Relaxation over EU state aid ruled out

Europe's state aid and fair competition rules will not be relaxed despite the scale of the financial crisis, the European Commission said today.

As the number of national bail-outs of banks and finance houses piled up for approval by Brussels, the Commission's chief spokesman said the current rules were part of the solution, and had always been designed to allow for flexibility in "exceptional circumstances".

Johannes Laitenberger insisted that the rush of announcements of unilateral government bail-outs over the weekend did not break the spirit of a "closer financial co-operation" deal at a weekend summit in Paris between Britain, France, Germany and Italy.

German Chancellor Angela Merkel signed up to the deal, but within hours had announced back in Berlin that she was guaranteeing all private German bank accounts to restore consumer confidence.

But Mr Laitenberger said today: "The measures taken by different member states are in the spirit of a co-ordinated approach.

"Let me be clear: These (EU state aid ) rules are not being changed, because it is completely false to say they stand in the way of a sensible, reasonable, single market solution. These rules are part of that solution, not part of the problem.

"They have been designed all along to be flexible in exceptional circumstances, and these are exceptional circumstances - so there is no need for a phantom discussion about changing the rules".

The Commission confirmed that Germany did notify Brussels before announcing the move - but Ireland has yet to notify the EU competition watchdog about its own, more wide-ranging, two-year guarantee scheme protecting all depositors in the country's six largest banks.

A spokesman for EU Competition Commissioner Neelie Kroes said all the national moves to prop up banks would need EU approval under the rules, but the German scheme - guaranteeing funds held by "retail" depositors only - was less sweeping than the Irish scheme.

"Precise details of the Irish scheme are still being worked out and we still have not been formally notified about them, but the Irish are looking at going beyond guaranteeing retail deposits and including all commercial funds too. We will have to look at all of that, and we will be looking at the other schemes in other member states too."

If the Commission decides that any of the bail-outs amount to unfair "state aid", officials could demand the withdrawal of the plans.

But in a climate of continuing financial turmoil, the Commission is reluctant to take any action which could further undermine confidence in the banking system in Europe.