EUROPEAN COMPETITION commissioner Neelie Kroes has warned that banks receiving state aid are not getting a “free lunch”.
The commissioner said banks across Europe receiving taxpayers’ money for bailouts would have a responsibility to restructure and reform. “European governments are potentially spending 16.5 per cent of GDP [gross domestic product] on bank bailouts. The European single market is undoubtedly affected by this – it is a market distortion. Because of this we have to work very hard to re-level the playing field,” said Ms Kroes.
“Some countries are in a more difficult situation than Ireland, but everyone is having a tough time. With commitments running for years, and several trillion euro now propping up Europe’s banks, the numbers don’t lie.”
She added that aid was “not a substitute for a sustainable business model”.
Ms Kroes announced this week that the State would have to follow new EU guidelines to show how it plans to restructure Bank of Ireland, Allied Irish Banks (AIB) and Anglo Irish Bank, which all received State funds, by selling non-core branches and operations.
The details of the guidelines on competition in the banking sector, which include a deadline to end state support by 2013, will apply to 70 other EU financial institutions and will be revealed next week.
Ms Kroes said temporary rescue measures were needed for short-term stability but added that “deeper change is needed to secure long-term viability and confidence”. “The road to the viability of the banking sector goes through restoration of the viability of individual banks,” she said.
“This is why the most problematic banks are put to more far-reaching restructuring requirements. The scrutiny and stress testing of their business models together with the implementation of an adequate restructuring plan should ensure their return to long-term viability, while avoiding competition distortions.”
Ms Kroes said she was working to ensure there would be robust competition in the new banking structure. “We can’t let competition drain away through neglect or special favours.”
She added that Europe needed a cross-border regulatory and supervisory system that was appropriate for the single market.
