BRUSSELS - The European Commission on Tuesday published new restrictions on state guarantees to companies, barring governments from backing entire loans and subjecting guarantees to stricter terms.
The guidelines come after the European Union's executive agency ordered Germany's Westdeutsche Landesbank Girozentrale in July to repay $830 million in subsidies it gained through state backing.
The commission said it will "examine critically guarantees covering the entirety or nearly the entirety of a financial transaction," adding that guarantees should cover a maximum of 80% of a loan. It will adopt the guidelines tomorrow.
Though the rules will apply to all industries in all E.U. states, the issue is especially touchy among German banks.
Deutsche Bank AG and other private-sector banks have lobbied for years to end what they see as the unfair competitive edge enjoyed by state-owned rivals such as Westdeutsche Landesbank.
Under the current system, state-owned banks in Germany have an unlimited guarantee from the government and, as a result, can't go bankrupt.
- Alison Jahncke