Foreign loans no obstacle to housing grant

Date: 16/11/1995

By Fiona McHugh

LUXEMBOURG and Greece may no longer refuse housing grants to citizens who have borrowed money from foreign banks, the European Court of Justice (ECJ) has ruled.

According to Luxembourg's law, only citizens who have borrowed to build or improve their homes with credit institutions registered in the Grand Duchy are eligible for government hand-outs. That, says the ECJ, is against EU law.

By refusing to give Mr and Mrs Svensson-Gustavsson an interest-rate subsidy on a loan from a Belgian credit organisation, Comptoir d'Escompte de Belgique, Luxembourg was effectively hampering EU citizens' right to shop around for cheap deals, the Court said. That right was granted in a 1988 directive establishing the free movement of capital within the bloc.

The judges said that the national regulation in question would probably “dissuade those concerned from approaching banks established in another member state and therefore constitutes an obstacle to movements of capital such as bank loans”.

Luxembourg, supported by Greece, tried but failed to defend its position by arguing that housing grants were funded, at least in part, by revenue from profit taxes imposed on financial institutions in the Grand Duchy.

It said interest subsidies cost the government huge amounts of money each year, money which it needed to recoup in bank taxes (nearly 1&percent; of Luxembourg's total 1994 budget was spent on housing grants).

The two governments warned they would be unable to continue generous housing policies if the court ruled against them. Despite their pleas, the judges did just that, noting that discrimination against foreign banks could only be justified if the “general good” of Luxembourgers was at stake - which it was not.

They added that there was no direct link between the generosity of government's housing policies and money made on profit taxes.