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Brussels, 12 December 2007

State aid: Commission adopts new method for setting reference and discount rates

The European Commission has adopted a new method for setting reference and discount rates used in the analysis of state aid cases for calculating the grant equivalent of aid and the aid element resulting from interest subsidy schemes. The new method is more in conformity with market principles as it contains a system to take account of the specific situation of the company or project and will thus contribute to a better economic approach to state aid analysis, as announced in the State Aid Action Plan (see IP/05/680 and MEMO/05/195). It will enter into force on 1 July 2008.

The reference rate is used not only in the analysis of individual state aid cases but is also the basis for calculations under the block exemption Regulations, exempting certain categories of aid from the obligation to notify the project to the Commission for approval before implementing it. The discount rate serves to calculate present value (time value of money).

Following a study realised by an independent consultant in October 2004, the Commission launched an extensive consultation process in 2006 and 2007 which led to further refinement of the original proposals. The new methodology is based on one-year inter-bank offered rate (IBOR) increased by margins ranging from 60 to 1000 basis points, depending on the creditworthiness of the company and the level of collateral offered. This approach is in line with the revised international capital framework introduced by the latest recommendations of the Basel Committee on banking supervision (the Basel II Accords) and tends to be more in conformity with the market than the current methodology.

The new methodology will enter into force on 1 July 2008, in order to give financial institutions and other stakeholders the necessary time to adjust.
The different language versions will be published at: in the EU's Official Journal is expected at the beginning of 2008. New state aid publications on the internet and in the Official Journal are listed in the State Aid Weekly e-News.

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