Scoreboard, reports and studies
Report of the European Commission to the Council of Ministers:
(adopted by the Commission on 17.6.1998 and presented to the
ECOFIN Council on 23.11.1998)
Services of general economic interest in the banking sector
1. Amsterdam Declaration
At its meeting in Amsterdam on 18 June 1997 the European
Council adopted the following Declaration on public credit institutions in
"The Conference notes the Commission's opinion to
the effect that the Community's existing competition rules allow services of
general economic interest provided by public credit institutions existing in
Germany and the facilities granted to them to compensate for the costs
connected with such services to be taken into account in full. In this
context, the way in which Germany enables local authorities to carry out
their task of making available in their regions a comprehensive and
efficient financial infrastructure is a matter for the organisation of that
Member State. Such facilities may not adversely affect the conditions of
competition to an extent beyond that required in order to perform these
particular tasks and which is contrary to the interests of the Community."
Austria and Luxembourg subsequently added the following
"Austria and Luxembourg consider that the
Declaration on public credit institutions in Germany also applies to credit
institutions in Austria and Luxembourg with a comparable organisational
The Amsterdam Declaration is based on the Commission's
confirmation that the existing rules of the Treaty are sufficient to take into
account the possible existence within the banking sector of undertakings
entrusted with the operation of services of general economic interest. The text
refers particularly to public credit institutions in Germany. However, what
applies to Germany and German public credit institutions clearly also applies to
private credit institutions in Germany and all public and private credit
institutions in all of the Member States.
For this reason the European Council requested the Commission
to examine whether situations similar to the German system of public banks exist
in other Member States:
"The European Council takes note of the statement
on public credit institutions in Germany. It invites the Commission to
examine whether similar cases exist in the other Member States, to apply as
appropriate the same standards on similar cases and to inform the ECOFIN
In line with this mandate of the European Council DG IV,
the Commission service responsible for competition, sent letters to all Member
States requesting appropriate information about their banking sectors. The
responses of the Member States to that inquiry are summarised in point 3 of this
Credit institutions throughout the Community, whether or not
engaged in the provision of a comprehensive and efficient financial
infrastructure, perform a variety of operations. Some of those operations might
be services of general economic interest, others might not. The concept of a
service of general economic interest may, itself, evolve with time, notably in
the light of developments in the internal market. Article 90 (2) of
the Treaty applies not in the abstract, but to specific services of general
economic interest with the operation of which undertakings are entrusted. Thus,
it remains for the Commission to apply Article 90 (2), in the light of
the provisions of the Treaty, notably those relating to the free movement of
capital and the freedom to provide services, as well as those relating to state
aids, to credit institutions entrusted with the provision of specific services
of general economic interest.
2. Article 90 (2) of the Treaty
Pursuant to Articles 2 and 3 of the Treaty, the
Community is to achieve its objective through the establishment of a common
market and an economic and monetary union, and by implementing certain common
policies and activities. Thus the Treaty is based on the development of the
market and of common policies, whilst providing for intervention, where
appropriate, at Community level and by the Member States. The possibilities for
Member States to intervene include, though are not necessarily limited to,
circumstances in which market mechanisms would not lead to an appropriate
allocation of resources or the provision of certain services at acceptable
prices. Such situations might justify the Member States' intervention in the
market in order to achieve certain objectives in the general interest. The
Commission considers that services of general interest are of great importance
and lie at the heart of the European model of society(1).
The new Article 7d of the Treaty provides that:
"Without prejudice to Articles 77, 90 and
92, and given the place occupied by services of general economic interest in
the shared values of the Union as well as their role in promoting social and
territorial cohesion, the Community and the Member States, each within their
respective powers and within the scope of application of this Treaty, shall
take care that such services operate on the basis of principles and
conditions which enable them to fulfil their missions."
Article 90 (2) of the Treaty provides for
intervention by the Member States in the case of undertakings entrusted with the
operation of services of general economic interest. This is one of the
exceptions provided for in the Treaty to the prohibition on State aids contained
in Article 92 (1) of the Treaty. It provides as follows:
"Undertakings entrusted with the operation of
services of general economic interest or having the character of a
revenue-producing monopoly shall be subject to the rules contained in this
Treaty, in particular to the rules on competition, in so far as the
application of such rules does not obstruct the performance, in law or in
fact, of the particular tasks assigned to them. The development of trade
must not be affected to such an extent as would be contrary to the interests
of the Community."
