Brussels backs French bank bailout plan

The European Union's executive on Monday gave its backing to a 10.5-billion-euro (13.4-billion-dollar) scheme for the French government to support troubled banks, officials said, according to dpa.

And the European Commission was tipped to approve within hours a much larger Austrian scheme after the bloc's executive updated its own state-aid rules, EU Competition Commissioner Neelie Kroes told reporters in Brussels.

"The French recapitalization scheme provides France with effective means of strengthening confidence on the markets and, above all, of financing the real economy, while at the same time establishing safeguards to limit distortions of competition," and therefore meets EU rules, Kroes said.

Moreover, after the commission on Friday adopted a new set of guidelines on state rescues for banks, the Brussels-based body "will shortly approve the Austrian scheme," Kroes said.

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

The French government priced the initial deal at 10.5 billion euros, with a further 10.5 billion held in reserve.

However, the commission, which is charged with overseeing the EU's strict competition rules, warned that the scheme did not initially have sufficient safeguards to make sure that the state intervention was limited and did not give the banks an unfair advantage.

The French government rewrote its proposal to meet those concerns, adding guarantees to limit the extent of its involvement and to make sure that the money would be used to stimulate the economy, not support bank expansion plans, a statement from Kroes' office said.

Also on Monday, Kroes hit back strongly at critics in some national capitals who had accused her of blocking their attempts to rescue their beleaguered financial sectors.

"I cannot accept every plan cobbled together on the back of a cocktail napkin and posted to Brussels ... (EU rules) should stop governments shooting themselves in the foot or their neighbours in the back," she said.

Later on Monday, the commission was set to approve an Austrian scheme of bank guarantees and cash injections worth up to 100 billion euros.

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