Competition Law and State Aid for Failing Banks in the EU and Its Specific Implications for CEE Member States

Yearbook of Antitrust and Regulatory Studies, 9(14), p.145-158, 2016

13 Pages Posted: 6 Aug 2017

See all articles by Virág Blazsek

Virág Blazsek

University of Leeds School of Law; United Nations Joint Staff Pension Fund - Office of Investment Management; George Washington University Law School

Date Written: December 31, 2016

Abstract

The bank bailouts following the global financial crisis of 2008 have been subject to prior approval of the European Commission (EC), the competition authority of the European Union. The EC was reluctant to reject rescue efforts directed at failing banks and so it consistently approved all such requests submitted by Member States. Out of the top twenty European banks, the EC authorized State aid to at least twelve entities. In this context, the paper outlines the gradually changing interpretation of EU State aid rules, the “temporary and extraordinary rules” introduced starting from late 2008, and the extension of the “no-State aid” category. The above shifts show that the EC itself deflected from relevant EU laws in order to systemically rescue important banks in Europe and restore their financial stability.

The paper argues that bank bailouts and bank rescue packages by the State have led to different effects on market structures and consumer welfare in the Eurozone and non-Eurozone areas, mostly the Eastern segments of the European Union. As such, it is argued that they are inconsistent with the European common market. Although the EC tried to minimize the distortion of competition created as a result of the aforementioned case law primarily through the application of the principle of exceptionality and different compensation measures, these efforts have been at least partially unsuccessful.

Massive State aid packages, the preferential treatment of the largest, or systemically important, banks through EU State aid mechanisms – almost none of which are Central and Eastern European (CEE) – may have led to the distortion of competition on the common market. That is so mainly because of the prioritization of the stability of the financial sector and the Euro. The paper argues that State aid for failing banks may have had important positive effects in the short run, such as the promotion of the stability of the banking system and the Euro. In the long-run however, it has contributed to the unprecedented sovereign indebtedness in Europe, and contributed to an increased economic and political instability of the EU, particularly in its most vulnerable CEE segment.

Keywords: EU Competition Law, Central and Eastern Europe (CEE), financial crisis, State aid, bank bailouts, Eurozone, sovereign debt, European Stability Mechanism (ESM)

JEL Classification: K21

Suggested Citation

Blazsek, Virág, Competition Law and State Aid for Failing Banks in the EU and Its Specific Implications for CEE Member States (December 31, 2016). Yearbook of Antitrust and Regulatory Studies, 9(14), p.145-158, 2016, Available at SSRN: https://ssrn.com/abstract=3013061

Virág Blazsek (Contact Author)

University of Leeds School of Law ( email )

Leeds LS2 9JT
United Kingdom

United Nations Joint Staff Pension Fund - Office of Investment Management ( email )

885 2nd Ave, 5th Floor
New York, NY 10017
United States
347.334.0741 (Phone)

HOME PAGE: http://https://virag-blazsek.com/

George Washington University Law School ( email )

2000 H Street, N.W.
Washington, DC 20052
United States

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