Thus, the following conditions must be satisfied in order for
Article 90 (2) to apply:
! The service in
question must be a service of general economic interest and must be accurately
defined by the Member State.
undertaking in question must be entrusted by the Member State with the
provision of such a service.
application of the competition rules of the Treaty must obstruct the
performance, in law or in fact, of the particular tasks assigned to
undertakings entrusted with the operation of services of general economic
interest. The exemption should be limited to what is necessary.
! The exemption
must not affect the development of trade within the Union to an extent that
would be contrary to the Community's interest. It is in the Community's
interest that the distortion of competition is kept to a minimum.
The Member States are, in principle, free to determine the
services of general economic interest. However, according to
Article 90 (3) of the Treaty the Commission must ensure the proper
application of the exemption contained in Article 90 (2). That means
that the Commission must, where necessary, verify whether or not the service in
question can be characterised as a service of general economic interest. In
conducting such analysis the Commission will have regard to the nature of the
service, as well as to the extent to which the same service is provided by the
market on the same conditions, and - in the case of a universal service -
particularly the Member State's legitimate objective to ensure continuity of
service on acceptable conditions throughout its territory.
If the compensation for the obligation to render a service of
general economic interest is fixed as a result of the operation of the market,
for example where all interested undertakings are given the opportunity to state
the amount of compensation they would require to operate the service on behalf
of the Member State, and the undertaking to be entrusted with provision of the
service is selected by reference to objective and justified criteria, then there
is a presumption that the compensation does not constitute state aid for the
service provider. In other circumstances, there is a presumption of aid, but
such aid may be considered compatible pursuant to Article 90 (2).
In order to benefit from the exemption provided for in
Article 90 (2), the principle of proportionality has to be respected.
The compensation for the obligation to render a service of general economic
interest must be based on the cost of such specific service. As long as these
costs are not over-compensated, are limited to what is necessary for the
undertaking to perform the specific service in question and the development of
trade is not affected to an extent contrary to the Community's interest, the
compensation constitutes state aid but may be accepted under
Article 90 (2) if the other conditions are met. Compensation in excess
of such amounts cannot be deemed compatible under Article 90 (2).
In each case the Commission must strike a balance between the
Member State's right to invoke the exemption, and the Community's interest in a
minimal distortion of competition. In striking that balance, the Commission will
have regard to the extent to which there is competition in the market, that is,
to the extent to which the market in question has been liberalised.
With respect to the liberalisation of the market, the
financial services sector has been the subject of Community legislation aiming
at establishing fair and open competition. Free movement of capital, right of
establishment and freedom to provide services have been widely achieved in this
field of economic activities. Competition is already strong and will further
intensify with the forthcoming European Monetary Union and the introduction of
the single currency. With that in mind, it must be noted that each intervention
by Member States in this sector risks causing significant distorting effects,
which can only be balanced by a Community interest carrying particular weight.
Finally, it should also be recalled that the state aid rules
of the Treaty do not apply to all state aid but only to aid which affects trade
between Member States. Therefore, in so far as state aid measures only have
local impact, and do not affect trade between Member States, they do not fall
within the scope of Article 92 (1) of the Treaty. Thus, in principle,
locally operating savings banks or similar credit institutions of purely local
impact benefiting from such measures would not be caught at all by
Article 92 (1).
3. Responses of the Member States to the inquiry
The responses of the Member States to the inquiry suggest a
distinction between three types of activity:
provision of a basic financial infrastructure, which covers in full a
execution of certain specific tasks by credit institutions on behalf of a
Member State; and
! the raising
of funds exclusively for a Member State.
The first of these activities, the provision of a basic
financial infrastructure, which covers in full a certain territory, is analysed
in several other sectors, such as electricity supply, transport or postal
services by reference to the notion of universal service. The provision of a
basic financial infrastructure will be discussed in point 3.1.
As regards the second activity, credit institutions provide
services on behalf of Member States. They are used by the Member States to
deliver certain services to companies and/or individuals in order to achieve
certain public policy objectives. Examples are promotion of SMEs or of export
activities. This issue will be addressed in point 3.2.
