Government guarantees denounced by bosses

Date: 30/01/1997

By Chris Johnstone

EUROPEAN business leaders are set to call for a European Commission clamp-down on governments' use of banks to give soft loans and other guarantees which escape current state aid scrutiny.

The state aid working group of employers' organisation UNICE will call on Competition Commissioner Karel van Miert to launch a separate investigation into the issue once it has won backing from its members.

The Commission's current scrutiny of the matter is clouded by a series of individual cases, mostly in Germany, where private banks are complaining that their public counterparts have received billions of ecu in regional funds and had their debts guaranteed by authorities.

But the use of government guarantees goes much further than an inter-bank dispute. Governments in all EU countries use both public and private banks as agents to give cheap loans or cover operating losses in multi-billion-ecu operations which have so far escaped Brussels' control and rarely attract much publicity.

“This is the biggest outstanding state aid issue,” said UNICE state aid working group chairman Dirk Hudig, pointing out that these types of guarantees were not notified to Brussels, although they were covered in competition rules. “The rules on guarantees have never been applied. This is probably the biggest hole in the state aid area.”

The use of guarantees is expected to increase as governments vie to attract job-creating businesses, while cohesion funds and the European Bank for Reconstruction and Development (EBRD) are mostly used for infrastructure projects, said Hudig.

Commission insiders say they are hoping to draw up a policy paper on guarantees this year.

Any moves to tackle government guarantees would increase the strain on the overstretched Directorate-General for competition (DGIV), and further focus its efforts to streamline its procedures and workload.

DGIV is looking to bring forward two regulations by the spring. The first would ask governments to give the Commission the power to draw up rules excluding some types of subsidy from vetting. The exemptions would probably cover some aids for research and development, the environment, employment and training, and perhaps all aid to small and medium-sized enterprises below certain thresholds.

The second regulation would deal with procedural issues: setting time limits for cases and outlining complainants' rights. This would set a framework for aid cases to be dealt with in a similar way to large take-overs and joint ventures under the Commission's merger rules.