WRITTEN QUESTION P-1216/96 by Giorgio Ruffolo (PSE) to the Commission (10 May 1996)

Subject: Article 92 of the Treaty - application to banks

1. Can the Commission confirm that German state-owned banks benefit from two unlimited government guarantees which rule out the possibility of liquidation and ensure that all creditors will be reimbursed?

2. Can it confirm that such guarantees enable the banks in question to accept deposits on favourable conditions, irrespective of their basic financial solidity?

3. Would it agree that such guarantees are provided on non-commercial terms?

4. Would it agree that they constitute incompatible state aids within the meaning of Article 92 of the Treaty?

5. Would it agree that the state aid provided under such guarantees amounts to many billions of ecus, as reported on pages 105-106 of the 8 April 1996 issue of the weekly magazine 'Der Spiegel', which quotes analyses made by various international rating agencies?

6. Would it agree that the distortion produced by such guarantees is much greater than the unlimited liability of sole shareholders provided for under Article 2362 of the Italian Civil Code?

7. Does it believe such guarantees to be justified on the grounds of stability in the financial markets and, if so, what measures does it intend to put forward with a view to extending the system to private banks and banks in other Member States?

8. What steps are to be taken to ensure that Member States bring such guarantee schemes into line with the rules on state aids laid down in the Treaty?

9. Would the Commission agree that monetary union presupposes a genuine 'level playing field' in the banking sector?

Answer given by Mr Van Miert on behalf of the Commission (19 June 1996)

1-5. It is obviously important in establishing a real common market for financial services that the EC Treaty´s state aid rules be applied consistently and equally to the banking sector. But in applying these rules the Commission will take account of the peculiarities and sensitivity of the financial markets.

The Commission is currently analyzing Member States ´systems guaranteeing debts of credit institutions irrespective of the public or private status of the banks involved. In that framework it has to take account of the differing banking systems to be found in the Member States. The public support mechanisms were introduced for a variety of different reasons and many have a long tradition. For instance, the German system was initially created when savings banks and their central institutions were turned from 'regies' into independent entities by decree of the President of the German Reich in 1931. Hence, this decree dates well before the conclusion of the Treaty.

The Commission is in contact with the German authorities in order to learn the details, functioning and purpose of the German system and to assess its impact on the lending situation of German public banks. The assessment is an ongoing process and both financially and politically sensitive. The Commission does not wish to disclose preliminary findings on a highly complex matter which might be subject to misinterpretation.

6. Article 2362 of the Italian civil code provides for the unlimited liability of the sole shareholder of an Italian stock corporation, irrespective of the stockholders' public or private legal identity. State aid problems may arise when the Italian state or another Italian public authority takes a 100% stake in a company and consequently will be exposed to unlimited liability with respect to the company's debt. Since the Italian law is applicable to enterprises of all sectors, its range of application is much broader than the German system.

The subject of Article 2362 was adressed in the course of proceedings under Article 93 (2) EC Treaty when it turned out that the Italian state holding company EFIM was able to borrow at more favourable conditions as a result of the unlimited liability of the Italian state. The Commission pointed out that the legally stipulated unlimited public liability for a company´s debt may discriminate against other companies because the state disposes of virtually unlimited financial means ((Communication of the Commission under Article 93(2) of the Treaty, OJ C 349, 29.12.1993. )). Following an agreement between the Italian authorities and the Commission, the Italian government indicated it would diminish its participations in stock corporations, its fully owned subholdings and all other companies fully owned by the Treasury in order to exclude the unlimited liability of the sole public shareholder for the company's future debts ((Annex 3 to the Communication of the Commission under Article 93(2) of the Treaty, OJ C 349, 29.12.1993. )). Since the Italian government is respecting its obligations under the agreement, it is concluded that the distortive effect of the application of Article 2362 of the civil code to public companies is constantly decreasing and will finally be neutralised.

A comparison of the degree of possible distortion of competition caused by the two systems is impossible until clarification has been reached on the German situation.

7. The protection of credit institution's depositors is at the same time an instrument to protect the banking industry against confidence crises. In that way, deposit protection contributes in avoiding major dislocations in the financial markets. Consequently, the Parliament and the Council took into account such systemic problems when adopting Directive 94/19/EEC of 30 May 1994 concerning deposit guaranty systems ((OJ L 135, 31.5.1994. )).

8. The Commission is presently undertaking a general analysis of all existing guaranty schemes in the Member States. In the light of the results of that analysis the Commission will consider whether it should clarify the communication to the Member States on the application of Articles 92 and 93 of the EC Treaty to public undertakings in the manufacturing sector ((OJ C 307, 13.11.1993. )).

As far as state guarantees for banks are concerned, the general rules on the treatment of state aid are applicable. As stated above, the Commission will take into account the peculiarities of the banking sector as well as the sensitivity of the financial markets.

9. Several factors have increased the competitive pressures in the European banking sector within the last decade. Harmonisation of the banking supervisory rules in the Member States as well as the liberalisation of the European banking market strongly contributed to this development. As a result, the Commission notes a much greater awareness for competitive issues in the European banking community.

The Commission is convinced that the introduction of a common European currency will further promote the development of competition in the banking sector. In order to ensure that this development is not to the unjustified disadvantage of certain competitors when monetary union becomes effective, the Commission pays the utmost attention to possible distortions of competition in the banking sector. A coherent state aid policy in the banking industry is an integral element of a successful monetary union.