Competition policy and economic recovery
Competition and the countries under adjustment programmes
Competition, and in particular State aid rules, plays a role in the work that the Commission has been doing with the countries that were most hit by the crisis and have required financial assistance: Greece, Ireland, Portugal and Spain.
The problems faced by these countries:
- They have excessive debt combined with high budget deficit.
- Therefore, they cannot borrow money at reasonable rates from the international market.
The solution: Financial assistance with conditions
- These countries receive loans from other Eurozone countries via the European Financial Stability Facility (EFSF), the European Stability Mechanism (ESM) and -except for Spain-, the International Monetary Fund (IMF).
- The loans are conditional to an economic adjustment programme set out in a Memorandum of Understanding (MoU) signed among the country and the so-called "troika" (the European Commission, the IMF and the European Central Bank (ECB)). The programme includes fiscal consolidation measures (reduction of public spending in salaries and pensions, increase in taxes) and structural reforms to enhance competitiveness and growth. The troika carries out quarterly reviews and disbursements subject to a compliance report and a Council decision on the EU side.
Where does competition policy fit in?
The Commission, through its Competition Directorate-General:
- Is heavily involved in the process of restructuring Member States' banking systems. The financial crisis State aid rules effectively form the EU's main banking crisis management tool. Given that the financial sector is a major beneficiary of aid in almost all programme countries, the Competition DG ensures that the financial sector problems are resolved by ensuring that:
In programme countries, the macroeconomic context and the financial intermediation role of the banking sector are fully taken into account in this assessment. See also the memo: "State aid: public support for financial sector – the Commissions' role under EU State aid control"
- banks receiving State aid become viable again,
- there is adequate burden sharing and
- competition concerns are addressed.
- More generally, it ensures that the troika's decisions take competition policy into account (e.g.: restructuring state-owned enterprises, privatisation, use of structural funds or funds from the European Investment Bank for underpinning growth, improving competition law and the role of the competition authority). In particular for privatisation programmes, State aid issues need to be addressed to ensure that privatisation transactions are legally secure.
The Commission is helping the Greek authorities to ensure compliance with competition rules, and in particular state aid, by providing:
- Guidance on state aid-compliant financing, restructuring and privatisation of State-owned enterprises
- Advice about the State aid implications of privatisation plans (Greece is privatising State-owned assets and shareholdings in order to raise funds to repay its debt.)
- Advice on how to achieve the optimal use of public funds (EU Structural funds and state aid) in infrastructure projects of economic nature
- Technical assistance to improve the administrative structures that enforce EU State aid rules in Greece
- Finally, all Greek banks are receiving State aid to ensure a return to viability. The Commission's bank restructuring decisions under State aid rules provide the main framework to achieve this successfully.
The Commission's role focuses on:
- Supporting pro-competitive reforms in the Irish banking sector. Given that all the major Irish banks are recipients of State aid, State aid conditionality as laid down in the restructuring decisions of the banks plays a major role in ensuring that the Irish financial sector returns to viability
- Supporting pro-competitive reforms in other sectors such as energy and legal services
- Ensuring that any amendment to the Competition Bill would improve the enforcement regime, to make it as effective and efficient as possible
The competition-related work consists of:
- Ensuring that the financial sector returns to viability through appropriate restructuring decisions of financial Institutions that need State aid
- Supporting pro-competitive reforms in the privatisation process in Portugal in sectors such as energy, telecommunications and transport
- Ensuring competition law framework improvement, to make it as effective and efficient as possible
The main objective is to overhaul the vulnerable and weak segments of Spanish financial institutions, enabling their recapitalisation and restructuring.
There are two types of conditions:
- Conditions applicable to banks in difficulty (bank-specific conditionality) include, among others, a clear roadmap to bank-by-bank recapitalisation and restructuring in line with EU State aid rules. See "State aid: public support for financial sector – the Commissions' role under EU State aid control") about the first recapitalised banks.
- Horizontal conditions, i.e. measures applying to the banking sector or the regulatory and supervisory framework at large (horizontal conditionality). The Spanish government has adopted a new law on bank restructuring and resolution, guided by the European Commission legislative proposal on crisis management and bank resolution. An Asset Management Company was set up to take over real estate development loans from banks needing restructuring.
To safeguard the application of competition law, the Commission:
- Leads the work on the bank specific conditionality by acting as a de facto crisis resolution authority through its decisions on bank restructuring plans. This co-ordination function in Spain is stronger than for other programmes since the main bank specific conditionality under the programme consists of State aid conditionality: the MoU states that aid will only be granted to individual institutions after approval of the Restructuring Decision under State aid rules.
- Ensures that EU competition rules are respected throughout the decision-making process.
- Verifies with the ECB and the European Bank Authority that the policy conditions attached to the financial assistance are fulfilled, through missions and regular reporting by the Spanish authorities, on a quarterly basis.
For more information see the
Commission's contribution to Spanish financial assistance programme focusing on the banking sector