Fair completion rules and the law of gravity don’t apply to banks

Joaquín Almunia, Vice-President of the EC in charge of Competition, pictured here, gave a press conference yesterday on several decisions on State aids, adopted on the same day by the European Commission. He is obviously perplexed with his own decisions. (EC Audiovisual Services, 18/12/2013).

There is no end to EU Commission’s approvals of state aid and government bailouts of hundreds of EU struggling banks, as if the extensive fair competition legislation of the Union is valid for every other sector of the economy at the exception of banks. In the latest incident, the EU competition authorities actually looked the other way, in the case of the huge state aid accorded to the five ailing Slovenian banks, which threaten to pull down to bankruptcy the entire country. It’s the same old story that haunted many EU countries during the past five years, after the 2008 US credit crunch broke out. The financial crisis touched almost all EU banks in varying degrees.

From the British Northern Rock Bank to the Belgian Dexia Bank and practically the entire banking system of Ireland, Spain, Greece, Austria, Slovenia and large parts of the financial markets of France, Germany, Italy and many more EU countries, survived on state aid. In these cases, where hundreds of billions of state aid accorded to the ‘systemic’ banks, the Brussels authorities with a mandate to protect fair competition didn’t say a word of objection. This was, practically, the end of the good old capitalism as the world new it, with its built in rebirth and growth powers from the ashes of bankrupt business.

Starting from Slovenia

The list has no end. Starting from Slovenia, yesterday the European Commission, in five distinct decisions, approved state aid measures in favour of five Slovenian banks. The relevant Press release goes like this, “The Commission approved the restructuring plans of Nova Ljubljanska banka d.d. (NLB) and of Nova Kreditna Banka Maribor d. d. (NKBM), in particular because they will enable the banks to become viable in the long term without unduly distorting competition. The Commission also approved aid for the orderly winding down of Factor Banka d.d. and Probanka d.d…Finally, the Commission temporarily approved rescue aid in favour of Abanka Vipa d.d., for reasons of financial stability”.

It’s a miracle how the responsible Commission member and Vice President in charge of competition policy Joaquín Almunia can sleep at night after imposing fines of hundreds of millions to real economy business and when it comes to banks he shamelessly argues “without unduly distorting competition”. The state aid cases involving financial firms, having been approved by the Commission as ‘not unduly breaching’ the fair competition legislation as of 13 December 2013 are innumerable. The most important relevant decisions during the period 2008 to 20131 are the following:

*Austria: Aid scheme for the Austrian financial sector (guarantees, recapitalisation & other), Recapitalisation of Hypo Tirol, Restructuring of BAWAG, Emergency aid to Hypo Group Alpe Adria, Restructuring of Kommunalkredit, Restructuring of Österreichische Volksbanken AG.

*Belgium/Luxembourg: Guarantee in favour and approval of restructuring of Dexia, Dexia and Belfius.

*Berlgium/Netherlands: Restructuring aid to Fortis Bank and Fortis Bank Luxembourg.

*Belgium: Recapitalisation measure in favour of KBC, Capital Injection for Ethias Group.

*Cyprus: Cypriot scheme to support credit institutions (guarantee), Rescue recapitalisation of Cyprus Popular Bank (ex-Marfin), State guarantee scheme for banks.

*Denmark: Rescue and liquidation aid to Roskilde Bank, Guarantee scheme for banks in Denmark , Rescue aid for Fionia Bank, Restructuring plan of Amagerbanken…

*Finland: Guarantee for Kaupthing Bank Finland…

*France: Financial support measures to the banking industry (Refinancing), Financial support measures to the banking industry (Recapitalisation), Capital injection for Caisse d’Epargne and Banque Populaire, Rescue aid in favour of Crédit Immobilier de France, Liquidation of Crédit Immobilier de France…

*Germany: Restructuring aid to Sachsen LB, Restructuring aid to IKB, Rescue aid to Hypo Real Estate Holding, Aid scheme for financial institutions (guarantees, recapitalisations & other), Guarantee and recapitalisation for BayernLB, Guarantee for NordLB, Commerzbank capital injection, Recapitalisation of HSH Nordbank, Recapitalisation and asset relief for LBBW (Landesbank Baden Württemberg), Restructuring of savings bank Sparkasse KölnBonn…

*Greece: Aid scheme to the banking industry in Greece (guarantees, recapitalisation & other), Restructuring and liquidation of Agricultural Bank of Greece (ATE), Resolution of T bank, HFSF Recapitalisation commitment to Alpha Bank, HFSF Recapitalisation commitment to Alpha Bank, HFSF Recapitalisation commitment to National Bank of Greece, HFSF Recapitalisation commitment to EFG Eurobank, HFSF Recapitalisation commitment to Piraeus Bank…

*Ireland: Guarantee scheme for banks in Ireland, Recapitalisation of Anglo Irish Bank, Recapitalisation of Bank of Ireland, Recapitalisation of Allied Irish Bank, Revised Irish guarantee scheme for financial institutions (Eligible Liabilities Guarantee scheme), Irish impaired asset relief scheme (National Asset Management Agency (NAMA)…

*Italy: Guarantee scheme for banks, Recapitalisation scheme…

*Netherlands: Guarantee scheme for Dutch financial institutions, Measure in favour of ING, Measure in favour of Aegon, SNS REAAL/New capital injection by Dutch authorities…

*Spain: Fund for the Acquisition of Financial Assets in Spain, Spanish guarantee scheme for credit institutions, Spanish recapitalisation scheme for credit institutions (Fondo de Reestructuración Ordenada Bancaria” (FROB)), Restructuring aid for Caja Castilla La Mancha, Restructuring aid for Spanish saving bank Caja Sur, Capital injection for Caja de Ahorros de Mediterraneo (CAM), Temporary approval of rescue aid for NCG Banco, Temporary approval of rescue aid for Unnim Banc, Temporary approval of rescue aid for Catalunya Banc, Temporary approval of the recapitalisation and liquidity support for Banco de Valencia…

No end to state aid

There is no point of reproducing here the entire list of national government and EU state aid to banks approved by the Commission competition authorities. According to estimates by the Commission itself, the entire package of taxpayers’ aid to the financial industry reached the astronomical amount of €4.5 trillion. This is around 50% of Eurozone’s annual GDP. In fact, national governments and the EU paid for the recapitalisation and in many cases for the liquidation of hundreds of banks.

No other sector of the economy has ever received or even asked for such a massive state aid scheme. Given that banks are merchants of money, money is the raw material of their trade. As a matter of fact for the first time in the history of civilisation, a guild of traders has managed to persuade the entire society to offer them for free, the raw materials for their trade. This is exactly what happened in the West, after the collapse of Lehman Brothers in New York. Actually a new generation of undead creatures is born in our brave new world defying even the law of gravity.

In conclusion, the European Commission may have sinned by approving all the state aid schemes in favour of banks during the last five years, but it’s not only Brussels that nurture this unholy behaviour. Our entire political and civic system is responsible for that.