Point 3.3. deals with the raising of funds exclusively
for a Member State.
3.1. Basic financial infrastructure covering a certain territory
Beside Germany only Austria assign to a certain group of
credit institutions, namely the savings banks organisation, the task of
providing a comprehensive financial infrastructure. These two countries hold
that this constitutes the provision of a universal service. They also state that
it is not only this organisation which delivers financial services all over the
country. Also credit institutions or groups of credit institutions not having
any obligation to cover a particular area provide certainly comparably dense
networks of branches or agencies.
A specific case exists in Sweden. While not considering the
operation of a comprehensive financial network to be a universal service, the
Swedish authorities oblige one credit institution, a subsidiary of the postal
service, which offers banking services at the post offices, to provide a
nation-wide payment service network. The credit institution receives a
compensation for costs incurred in delivering such services to sparsely
populated areas where no other credit institution offers such services.
Thus, in this case it is not the provision of banking
services throughout the territory of the Member State, but the operation of
certain particular branches which is considered by the Member State as a service
of general economic interest entrusted to the undertaking in question. The extra
cost of these services, which are not ensured by the market, is then reimbursed
by the Member State.
The situation in each of the three countries has to be
assessed under Article 90 (2) on a case to case basis.
3.2. Special services of credit institutions
A number of Member States consider that certain credit
institutions fulfil specific tasks that constitute services of general economic
interest. These tasks comprise mainly:
! promotion of
small and medium sized enterprises ("SMEs");
! granting or
guaranteeing of export credits;
! financing of
infrastructure projects; and
In some cases such particular task is performed by all or a
multitude of credit institutions of a Member State. In most of the cases the
services are, however, delivered by specialised credit institutions, especially
established for that purpose. The vast majority of these special credit
institutions are owned by public authorities. Partly they operate in a private
law form, partly they have a public law form.
It seems clear that in most of the cases indicated by the
Member States the credit institution supports the state in the fulfilment of
some specific tasks. A typical example is the granting of loans to SMEs at low
rates, subsidised or guaranteed by a Member State. It is true that the banking
infrastructure may well be used to distribute such services. However, it can be
questioned whether this distribution itself can be regarded as a service of
general economic interest. This has to be assessed on a case to case basis. In
any case, all conditions mentioned in Art. 90 (2) (see point 2) would
have to be fulfilled to allow for an exception from the competition rules for
the provision of possible services of general economic interest.
In some Member States such services are not only performed by
certain specialised credit institutions but by all institutions interested in
offering them. It might be concluded from this that such services can in
principle be performed without the need for any specific intervention by the
Member State. In the Commission's view, if each credit institution is free to
offer the services on behalf of the Member State on the same conditions and with
the same compensation this should in principle not cause problems under the
competition rules of the Treaty, in so far as the question of aid to the service
provider is concerned. On the other hand, if the performance of a task is
entrusted to only one or a limited number of credit institutions it has to be
ensured that this is done in a way which is compatible with the rules of the
However, any state aid nature can per se be eliminated if all
institutions have the opportunity to compete on an equal basis for the service
to be rendered. By establishing precise specifications a Member State can ensure
that the service is rendered at the desired quality and price level. Free
competition between interested service providers is thus ensured.
A few Member States also mention the handling of state
payments as a service of general economic interest. However, the Commission
takes the view that bank transfers are normal banking business and can be
carried out by all credit institutions. The Member States are simply using
credit institutions to provide them with a normal commercial service. Of course,
it is the Member States' competence to decide to use one or more particular
credit institutions; such choice does not differ from other procurement
decisions and should be made in line with these rules. This view is underlined
by the fact that the Community Directive on public procurement of services makes
financial services subject to the rules laid down in that Directive(2).
3.3. Raising funds for a Member State
Some specialised institutions have been established with the
objective to raise funds for the financing of a Member State. That means that
own legal entities have been created in order to hive off the fund raising
activities of the Member State. (For example, municipalities might jointly found
a credit institution, guarantee its fund raising activities and receive thereby
funds for their budgets at lower rates then by raising them on their own.) These
institutions raise funds by normal operations on the financial markets. Here, in
the Commission's view the crucial element is that the funds raised are actually
used for public sovereign purposes, that is the public non-commercial,
non-competitive sector. This is ensured if such institutions operate in a way
that all advantages remain within the public non-commercial sector.
