Global Trade Alert

On 9 September 2009 Cyprus notified a scheme to issue special government bonds as a support measure for the financial sector.
 
In response to the exceptional turbulence in world financial markets, Cyprus brought forward a support measure through the issuance of special government bonds scheme to credit institutions designed to reinforce stability in the financial markets and mitigate the detrimental effects of the crisis on the economy as a whole.
 
Under the Scheme, the Cypriot government would issue special State bonds. The bonds would be lent to credit institutions that would use them as collateral to obtain liquidity from the European Central Bank and interbank markets. The bonds would be lent to the credit institutions against a remuneration and appropriate collateral. Beneficiaries of the Scheme are credit institutions incorporated in Cyprus, including subsidiaries of foreign credit institutions. The budget of the Scheme is EUR 3 billion.
 
The Commission found that the Scheme constitutes aid to the credit institutions concerned, pursuant to Article 87 (1) of the EC Treaty and gave the following assessment:
 
"The Scheme allows the beneficiaries to access liquidity at preferential terms which would not otherwise be possible in the light of the prevailing conditions in the financial markets. This gives an economic advantage to the beneficiaries and strengthens their position compared to that of their competitors in Cyprus and other Member States and must therefore be regarded as liable to distort competition and affect trade between Member States. The advantage, which is provided through State resources, is selective since it only benefits the beneficiaries of the Scheme." (par. 32 of the letter from the EC to Cyprus - Brussels, 22.10.2009 C(2009)8244 final).
 
The Commission found that the Scheme constitutes state aid within the meaning of Article 87(1) of the EC Treaty. Since the Scheme satisfies the conditions for aid under Article 87(3)(b) of the EC Treaty, it is compatible with the common market and thereforehas accordingly decided not to raise any objections.
 
A state measure in the GTA database is assessed solely in terms of the extent to which its implementation affects the extent of discrimination against foreign commercial interests. On this metric, the state aid proposed here is discriminatory.