Aid comes in many forms
Aid to the banking sector by national governments during the financial crisis has taken various forms, including guarantees on liabilities, recapitalisations and securities schemes.
The measures taken by governments raise potential difficulties for the EU's single market, which is based on the principle of fair competition.
The European Commission has approved more than 40 national initiatives to support the financial sector. They include the bail-out of Fortis Bank by the governments of Belgium, Luxembourg and the Netherlands in October 2008, a German rescue-aid package worth €35 billion for Hypo Real Estate Holding, the UK government's nationalisation of mortgage bank Bradford and Bingley, and more general national support schemes.
Two cases are being formally investigated by the Commission as potentially illegal state aid: the UK government's rescue of Northern Rock and the restructuring of the German bank WestLB.
A further nine cases are being assessed by the Commission to see whether they can be approved or if a formal investigation is required. They include the recapitalisation of commercial bank Dexia by Belgium, France and Luxembourg, and a Polish bank-guarantee scheme.
In December 2008, the Commission relaxed the EU's state aid rules by adopting a ‘temporary framework' that allows member states to take exceptional measures to combat the effects of the financial crisis. Measures covered by the framework include subsidised loans, loan guarantees at a reduced premium, risk capital for small and medium-sized enterprises and direct aid (up to €500,000 per company).
Four countries have so far notified the Commission that they want to take measures under the temporary framework: Germany, France, Portugal and the UK.