Bail Out Plans: Do They Really Envision State Exit and Bank Repayments? A View from a Competitive Assessment Perspective

Abstract

Since October 2008 European member States have been implementing recapitalisation and guarantee plans to support the banking sector. Such plans, although different, are based on common principles agreed at EcoFin level, stating that they should be limited in scope and time, that State involvement must be confined to the minimum, that shareholders should bear the consequences of intervention and that Governments should protect competition. In light of the special circumstances due to the current serious disturbance in the economy and in the financial sector, European Commission has provided guidance as to the framework within which the compatibility of the bail out plans with EU state aid rules could be assessed. The Commission recognised as compatible with State aid rules those plans that were: temporary, non discriminatory and that had a significant contribution from the private sector. So far, all the national plans have been considered compatible with art. 87 of the EC Treaty. However, it appears that a proper analysis of the relevant EU decisions on this matter could only be conducted over a longer term perspective. Indeed, if we look at the main characteristics of the most important European Member States measures, we could argue that the role of the State appears to be more than “temporary” and less than “profitable” for the taxpayers. Moreover, serious moral hazard problems may arise. In fact, the main concerns regard the likelihood for the State to leave the banks’ capital and the existence of incentives for the beneficiary banks to repay the measure, given that there is no expiry date nor sanctions or mechanisms to force the bank to repay. Eventually, it seems that those “compatibility decisions” may instead lead to a new financial market structure where competition would be seriously hindered and where the involvement of the State in banks’ capital and governance may not end as soon as the Commission wishes.