European State Aid Policy in the Financial Sector

Abstract

The recent financial crisis has posed tremendous challenges for the European Commission's state aid policy and questioned whether the European state aid rules should be applied rigorously to the financial sector in times of severe economic crises. In this paper I conclude that the financial sector has distinct characteristics compared to other sectors in the real economy, but that this does not imply that all the state aid rules should be put aside during a crisis in the financial sector. On the contrary, the European state aid rules are a valuable instrument to ensure that any state aid to the financial sector takes into account the particularities of the financial sector, will be limited to the minimum necessary, and preserves an equal playing field for market participants within the European Community. In recognition of these arguments, the European Commission has shown to be very adaptive and flexible in dealing with the challenges posed by the financial crisis and ensured that all adopted state aid measures adhered to the principles of appropriateness, necessity and proportionality.