EN ECB-P UBLIC  
 
 
 OPINION OF THE EUROPEAN CENTRAL BANK 
of 18 October 2011  
on a State guarantee covering certain loans granted to Dexia SA  and Dexia Crédit Local SA 
(CON/2011/82) 
 Introduction and legal basis
 
On 14 October 2011, the European  Central Bank (ECB) received a request from the Governor of the 
Banque centrale du Luxembourg (BCL), acting on behalf of the Luxembourg Ministry of Finance, for an opinion on a draft Grand-Ducal Regulation authorising the Government to extend a financial guarantee in the context of the ordered restructurin g of the Dexia banking group (hereafter ‘the draft 
Grand-Ducal Regulation’). The EC B was requested to deliver an opinion under extremely urgent 
circumstances.  
The ECB’s competence to deliver an opinion is based on Article 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the sixth indent of Article 2(1) of Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national authorities regarding draft legislative provisions
1, since the draft Grand-Ducal Regulation relates to rules applicable to 
financial institutions insofar as they materially influence the stability of financial institutions and markets. In accordance with  the first sentence of Article 17.5 of the Rules of Procedure of the European 
Central Bank, the Governing Council has adopted this opinion. 
 1.  Purpose of the draft Grand-Ducal Regulation  
The draft Grand-Ducal Regulation authorises the Government to guarantee, on behalf of the 
Luxembourg State and in return fo r payment, the financing raised by  Dexia SA and Dexia Crédit Local 
SA from credit institutions and institutional depos itors as well as the bonds and debt securities issued 
by Dexia SA and Dexia Crédit Local SA for instit utional investors. This guarantee applies to the 
financing raised, as well as the bonds and debt securities issued, by Dexia and Dexia Crédit Local until 
31 December 2021 and having a ma ximum duration of 10 years. This guarantee will be granted for a 
maximum amount of EUR 2 700 000 000. It will be exercised subject to the joint guarantee call of the Kingdom of Belgium and the French Republic. The dr aft Grand-Ducal Regulation enters into force on 
the day of its publication in the Mémorial . Its validity will be limited to three months. The Minister for 
Finance will be entrusted with implementing the draft Grand-Ducal Regulation.  
 
                                                
 
1  OJ L 189, 3.7.1998, p. 42.  
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2 2. General observations  
2.1 In the context of the State guarantees support ing the Dexia restructuring plan, the ECB deems 
that it is important to ensure the coordination of the French, Belgian2 and Luxembourg 
legislation. The ECB is unable to fully assess consis tency between the legislation due to different 
legislative techniques3, and considering that certain modalit ies, varying according to the Member 
States, still have to be defined in implementi ng agreements between the three States and the 
Dexia entities4.  
2.2  It is also important to ensure that the draft Grand-Ducal Regulation and any subsequent 
implementing measures fully comply with the re levant provisions of Union law, including 
competition and State aid rules. In particular, national authorities should seek to coordinate their responses to the current financial situation with their Union part ners, to act in a united manner 
and to avoid that na tional measures adversely affect the func tioning of the single market and the 
other Member States. In this respect, it is essentia l that Member States co mply with the guidance 
given by the European Commission in its communica tions on the application of State aid rules to 
support measures in favour of banks and government guarante e schemes covering bank debt, 
including with rega rd to the temporary nature of the accep tability of such aid measures and the 
necessity for credit institutio ns receiving State support to  submit a restructuring plan
5. 
2.3 The ECB notes that the guarant ee to be issued by the Luxembou rg Government is a significant 
financial commitment by the State within the meaning of Article 99 of the Luxembourg Constitution and Article 80(1)(d) of the amended Law of 8 June 1999 on the State budget, accounts and treasury
6, which must therefore be approved by a law. As this guarantee needs to be 
granted urgently in the context of an internat ional crisis, the Grand-Duke is empowered by 
Article 32(4) of the Luxembourg Constitution to enact a regulation that deviates from existing laws, provided that the validity  of such regulation is limited to three months. The ECB assumes 
that the draft Grand-Ducal Regulation will therefore be subsequently confirmed by a law, as was the case for the Grand-Ducal Regula tion of 10 October 2008 enacted for the first Dexia rescue 
package, that was confirmed by  Article 44(1) of the Law of 19 December 2008 on the budget for 
State income and expenditure for 2009
7. 
 
