Managing State Aid in a Time of Crisis: Commission Crisis Communications and the Financial Sector Bailout
Political Science and International Affairs
The September 2008 collapse of American investment bank Lehman Brothers triggered a global financial crisis whose effects were quickly felt in European banking. The scale of the crisis and the speed with which it propagated through the sector prompted governments to take aggressive action. In the months following the onset of the crisis, EU governments approved guarantee schemes, recapitalizations, and asset relief measures worth over €4.5 trillion. Such vast amounts of aid, necessary though it may have been, threatened to distort competitive conditions in the sector. To forestall this, the European Commission issued four ‘crisis communications’ in which authorities set out how member states could best support financial institutions whilst respecting EU competition rules and thus avoiding undue distortions of competition. We argue that these guidance documents, though only non-binding soft law, not only helped preserve competition in the banking sector but also provided a policy resource that Commission authorities have used to restructure the banking sector.