Page last updated at 17:30 GMT, Tuesday, 2 December 2008

EU wants banks to boost lending

Neelie Kroes
Neelie Kroes says credit-crunch state aid should not undermine competition

The EU competition commissioner Neelie Kroes has said she expects banks that receive state aid to give commitments to lend to the real economy.

At the EU finance ministers meeting in Brussels, she said national rescue schemes should also include incentives for the state aid to be returned.

The European Commission has been under pressure to approve various bail-out plans proposed by member states.

New rules regarding state aid are expected to be approved by Christmas.

But many national governments said the EU was being too "bureaucratic" in its approach.

The European Union competition commissioner made it clear that she wanted banks to lend more in return for government help.

"I would expect commitments to lend from banks benefitting from state aid," she told the finance ministers.

Ms Kroes said she did not want to prevent banks that receive public money from paying dividends.

"The individual situation of each bank should be taken into account," she said.

Excessive bureaucracy

She also demanded that member states implement financial bail-out plans with caution, in order to avoid distorting the competition.

We need to call off these legions of state aid bureaucrats
Anders Borg, Swedish Finance Minister

"We need to make sure that all the schemes broadly fit together and that their main effect will not be to advantage one national banking sector to the detriment of other member states," she said.

But finance ministers called on the EU to relax its rules on state aid.

"In the face of a financial market crisis of this scale, we cannot proceed in a bureaucratic fashion," said German Finance Minister Peer Steinbrueck.

Swedish Finance Minister Anders Borg was even more forthright, insisting that "we need to call off these legions of state aid bureaucrats."

Mr Steinbrueck and other leading EU finance ministers have been critical of EU interference in individual state aid packages, and its lack of speed in passing new rules for bank bail-outs.

The Commission should make an announcement on its rules for bank recapitalisations by individual states in the next few days.

Despite some reservations, EU finance ministers are expected to give their broad approval for the bail-out plans.

Stimulus package

There was also broad agreement among the finance ministers over the European Commission's 200bn (170.4bn;$254.1bn) euro stimulus package.

This equates to around 1.2% of the EU's overall economic output.

But again, some states are keener than others on the package.

Germany is not entirely convinced of the need for an EU-wide response, pointing out that it has already pumped tens of billions of euros into its banking sector.

French President Nicolas Sarkozy was critical of Germany's stance.

"While France is working, Germany is thinking," he said.

And the ministers have yet to agree on where the money should come from.

"Countries must act according to their capabilities. This means that western countries... have a bigger responsibility," said Polish Finance Minister Jacek Rostowski.

The finance ministers rejected a coordinated cut in VAT rates, such as that introduced this week in the UK, as the main mechanism for the stimulus plan.

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