Vice President of the European Commission responsible for Competition Policy
Reform of the State aid rules for Services of General Economic Interest (SGEI) and decisions on WestLB, Bank of Ireland and France Telecom
Press conference, Brussels
20 Decembre 2011
The European Commission, today, reformed the application of the European Union's State aid rules to Services of General Economic Interest.
Services of general economic interest are activities that would not be produced by market forces alone or at least not in a form that would be available to all. We are talking about postal services, energy, transport, telecommunications, social services, cultural services and other services. They occupy a big place in our developed societies and are of crucial importance in these times of crisis.
The Commission certainly does not dispute the principle of compensating a company for a service that is entrusted to it by a government, be it at central or local level. Were the public service mandate is well defined and there is no overcompensation, the Commission takes the view there is no aid. My key concern is to ensure services of quality at the lowest cost which safeguards the interests of fair competition and of taxpayers.
The new SGEI package follows three objectives: clarification, simplification, and a focus on services that receive big amounts of money and have a greater potential to distort the conditions of competition in the single market.
So, first of all, the new SGEI package answers a call by government authorities and stakeholders to have greater clarity on the basic concepts of our control.
I also propose to introduce a specific de minimis rule for SGEIs, under which payments of up to €500,000 over 3 year-periods will automatically fall outside our control. No prior notification will be needed and no ex-post control either. The Commission will take a decision on this SGEI de minimis in the spring. The rest of the package, the bulk of the package, in fact, is adopted today.
The new package exempts governments from the obligation to notify compensation for the running of social services, more specifically health and long term care, childcare, access to and reintegration in the labour market, social housing and the care and social inclusion of vulnerable groups. Presently only hospitals and social housing are exempted.
Other services receiving public compensation of less than €15 million a year, which often covers local services, are also exempted from notification.
I should stress, that the exemption from notification for social services and for compensation below €15 million does not mean that the principles of good administration of public money and of fair and undistorted competition do not apply. The Commission will remain vigilant and, as you know, has no choice but investigate when it receives complaints, as the European Court of Justice again recently recalled.
On the other hand, the Commission has refined the rules to avoid undue distortions in the case of service providers that receive more than €15 million.
Whenever possible the SGEI should be entrusted through an open and transparent public tender, there must be a precise methodology to determine the compensation and Member States should introduce the necessary mechanisms to ensure efficiency gains in the interest of both the operators and of constrained public finances.
Broader state aid reform / Competition Conference
The new SGEI rules anticipate, in my view, a broader reform of State aid control that I have in mind for the future.
It is too early to talk about the details of this reform, which I intend to launch next year.
But my experience to date shows that the Commission is all too often asked to decide or arbitrate on small cases with little or no impact in the internal market. I believe there is a need to set priorities and use our resources to control the subsidies that have a real potential to distort competition in Europe.
It must also be said that authorities and service providers often fail to comply with our rules, especially at local level, simply because they are too complex. We need to simplify our rules and streamline our procedures.
To the extend possible, I would like to shorten the length of our investigations, an objective for which we need Member States cooperation.
Finally, our action is too often driven by notifications and complaints, leaving little time and resources to start more investigations on our own initiative. I would like to find the way to increase the latter.
As I said, we will be reflecting on this reform next year together with our stakeholders and the general public.
The first opportunity will be the maiden edition of the European Competition Forum which the Directorate General for Competition will host in Brussels on the 2nd of February 2012.
Let me say a few words on another couple of important decisions that we have taken today. The first is the approval of the orderly winding down of WestLB.
Let me remind the basic principles of the control of state aid to banks during the crisis.
The first concern of the Commission is that an aided bank is ultimately viable to avoid it asking for repeated rescues. Rescue and restructuring aid distorts the conditions of competition more than any other aid and nobody wants to have "zombie" banks.
The second main concern is that the shareholders make a fair contribution to the rescue. This achieves two key purposes: it limits the amount of state aid to the strict minimum necessary - that is the cost to the taxpayers – and it teaches banks and their owners to avoid excessive risks, taking care of the moral hazard involved in bank rescues.
In the WestLB case, the Commission was able to approve, with conditions, significant public support already in May 2009. This is a bank whose troubles pre-date the fall of Lehman Brothers and which took excessive risks expanding into structured products at the expense of its regional business. As the bank received significantly more aid after the 2009 decision, its ability to survive in the long term without state support was seriously questionable. The plan finally submitted by the German government together with the Land North-Rhein Westphalia and the savings banks that partly own WestLB is that:
WestLB will stop all its banking activities;
Helaba – the Landesbank of Hessen Thüringen – will buy some assets and liabilities, put together in the so-called Verbundbank, which provides services to savings banks; and, finally,
the remaining assets and liabilities will be sold, and what cannot be sold will be transferred to a bad bank;
an asset management company will be allowed to operate for a period of time in order to manage the assets transferred to the bad bank, after which it will be sold or liquidated.
Effectively, WestLB will be resolved in an orderly fashion, and the costs of its liquidation will be born by all the shareholders: the Land of NorthRhein Westfalia, the savings banks, and the Bund.
With this decision, the only other ongoing investigation involving a Landesbank concerns BayernLB.
Bank of Ireland
Let me finish with two other decisions, the first approving the restructuring plan of Bank of Ireland. The plan contains a major restructuring effort ensuring that BoI will refocus its business model and will considerably reduce its dependence on wholesale funding. The plan also attracted private investors, significantly limiting the need for public support. Thanks to the fruitful collaboration between the Irish authorities, the bank and the Commission, the plan also includes the necessary safeguards to ensure that competition in the Irish financial markets will be enhanced in the coming years, somebody I felt was necessary to protect Irish consumers. The efforts of the Irish authorities to implement the programme are starting to pay off, investor confidence is starting to come back and this is very positive.
The other decision is in the telecoms sector but can be of importance for other liberalised markets where similar issues arise.
It concerns the contributions to the pensions of the employees that joined France Telecom before 1997, some 40% of the company's present workforce.
The Commission has concluded that the one-off payment by France Telecom to the State of €5.7 billion, in 1997, offsets the reduced contributions that it has been paying until now. This would no longer be the case in the future and this is why the decision is conditional on the alignment of the contributions on those of its competitors.
This decision is in line with past cases involving incumbents in newly-liberalised industries such as La Poste.
This is what I wished to say, forgive me if I was a bit long.