Article 92 of the EC Treaty prohibits member states from granting
state aid, including state guarantees, which would distort
competition. If a member state wishes to give a guarantee which
could be interpreted as distorting competition it must go through
the pre-clearance procedure in Article 93.
What if banks receive state guarantees which have
not been pre-cleared?
The scope is deceptively wide-ranging because a
state guarantee may arise automatically, for example, where a
provision of national law makes a state responsible for the
obligations of an enterprise within its ownership or control.
Areas of concern in a recent paper published by the
Financial Law Panel include the following:
- Member states are prohibited from providing state aid until the
aid has been approved by the Commission. Implementation without
pre-clearance will call into question its enforceability before
- The failure to pre-clear a guarantee is actionable in national
courts by any aggrieved third parties. The paper calls for the
Commission to issue guidance to the courts.
- The Commission has the power to 'abolish' state aid which is
incompatible with the common market. Commission policy is unclear,
but perhaps it could order a member state guarantor not to honour
- The Commission has power to require illegal aid to be repaid to
the member state. Although unlikely in this context, this could
involve repayments of monies already paid under the terms of a
guarantee or even a repayment equivalent to the market cost of the
Banks may wish to consider the incorporation of
appropriate contractual indemnities. The Panel also suggests that
banks should try to ensure member states have complied with the
Commission approval process, or seek informal guidance from the