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The European Commission is relaxing state aid rules to allow EU governments to bail out companies and inject capital into financially sound banks to encourage lending to industry and individuals, it emerged yesterday.
Neelie Kroes, the EU's competition commissioner, said Brussels was moving beyond shoring up banks to ensure that the recession across Europe was "shorter and shallower" than threatened.
Her move came as the commission approved a €21bn (£18bn) French scheme for recapitalising sound banks so they could increase lending to the real economy, and indicated it would swiftly approve amended German and Austrian bank rescue plans. But companies are continuing to lay off thousands of staff and close plants for extended periods because of frozen credit lines.
Kroes said she intended to announce extra measures before Christmas to enable EU governments to rescue specific companies in trouble with "targeted" aid.
"I therefore intend to authorise the quick grant of higher amounts of state guarantees and loans and to allow more aid to be given without notification," she said. "This will help the financing of the real economy through investments, but also through coping with temporary liquidity difficulties and stress on working capital."
EU competition rules allow governments to give aid of up to €200,000 to companies without having to notify Brussels. The German chancellor, Angela Merkel, is pressing Kroes to raise this to €400,000.
Kroes has been at loggerheads with national governments over delays in approving bank rescue plans, and has faced repeated demands to act tough to avoid any distortion of competition that would give rescued banks advantages over competitors.
The approved French scheme sets a benchmark for other recapitalisation plans by setting an average 8% interest coupon on any state capital, higher than France wanted.
This will vary according to the solvency of each bank and will initially be fixed for five years.
Kroes indicated that riskier banks would pay more interest. She said: "The pricing mechanism needs to carry a sufficient incentive to keep the duration of state involvement to a minimum, for example, through a remuneration rate that increases over time."
The volume of work has held up negotiations between the EC and UK government over the bail-out and subsequent nationalisation of Northern Rock. Kroes indicated there would be a decision before the holiday.
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