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Brussels blocks French bank bail-out

Business Materials 29 November 2008 05:23 (UTC +04:00)

The European Commission is blocking the French government's plan to bail out its six largest banks by insisting that state funds can not be used for commercial lending, Britain's Financial Times reported Friday on its website, dpa reported.

According to the report, EU Competition Commissioner Nellie Kroes has rejected pleas by French Finance Minister Christine Lagarde to approve the French 10.5-billion-euro (13.3-billion-dollar) plan.

The Financial Times quoted an unnamed EU official as saying, "We have to apply the same criteria to everyone ... support should be sufficient to offset the negative impact of the current financial crisis and no more."

Kroes is objecting to the fact that French state funds would be used to increase the banks' lending books.

In the French plan, the government would subscribe to subordinated five-year debt issued by the six banks. In exchange, the French banks committed themselves to increasing their loans to individuals and companies by 3 to 4 per cent in 2009.

Lagarde said at the time that "if market tensions persist" another 10.5 billion euros would be allocated to the banks for 2009.

A senior French government official was quoted as calling the Brussels decision "ridiculous" and "stupid" because it would produce the result that the aid was intended to prevent - the squeezing of credit to households and businesses.

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