Tough report on bank state aid sparks row

Date: 11/06/1998

By Chris Johnstone

A FIERCE internal dispute has blown up over the timing and content of a tough report by Competition Commissioner Karel van Miert on what government aid can be offered to banks for carrying out non profit-making public services.

European Commission President Jacques Santer and German Regional Affairs Commissioner Monika Wulf-Mathies have succeeded in stalling, and amending, the report by Van Miert's Directorate-General for competition (DGIV) which calls for all such aid to be investigated.

Santer and Wulf-Mathies have blocked discussion of the paper by the full Commission to prevent the issue exploding at next week's Cardiff summit. The report has been removed from the agenda of the Commission's weekly meetings three times, with the result that it could not be discussed last week by EU finance ministers. "They do not want Germany to exert pressure on this issue at the summit," claimed one source.

Van Miert's report calls for his staff to vet all public service deals between governments and banks.

The move would primarily hit German regional and savings banks which are offered special government favours in return for running projects, for example, to help small businesses. His staff found that such special deals were a particularly German phenomenon, shared only by Austria, although Sweden's Postbank was still called on to undertake a few general interest services.

The report argues that, as a result, there is no reason for such arrangements to be given any special treatment.

An earlier draft of the DGIV document which outlined in more detail why no special regime should be offered to German banks has been trimmed in an attempt to make the new version more acceptable. But sources say the overall message remains the same.

Aid to banks is a sensitive issue, with the sector in the midst of Europe-wide merger mania prompted by the expectation of stepped-up competition once the single currency is introduced. 'Overbanked' countries such as Belgium and Italy are the main focus of the take-over fever.

Ironically, Van Miert's report is the direct outcome of a bid by German Chancellor Helmut Kohl at last June's Amsterdam summit to prevent the Commission scrutinising aid to public banks.

The move was interpreted as an attempt to deflect a Commission investigation into government guarantees for some of financial heavyweight Westdeutsche Landesbanke GiroZentrale's activities.

Kohl's bold and controversial action resulted in a bland summit declaration saying that public banks could carry out services of general economic interest and be fully compensated for the costs incurred.

Even though Van Miert denied Germany had won any favours and its banks were still subject to competition rules, other countries called for similar declarations in their favour.

In a supplementary text, heads of state called on the Commission to examine which countries required their banks to provide services of general economic interest and how they were paid for.

Armed with this information, the Commission was told to report back on how it could ensure banks across the EU were being given equal treatment.

Feature on a controversial DG IV report on what state aid can be offered to banks for carrying out non profit-making public services.