France/EU

EU approves French bank rescue plan

Article published on the 2008-12-08 Latest update 2008-12-08 16:04 TU

European Commissioner for Competition Neelie Kroes.
(Photo: Reuters)

The European Commission approved France’s bank rescue plans Monday after changing its rules for state bank aid, ending a weeks-long stand-off between Paris and Brussels. The 40-billion-euro French bank recapitalisation plan can now go ahead, with 10.5 billion euros already set aside for the country’s six biggest banks.

The new European regulations will require banks to pay a risk premium for state funds based on the financial health of each bank. In addition, France also agreed to raise the interest rates that banks would have to pay for the state funds to “an average of eight per cent” said European Competition Commissioner Neelie Kroes.

"Rapid and effective intervention by national governments has stabilised the financial system,” Kroes said in a statement. “We now need to look to the real economy. This Communication strikes the right balance between keeping a stable flow of credit to the real economy, stabilising financial markets and preserving a level playing field for banks in Europe.”

The Commission had been withholding its approval of the French plan for weeks, amid concerns that the bailout would have an unacceptable effect on competition between European banks.

“Brussels’ hesitation reflects the difficulties that our institutions are having understanding that we are at an historic turning point,” frustrated French Prime Minister Francois Fillon said on Saturday.

The Commission’s approval of France’s plan paves the way for approval for similar plans proposed by Austria and Germany.