European Council, Brussels, 15-16 October 2008: Bank crisis to dominate EU meeting

EU rules on state aid put to test by bail-outs
By Tony Barber
Financial Times, 15 October 2008

European Union leaders were under pressure on two fronts yesterday as the global financial crisis and deepening economic slowdown tested their commitment to fight climate change and preserve the bloc's core free-market philosophy.

As they prepared for a two-day summit in Brussels, policymakers expressed concern about the possible impact on EU state aid and fiscal rules of the enormous government bail-outs of the financial sector announced in France, Germany, the UK and other countries.

They also sounded the alarm about the argument that EU targets for tackling climate change may damage vital industrial sectors at a time when some EU states are in or close to recession. The debates about competition and climate change policies showed how quickly the relief at Europe's co-ordinated financial rescue plan, unveiled on Sunday and Monday, was changing to concern about challenges arising from the turmoil.

The EU regards the single European market and the competition rules that underpin it - as well as efforts to lead the world in fighting climate change - as vital facets of its identity and success.

But some countries outside the eurozone, which groups 15 of the EU's 27 countries, are worried that the bail-outs - amounting to more than €1,800bn ($2,460bn, £1,405bn) - may unduly favour the western European states.

"It is a fight for capital," said Milena Vicenova, the Czech Republic's ambassador to the EU. "Even under difficult situations, we must stick to the rules."

Neelie Kroes, the EU competition commissioner, warned on Monday that chaos would result if its rules on state aid and fair competition were suspended or simply ignored.

EU officials are worried that the spirit of the free market may also be harmed by other recent calls for assistance. The European car industry asked last week for €40bn in low-interest loans, an appeal prompted by similar measures adopted for US car manufacturers.

Poland has suggested that, if banks can be saved with billions of euros in public funds, the EU ought to look more leniently on state aid for Polish shipyards that otherwise face bankruptcy.

Similar concerns about free markets arose last year when Nicolas Sarkozy, France's president, removed a reference to "undistorted" competition from the draft of a new EU treaty.

Such issues are expected to be taken up by EU leaders when they hold talks today and tomorrow. The leaders had hoped to use this week's meeting to resolve a dispute over the extent to which richer EU members should bear the burden of meeting the bloc's targets for energy efficiency and reducing carbon dioxide emissions. This decision has been postponed because of disagreements.

The pressure to scale down the targets was exemplified this week by Claudio Scajola, Italy's industry minister, who forecast the EU's plans could cost his country as much as €181bn between 2011 and 2020. He said the economic downturn would make it hard for Italian business to make the necessary investments.

José Manuel Barroso, the European Commission president, responded yesterday by warning: "Global warming does not disappear because of the financial crisis. We must keep to our goals agreed unanimously last year."

Copyright The Financial Times Limited 2008

Previews of the issues to be discussed at the European Council, Brussels, 15-16 October 2008

• Primary Source

Deutsche Welle, 14.10.08: EU Set for "Crisis Management" Summit http://www.dw-world.de/dw/article/0,2144,3710694,00.html

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