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Five days later we have another data point... (posted in the Salon by Fran
Public spending curbs and rules against state subsidies will be thrown - temporarily - out of the window to rescue European banks from the abyss of the global financial crisis, EU leaders agreed at the weekend. Leaders of the four largest European Union economies - Britain, France, Germany and Italy - came up with no EU-wide magic formula, or rescue package, to defend the buckling European financial system.

They did agree, however, that national governments should be at liberty to take drastic action to shore up their own financial institutions, busting EU limits on national budgets and flouting European rules against public subsidies if necessary. Meeting in Paris, the Big Four insisted that national governments must "consult" their European partners before taking action which could harm rival banks in other countries. This was a rebuke to Ireland's decision last week to guarantee all bank savings for two years but also, implicitly, a recognition that other nations may have to take similar action.

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EU laws forbidding state subsidies to private companies would also be "applied in a flexible manner" (ie suspended), the summit decided. At France's insistence it was agreed that there should be "punishments", not golden parachutes, for the bosses of financial institutions which needed state bailouts.

Note that the article only talks about the four heads of State/Government present at the meeting, but present there were also the ECB Chairman and the Commission President. It is therefore implied that the Commission will relax its state-aid rules. The Independent goes a bit far when it says "a flexible manner" means "suspended". There is still EU-wide competition to protect as when Irish bank executives went on British media encouraging people to switch their deposits to take advantage of the Irish guarantee.


A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Mon Oct 6th, 2008 at 03:30:21 PM EST

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