Page last updated at 09:33 GMT, Wednesday, 2 April 2008 10:33 UK

EU launches probe of Rock bailout

Northern Rock
Northern Rock relied heavily on money markets

The EU has said it will launch a full investigation of the state bailout plan of troubled UK bank Northern Rock.

Northern Rock was given emergency government funding last year, after it was hard hit by the credit crunch.

In February, the government said the bank would be temporarily nationalised, but it needs European regulators to approve its rescue plan.

UK taxpayers are now subsidising the bank in loans and guarantees to other lenders to the tune of about 55bn.

According to the BBC's business editor, Robert Peston, the move by the EU was widely expected, given the size of the government rescue package.


The bank recently said it would cut about 2,000 jobs by 2011 and reduce its residential mortgage lending by half, as part of plans to turn around the troubled bank's fortunes.

Northern Rock must repay Bank of England loans worth about 25bn. At the end of March, the bank said it would repay its state loan by 2010 even though it said it would not break even for three years.

At heart of the EU investigation is whether the long-term restructuring plan harms competition in the market.

Under EU rules, public support can be allowed to stop firms from going bankrupt, but long-term government aid that is seen to undermine competition is not permitted.

Danish banks have already made formal complaints to the European Commission alleging unfair competition in the European banking sector after Northern Rock was given state aid.

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