This approach of the Commission is based on the consideration
that any state support, in whatever form (e.g. public guarantee, compensation
payments, loss coverage, foregoing of return) received by a credit institution
for the specific task of raising funds for the Member State has to be limited in
its effects to the performance of that task and may not spill over in any way
into competitive activities of the institution.
The most straightforward solution is obviously to actually
restrict the credit institution in question to the performance of the particular
task and to keep it from any commercial, competitive activities. This would
clearly avoid any problems of (cross-) subsidisation of competitive lending
business. However, it seems that this strict line is not always followed in
practice. Credit institutions specialised in a service for the state often
gradually carry out also more and more other, competitive activities. Such
development exists, for example, for certain institutions that have started with
pure financial service procurement for a Member State but have gradually
developed into normal banking operators and cannot anymore be distinguished from
normal credit institutions. But even if such competitive lending business is of
minor importance, it might well be of relevance under the competition rules of
the Treaty. In order to avoid possible problems under the competition rules of
the Treaty the simplest solution is to keep the respective credit institutions
legally and in practice away from any competitive activities, or at least to
operate separate accounting systems.
The funding of a Member State should be limited in its
effects to the non-commercial, non-competitive public sector. That means that
public undertakings competing with other enterprises in their respective markets
may not benefit from such cheaper financing. Also, it should be emphasised that
the term of non-commercial, non-competitive activities is a dynamic one. In line
with the development of the internal market and the liberalisation of more and
more sectors of the economy that notion requires a different interpretation in
the various Member States as well as repeated re-interpretation over time.
The Amsterdam Declaration refers to public credit
institutions. However, according to Article 222 of the Treaty the Community
is neutral as regards the national systems of property ownership and the
competition rules have to be applied in the same way to private as well as to
public undertakings. Neither the one nor the other type may be advantaged or
disadvantaged by the application of these rules.
According to the answers of the Member States, public credit
institutions exist in one form or the other in all of the Member States. Some
public credit institutions operate in a private law form, others are based on
public law. However, for the application of the competition rules, what is
relevant is not the legal ownership or status, but the actual and potential
behaviour of these credit institutions on the markets.
Germany expressly states in its response that the state
guarantees the public law credit institutions are benefiting from do not
constitute a compensation for any service of general economic interest. It is
said that services of general economic interest are performed by the credit
institutions in question within their competitive activities. However, it is
said that the public guarantees are automatically linked to the public law form
and thus protected by Article 222 of the Treaty.
It is the Commission's opinion that it is not possible to
justify such guarantees by referring to Article 222 of the Treaty. That
Article states that the Treaty "shall in no way prejudice the rules in
Member States governing the system of property ownership". This
stipulates the Community's neutrality as regards public and private ownership.
With respect to these questions the Commission may not and does not intervene.
However, it is the responsibility of the Commission to ensure that such
circumstances do not produce a distortion in the market in which these public
In the Commission's view, if the ownership or legal form of a
company produces a distortion of competition which is prohibited by the Treaty,
especially the state aid rules, then this legal form must be subjected to the
discipline of the state aid rules. The Member States are free to choose the
legal form for undertakings, but they have, when doing so, to respect the
competition rules of the Treaty. This is clearly laid down in
Article 90 (1) of the Treaty without prejudice to
Article 90 (2).
In particular, that means that if a state guarantee is linked
to a certain legal status of a company, such guarantee may constitute state aid
under Article 92 (1), and can not be justified under Article 222
of the Treaty.
Only two Member States, Germany and Austria, entrust credit
institutions with the task to provide a basic financial infrastructure covering
a certain territory. Sweden obliges one credit institution to provide a basic
service on a national level. Also, the Member States assign special services or
fund raising activities to certain credit institutions. The compatibility of
each of these systems with Article 90 (2) of the Treaty has to be
examined on a case to case basis.
(1)Commission Communication of 11
September 1996: Services of general interest in Europe (OJ 1996 No C 281, p.
Directive 92/50/EEC of 18 June 1992 relating to the co-ordination of
procedures for the award of public service contracts, OJ 1992 No L 209, p. 1.