WRITTEN QUESTION E-0738/03

by Erik Meijer (GUE/NGL) to the Commission

(11 March 2003)

Subject: Transfer of the unsecured risks of German banks and insurance companies to a government funded entity

1. It is the Commission aware of the report in the Frankfurter Allgemeine Sonntagszeitung of 23 February 2003 that the Commerzbank, the Dresdner Bank and the Hypo-Vereinsbank are to transfer an amount of at least EUR 7 billion in risky loans to a bad bank to be financed by the German Government and/or the Bundesbank?

2. Are there arrangements in other EU Member States whereby banks' and insurance companies' risks and losses are taken over by the government or by publicly funded bodies, while the profitable sections of the loan portfolios continue to benefit the companies themselves?

3. In view of the fact that since 1 January 2002 the Bundesbank has no longer been responsible for the circulation of German currency and is integrated into the EMU system, what are the implications for the value of the euro? Does this mean that an arrangement like that described in paragraph 1 is partly funded at the expense of collective and individual spending capacity for the inhabitants of the 12 states of the euro zone as a whole?

4. Does the Commission plan to extend the scope of such arrangements to all the Member States or does it wish to restrict and discourage them because they are seen as a form of illegal State aid?

Source: Netherlands newspaper, De Volkskrant, 23 February 2003.

Answer given by Mr Monti on behalf of the Commission

(16 April 2003)

1. The Commission is aware of press articles indicating that certain German banks have called for the creation of a bad bank which would take over bad loans. In reply to an information request of the Commission the German authorities stated that no such plans were being pursued.

2. The Commission is not aware of any general schemes in a given Member State applicable to the whole banking or insurance sector to hive off bad assets. In the context of individual rescue and restructuring operations a transfer of bad assets has been allowed in some specific cases (e.g. Crédit Lyonnais).

3. The cost of such a scheme, if it were to be implemented, would in the first place be met by the national tax payers. However, as already stated, the German government is not planning to implement such a scheme.

4. If such a scheme is implemented it may meet the criteria to be considered a State aid in the sense of Article 87(1) of the EC Treaty. In principle State aids are prohibited, though this prohibition is not absolute. Articles 87(2) and (3) of the EC Treaty set out the conditions under which certain State aids may be considered compatible with the common market. In particular, pursuant to Article 87(3)(c), the

Commission can allow aid for rescuing and restructuring firms in difficulty(1). However, any such aid must be notified to the Commission and assessed for each individual beneficiary bank. General aid schemes for companies in difficulty are only permitted for Small and Medium-sized Enterprises.

In addition to the issues to be considered under the Union State aid rules, if the creation of a Bad Bank were to involve an agreement between undertakings, Article 81 of the EC Treaty might apply. The Commission has at this stage no factual elements that this is the case.

(1) Community guidelines on State aid for rescuing and restructuring firms in difficulty, OJ C 288, 9.10.1999.