Economic Regulation Issues December 2008

France awaits ruling on banking aid
Global Competition Review, December 02, 2008

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France awaits ruling on banking aid
Global Competition Review, December 02, 2008

France is calling on the European Commission to relax competition rules in the face of the global financial crisis.

The government is responding to reports that the commission is set to veto French plans to loan €10.5 billion to the country's six main retail banks in a bid to boost their capital reserves.

Though the plan was announced in October, DG Comp has yet to approve the measures, which may breach European competition rules. As the banks are not yet failing, the commission says they should reduce lending in exchange for state support. But France is calling on the banks to increase lending if they want state loans.

Says Jacques Buhart, of Herbert Smith LLP in Paris: "There is a risk of distortion of competition between the banks that will benefit from the government assistance, and the banks, mostly foreign, which would not benefit from this package."

Jose Manuel Barroso, president of the commission, says the measures have yet to be blocked. "We are examining the dossier with all the necessary rigour and urgency," he says, while conceding that the plan may face opposition. "If we accept that one country gives a billion to banks, that poses a problem of unfair competition that can destroy the healthiest banks."

Buhart predicts that Sarzoky's government is likely to reach a compromise with the commission. "It would be difficult for France to fight too hard against the commission, given that they hold the presidency of the council," he says.

But another source says that automatic approval "does not seem to be on cards" as other banks "are complaining loudly" about the measures.

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