Brussels has approved the financial guarantee arrangements provided to Belgium-based Dexia by the governments of France, Belgium and Luxembourg after finding them compatible with EU state aid rules.

The European Commission said that given Dexia’s size the company’s collapse would have given rise to a systemic risk and could have had a “snowball” effect on the Belgian banking sector. It said that the aid, which is initially available for a six month period but can be extended, was a proportionate response and should be approved as an emergency measure.