European Commission investigates Northern Rock bailout

UK government’s Northern Rock aid package under EC investigation

BRUSSELS – The European Commission (EC) has launched an investigation of the UK government’s restructuring aid package for the nationalised bank Northern Rock. Under the terms of the EC Treaty’s rules on state aid, the Commission will investigate whether the UK government’s actions complied with limitations on aid and restructure packages, or broke rules on competition.

The aid measures carried out since the nationalisation of Northern Rock will continue until at least 2011 while the government’s restructuring plan is implemented. On March 17, 2008 the Commission received notification of the Northern Rock restructuring plan, the day after Northern Rock announced the measures it would be taking to reduce its government debt under the restructuring.

The Commission had already authorised, on December 5, the initial measures taken by the UK government on September 17 and October 9, 2007. The current investigation also authorises the UK government’s December 18 rescue measures.

Rescue aid must be temporary (limited to six months) and reversible, unless converted into a restructuring plan – although the rescue measures may remain in place while the Commission examines the plan. As well as the detailed restructuring plan, the Commission has asked the UK for additional information. The process also allows third parties to comment, to avoid undue distortion of competition.

The UK government has provided about £55 billion in aid and guarantees over the course of the Northern Rock bailout.

Effectiveness of DR plans questioned