                                                 
2  With regard to Belgium the ECB issued Opinion CON/2011/79 on 13 October 2011. 
3  The draft Grand-Ducal Regulation only contains the very basi c principles of the guarantee, as the details are left to the 
implementation measures to be adopted by the Minister for Finance . 
4  See Opinion CON/2011/79, paragraph 1.  
5  See notably the Communication from the Commission on the application, from 1 January 2011, of State aid rules to 
support measures in favour of banks in the context of the financial crisis, (OJ C 329, 7.12.2010, p. 7);  
Communication from the Commission – The a pplication of State aid rules to measures taken in relation to financial 
institutions in the context of the current global financial crisis (OJ C 270, 25.10.2008, p. 8); Commission 
Communication on the treatment of impaired assets in the Community banking sector, 25.2.2009 (OJ C 72, 26.3.2009, 
p. 1). 
6  This provision, amended by the Law of 29 May 2009, provides that any financial undertaking, including State 
guarantees exceeding EUR 40 000 000, must be authorised by a law.  
7  Mémorial  A 200, 23.12.2008, p. 2769.  
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3 3.  Interaction of the draft Grand-Ducal Regulation with the monetary policy of the euro area  
The draft Grand-Ducal Regulation does not define the type of liabilities falling within the meaning of 
‘financing’ under Article 1(1) of the Grand-Ducal Regulation. In this respect, the ECB makes the following observations.  
First, it reminds the consulting authority that government guarant ees for bank debt should, when 
implemented: (i) address the funding problems of liquidity-constrained  solvent banks by improving the 
functioning of the market for bank debt of longer-term maturity; (ii) preserve the level playing field among financial institutions and avoid market distortions; and (iii) ensure consistency in the management of Eurosystem liquidity. In this vein, government guarantees for short-term bank debt with a maturity of three to 12 months may be provided to revitalise the short-term bank debt market
8. In 
this regard, the ECB reiterates that granting gove rnment guarantees for bank debt with a maturity of 
less than three months should be avoided to the extent possible9.  
Second, it is also stressed that it is of the utmo st importance that support operations conducted by 
national authorities do not in any way affect the conduct and the implementation of monetary policy in the euro area
10. In this context, the ECB reiterates its view that the extension of the State guarantee to 
cover interbank deposits should be avoided11, as this could entail substantial distortion in the various 
national segments of the euro area money market by  potentially increasing short-term debt issuance 
activity across Member States and therefore impairing the implementation of the single monetary 
policy, which is an exclusive competence of the Eurosystem under Article 127(2) of the Treaty12. It 
could also affect the transmission of monetary policy decisions13 and make it difficult to maintain the 
necessary level playing field in the euro area between the financial in stitutions bene fiting from the 
State guarantee and th ose not benefiting.  
 4.  Temporary nature of the scheme  In line with the assessmen t in the Commission’s staff working document
14, the ECB notes the need for 
national support measures to  be temporary in nature15. It is understood that th e support scheme covers a 
time period of up to 20 years, as the loans covered by the guarantee may be issued until 31 December 
2021 at the latest and may be for a maximum duration of 10 years, and thus could be considered of a longer-term rather than temporary nature.  
 
                                                
 
8 CON/2009/73, paragraph 3.1, CON/2009/12, paragraph 3.3, CON/2009/49, paragraph 3.9. 
9  CON/2009/92, paragraph 3.5. 
10 CON/2009/73, paragraph 3.1, CON/2009/12, paragraph 3.2, CON/2009/92, paragraph 3.5. 
11  CON/2009/73, paragraph 3.1, CON/2009/49, paragraph 3. 9, CON/2008/50, paragraph 3.2, CON/2009/12, paragraph 
3.3.2. 
12  CON/2009/73, paragraph 3.1, CON/2009/49, paragraph 3.9, CON/2009/12, paragraph 3.3.2 and CON/2008/48, 
paragraph 3.7. 
13  CON/2009/73, paragraph 3.1, CON/2009/12, paragraph 3.3.2, CON/2009/49, paragraph 3.9. 
14  DG Competition Staff Working Document - The application of State aid rules to government guarantee schemes 
covering bank debt to be issued after 30 June 2011, available on the Commission’s website at www.ec.europa.eu. 
15  CON/2009/73, paragraph 3.2, CON/2009/24, paragraph 3.1, CON/2009/54, paragraph 2.5.2. 
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4 5.  Pricing of the guarantee 
As the Minister for Finance will determine the re muneration due to the State for the guarantee in 
accordance with Article 1(1) of th e draft Grand-Ducal Regulation, th e ECB underlines that the pricing 
formula recommended by the ECB’s Governing Council16 should be taken into consideration when 
determining the remuneration due to the State. This was also affirmed by the Commission staff in their 
assessment of the application of State aid rules to go vernment guarantee schemes covering bank debt.  
 This opinion will be published on the ECB’s website.    Done at Frankfurt am Main, 18 October 2011. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET 
                                                
 
16  Recommendations of the Governing Council of the Europe an Central Bank on government guarantees for bank debt, 
20 October 2008.