast treatment, such as those which are part of rescue operations, can be dealt with within a swift timeframe and can where necessary exceptionally be granted a derogation from the stand-still obligation pending a review (in order to enable immediate partial or full implementation of these transactions in urgent cases).
On substance, the EU merger control rules allow the Commission to fully take into account rapidly evolving market conditions and, where applicable, the failing firm defence.
So far there has been relatively little merger activity in the financial services sector as a result of the crisis. Going forward, however, it can be expected that there will be a significant increase in this activity once market conditions have stabilised.