Global Trade Alert

On 29 May 2009 Latvia notified a request to prolong its guarantee scheme for banks in Latvia. The original guarantee scheme, notified on 16 December 2008, was approved by Commission decision of 22 December 2008 in State aid case N 638/2008.
 
The Original Scheme terminated on 30 June 2009. However, Latvia considered that the markets have not yet returned to normal functioning. Therefore, in order to restore confidence and encourage inter-bank lending, the Latvian authorities considered that the Scheme should stay in place as long as the disturbances in the financial markets persist. All other conditions as approved by the Commission on 22 December 2008 remain unchanged and Latvian confirms that all the commitments made in relation to the Original Scheme continue to apply. In particular, the authorities undertake to present every six months reports on the operation of the Scheme.
 
For the reasons indicated in the original decision, the Commission considered that the Scheme constitutes State aid within the meaning of Article 87(1) of the Treaty:
 
" The guarantee on the newly issued debt allows the beneficiaries to refinance at advantageous conditions and the guarantee on the existing debt will allow the respective banks to avoid possible bankruptcy proceedings. This gives an economic advantage to the beneficiaries and strengthens the position of these beneficiaries compared to that of their competitors in Latvia and other Member States and must therefore be regarded as distorting competition and affecting trade between Member States. The advantage is selective since it only benefits the beneficiaries of the scheme and is provided through State resources. In particular, the Commission is convinced that in the current circumstances of the financial crisis no private investor would have granted such a significant guarantee on debt of the participating banks." (par. 31-32 of the EC's letter to Latvia - Brussels, 22.12.2008 C(2008) 8951 final - State aid case N 638/2008 ).
 
The Commission concludes that the prolongation in question does not alter its previous assessment in the decision of 22 December 2008 in State aid case N 638/2008 that the measures under the Scheme are compatible with the common market. The Commission decided not to raise objections.

Update - Additional extensions N664/2009 & N223/2010
On 1 December 2009, Latvia notified a request to extend the scheme. The EC approved the request on 17 December 2009.
On 4 June 2010, Latvia notified a third extension until 31 December 2010. The EC approved the extension on 24 June 2010.
 
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.