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Last Updated: Thursday, 28 February 2008, 12:19 GMT
EU probes German support to banks
IKB
IKB has had three rescue packages since July 2007
The European Commission has begun an investigation into whether government assistance to two German banks amounted to illegal state aid.

Commercial lender IKB and regional bank Sachsen LB, owned by the state of Saxony, were bailed out after losses connected with the US sub-prime crisis.

The German government had to step in to prevent them going bankrupt, offering further loans to the banks.

Brussels will now determine whether such actions conformed to EU rules.

"Without these and several subsequent measures the banks would not have been able to continue their business," the Commission said in a statement.

"The Commission has to assess whether these measures constitute state aid and, if so, whether they can be found compatible with EU rules for rescuing and restructuring firms in difficulties," it added.

Anti-competitive move?

Under EU rules, there are circumstances when government support for a company in danger of going bust is acceptable but anything that distorts competition constitutes illegal state aid and is illegal.

"Otherwise it is hard for European citizens to understand why they have to suffer from the economic downturn, while taxpayers' money is poured into once profitable banks that took excessive risks and might now avoid paying for their risky strategies," said Competition Commissioner Neelie Kroes.

Earlier this month, Berlin agreed a 1.5bn euro ($2.3bn: 1.1bn) rescue package for IKB, the third bailout since the problems at the bank emerged last summer.

Meanwhile, billions of euros worth of government and state-bank backed guarantees for Sachsen LB eased its 328m-euro sale to Stuttgart-based rival LBBW.





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