EU nations win a year’s reprieve on state aid

European governments will be allowed to provide soft loans and other concessionary support to their banking and industrial sectors for one more year because of the lingering effects of financial crisis, according Europe’s top competition regulator.

But in an interview with the Financial Times, Joaquín Almunia, European Union competition commissioner, said he would reinstate the much tougher “normal” state aid regime from the beginning of 2012.

European Union officials eased up considerably on the region’s state aid rules in late-2008, allowing governments to pump billions of euros in soft loans, state guarantees and direct aid to both banks and companies hit by the financial turmoil and subsequent credit shortages.

But those concessionary rules are due to expire at the end of 2010, prompting much debate among member states and businesses about whether – or to what extent – they should be renewed.

Small businesses, for example, have pleaded for concessions on loan guarantees and risk capital to be prolonged because of sluggish bank lending. By contrast, Vince Cable, British business minister, told a Brussels audience last week that the “temporary measures” should be just that.

Mr Almunia told the FT he intended to extend the exceptional regime for the banking sector for another year – with some technical changes – but steadily to phase it out over those 12 months.

“On present analysis, we are not yet in a position to return to a normal regime. We know there are still some institutions ... that need this public support through public capital injections,” he said, citing the recent dramatic difficulties in Ireland’s bank sector, as well as problems in parts of the German banking market.

But he added: “We want to be in a position of adopting a normal regime from 2012 onwards.”

In the meantime, the former Spanish employment minister stressed that Brussels would be “putting a lot of pressure” on those banks that receive government aid to produce serious restructuring plans, designed to return them to viability.

Asked if this was a threat directed at Germany’s Landesbanken, whose failure to restructure adequately after repeated tranches of government money has frustrated competition officials in Brussels for years, Mr Almunia said bluntly: “It’s not a threat, it’s a communication.”

The commissioner also plans to produce new rules on aid to industrial companies, making it easier for governments to continue giving assistance linked to risk capital – such as venture capital – or export credit support on a permanent basis.

Weaning banks and businesses off government assistance is not the only challenge facing the new competition commissioner, who sipped black coffee after being engrossed in Tony Blair’s memoirs until midnight.

Also planned is the preliminary investigation into allegations of anticompetitive conduct by Google, including charges that it demotes rivals in its search rankings.

Brussels’ legal circles buzz with rumours that the Commission will make an announcement shortly – and is likely to open a full probe into the issues. Mr Almunia acknowledges that other international competition authorities are looking to Brussels for a lead in this case. But he says: “I can’t tell you if it will be a matter of weeks.”

Another thorny issue is whether to facilitate more private damages actions by the “victims” of competition offences, notably those who suffer from the higher prices imposed by cartels. Mr Almunia’s predecessor, Neelie Kroes, argued that such group actions could be a useful deterrent to illegal price-fixing. But corporate lobbyists warned about the dangers of introducing a US-style “class action” culture and Ms Kroes’ legislative proposals were stillborn.

Commission officials are now rethinking the issue, whether for competition breaches or consumer product liability. But Mr Almunia is emphatic that he will unveil proposals for private enforcement in the second half of 2011.

“There are lots of voices saying you should avoid the failure of the US system. I fully agree with this – but that’s not the same as no initiative on private enforcement.”