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)
Date: 2011-10-18
Institutions: European Central Bank
Subjects: Luxembourg, State aid, aid for restructuring, financial institution, financial stability, guarantee, national law

EN 

ECB-PUBLIC 

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  restructuring  of  the  Dexia  banking  group  (hereafter  ‘the  draft 

Grand-Ducal  Regulation’).  The  ECB  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  provisions1,  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 for payment, the financing raised by Dexia SA and Dexia Crédit Local 

SA from credit institutions and institutional depositors as well as the bonds and debt securities issued 

by  Dexia  SA  and  Dexia  Crédit  Local  SA  for  institutional  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 maximum 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 draft 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.  

 
 
 
 
 
 
                                                 
ECB-PUBLIC 

2. 

General observations  

2.1 

In  the  context  of  the  State  guarantees  supporting  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 consistency between the legislation due to different 
legislative techniques3, and considering that certain modalities, varying according to the Member 

States,  still  have  to  be  defined  in  implementing  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  relevant  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 partners,  to  act  in  a united  manner 

and to avoid that national measures adversely affect the functioning of the single market and the 

other Member States. In this respect, it is essential that Member States comply with the guidance 

given by the European Commission in its communications on the application of State aid rules to 

support  measures  in  favour  of  banks  and  government  guarantee  schemes  covering  bank  debt, 

including with regard to the temporary nature of the acceptability of such aid measures and the 
necessity for credit institutions receiving State support to submit a restructuring plan5. 

2.3  The ECB notes that the guarantee to be issued by the Luxembourg 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 treasury6, which must therefore be approved by a law. As this guarantee needs to be 

granted  urgently  in  the  context  of  an  international  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 Regulation 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 20097. 

2  
3  

4  
5  

6  

7  

With regard to Belgium the ECB issued Opinion CON/2011/79 on 13 October 2011. 
The draft Grand-Ducal Regulation only contains the very basic principles of the guarantee, as the details are left to the 
implementation measures to be adopted by the Minister for Finance . 
See Opinion CON/2011/79, paragraph 1.  
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 application 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). 
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.  
Mémorial A 200, 23.12.2008, p. 2769.  

2 

 
                                                 
ECB-PUBLIC 

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  guarantees  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 market8. In 

this  regard,  the  ECB  reiterates  that  granting  government  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  utmost  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 area10. 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  institutions  benefiting  from  the 

State guarantee and those not benefiting.  

4.   Temporary nature of the scheme  

In line with the assessment in the Commission’s staff working document14, the ECB notes the need for 
national support measures to be temporary in nature15. It is understood that the 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 
9  
10 
11  

12  

13  
14  

15  

CON/2009/73, paragraph 3.1, CON/2009/12, paragraph 3.3, CON/2009/49, paragraph 3.9. 
CON/2009/92, paragraph 3.5. 
CON/2009/73, paragraph 3.1, CON/2009/12, paragraph 3.2, CON/2009/92, paragraph 3.5. 
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. 
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. 
CON/2009/73, paragraph 3.1, CON/2009/12, paragraph 3.3.2, CON/2009/49, paragraph 3.9. 
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. 
CON/2009/73, paragraph 3.2, CON/2009/24, paragraph 3.1, CON/2009/54, paragraph 2.5.2. 

3 

 
 
                                                 
ECB-PUBLIC 

5.   Pricing of the guarantee 

As  the  Minister  for  Finance  will  determine  the  remuneration  due  to  the  State  for  the  guarantee  in 

accordance with Article 1(1) of the draft Grand-Ducal Regulation, the 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 government 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 European Central Bank on government guarantees for bank debt, 
20 October 2008. 

4