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Inception date: 23 Dec 2009 | Removal date: 22 Jun 2013

Loan guarantee

On 14 October 2008, the Spanish authorities notified the Royal Decree-Law 7/2008 de Medidas Urgentes en Materia Económico-Financiera en relación con el Plan de Acción Concertada de los Países de la Zona Euro establishing a guarantee scheme for credit institutions in Spain.
In response to the ongoing crisis in world financial markets, Spain intended to bring forward a measure designed to preserve stability to the financial system and to remedy a serious disturbance to the economy in Spain. In particular, the measure was aimed at limiting the risks and re-establishing confidence in the financing mechanism of credit institutions and to increase lending to businesses and households.
The institutions eligible for the guarantee scheme are: a) credit institutions; b) consolidated groups of credit institutions; pools of credit institutions. Branches of foreign credit institutions are excluded from the scheme. Subsidiaries of foreign credit institutions are included, subject to the same requirements than Spanish credit institutions.
The scheme provides for State guarantees covering new issuance of instruments referredby credit institutions resident in Spain up to an amount of 100 billion EUR, which can be increased, if the Spanish authorities consider it necessary given market conditions, up to 200 billion EUR distributed equally over the annual budget of 2008 and 2009.
The Spanish authorities noted that the emergency situation has been introduced in circumstances of unprecedented financial threat to the stability of the Spanish financial sector and consequently to the entire Spanish economy. The uncertainty regarding the credit risk has disrupted interbank lending and caused severe liquidity restrictions affecting whole economy. The Spanish authorities accepted that the guarantee scheme contains State aid elements.
The Commission also stated that the measure therefore constitutes State aid within the meaning of Article 87(1) of the EC Treaty and gave the following assessment:
" The guarantee is granted by the State and the measure therefore may involve State resources if the guarantee is activated. The measure is selective, as only certain debts of certain credit institutions will be guaranteed. The guarantee on the newly issued debt allows the beneficiaries to get the required liquidity, whereas it would not obtain this financing on the market, or at least at a higher price. This gives an economic advantage to the beneficiaries and strengthens their position compared to that of their competitors. Therefore, the measure threatens to distort competition and to affect trade between Member States, as Spanish banks are present in other Member States. In particular, the Commission is convinced, that in the current circumstances of financial crisis no private investor would have granted such a significant guarantee on the senior debt of participating banks at this price. Spain did not provide sufficient element contradicting this view of the market situation which has been previously stated by the Commission"(par. 49-50 f the letter from the EC to Spain - Brussels, 23.4.2009 C(2009) 3069 final).
Article 87(3)(b) of the EC Treaty enables the Commission to declare aid compatible with the Common Market if it is "to remedy a serious disturbance in the economy of a Member State." This aid has to be applied restrictively and must tackle a disturbance in the entire economy of the Member State according to the interpretation of the Article 87(3)(b) by the Court of First Instance.
The Commission referred to its Communication on the financial crisis and concludes that the Measure complies with the conditions laid therein. Therefore, despite the measure constituting State aid pursuant to the Article 87(1) EC, it is compatible with the Common Market according to the Article 87(3)(b) EC Treaty. The Commission raises no objections against the measure at issue and authorizes it as emergency intervention in the face of the current financial crisis. (par. 52-73 of the letter).

Multiple (8) prolongations of the the Spanish Guarantee Scheme for credit institutions - State aid N336/2009, N588/2009, N263/2010, N530/2010, SA.32990, SA. 34224, SA.34904 and SA.36020
From March 2009 untilDecember 2012, Spain notified to the Commission eight requests to prolong the Scheme for an additional period of six months, which led to its exension until 30 June 2013. Reasons for prolongations of the scheme advanced by Spanish authorities were first justified by the fact that market funding was still affected by the international financial crisis and, more specifically, by the sovereign debt crisis experienced throughout 2010 and 2011. (par. 16 of the letter from the EC to Spain - Brussels, 1.6.2011C(2011) 3832)
Regarding the sixth extention, it has been justified by the fact that: "'...' the Spanish authorities note that a significant amount of the securities issued under the Original Scheme will mature in 2012. Therefore, the Spanish authorities find it necessary to reintroduce the Scheme as a way to assure that the Beneficiaries have access to funding so that they can promote credit to the private sector in the coming months." (par. 26 of the letter from the EC to Spain - Brussels, 9.2.2012 C(2012) 786 final.)
Regarding the final extension, the EC reconfirms the trade distortions by stating that: 'Under the scheme, participating financial institutions obtain guarantees under conditions which would not be available to them under market conditions, and so receive an advantage. Given the characteristics of the financial sector, any advantage from State resources to a financial institution affects intra-Union trade and therefore threatens to distort competition. ' (par. 27 of the letter from the EC to Spain, Brussels 6 February 2013)
Regarding the prolongations, the EC decided not to raise 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.



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