Following close cooperation with the German authorities and the submission of a comprehensive set of commitments to ring-fence the application of the measures, the Commission found the scheme to be in line with its Guidance Communication on state aid to overcome the current financial crisis (see IP/08/1495). The package constitutes an adequate means to remedy a serious disturbance in the German economy while avoiding undue distortions of competition and is therefore compatible with Article 87.3.b. of the EC Treaty. In particular, the package provides for non discriminatory access, is limited in time and scope and foresees adequate safeguards to minimise distortions of competition.

Competition Commissioner Neelie Kroes said: “Thanks to extensive and fruitful cooperation between the German authorities and the Commission, the German rescue package is an efficient tool to boost market confidence, but at the same time is ring-fenced against abuses. I hope that other Member States will soon follow course.”

On 14 October 2008, the German authorities notified a package of measures intended to stabilise the financial markets and to address the malfunction of the interbank lending. After a series of exchanges and discussion with the Commission on the details of the implementation, they submitted on 27 October a list of commitments. These commitments address important issues raised by the Commission and aim at limiting distortions of competition.

The rescue package consists of:

• A recapitalisation scheme, making available new capital to banks and insurance companies in exchange for shares, to allow them to strengthen their balance sheets against possible losses;
• A guarantee scheme covering new issuances of short and medium term debt, in return for market-oriented remuneration, to support sound banks that are unable to access interbank funding and
• A temporary acquisition of assets under the condition that these assets are bought back after 36 months maximum without the state making a loss.

The adequacy of the recapitalisation is ensured by strict conditions such as a dividend ban and several behavioural commitments including limiting beneficiaries' future activities and capping managers' remunerations. The Commission also ensured that the state will receive proper remuneration for the preference shares it receives in exchange for a capital injection.

Finally, beneficiaries must maintain a high solvency ratio during the recapitalisation and submit a restructuring plan within six months of any recapitalisation.

The conditions of the guarantee scheme are in line with the state aid rules. The Commission considers the pricing of the guarantee to be adequate especially since specific behavioural conditions apply, limiting expansion and advertising of the state support.

The criteria for the temporary acquisition of assets are aligned on the rules of the guarantee scheme. In particular the state will take over the assets but not bear their risk, as the assets need to be bought back after 36 months maximum for essentially the initial sales price. Moreover, a minimum premium similar to that of the guarantee and the costs for the provision of liquidity must be paid by the beneficiary.

The Commission found the scheme and the commitments to constitute an appropriate means to restore confidence in the creditworthiness of German financial institutions and to stimulate interbank lending. It considered that the measures are well-designed and that interventions will be limited to what is necessary to achieve the recovery of the Germany financial sector.

Finally, Germany has made the commitment to renotify the scheme after six months and to report every six months to the Commission on the implementation of the scheme. This will enable the Commission to verify that the measures are not maintained when the financial crisis is over.