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State Aid and the Financial Crisis - A Special View from Iceland

Þórarinsson, Jóhann Gunnar LU (2012) JAEM03 20121
Department of Law
Abstract
European State Aid Law is rapidly becoming one of the most important area of law within the European Union. Since the beginning of 1970 the Commission and the Court have had to deal with more and more State Aid cases as it grew in correspondence with its growth. There has not been an extensive work done on State Aid until this Millennium with the works of Kelyn Bacon and Mark Heidenhain right up there as one of the most detailed works done on the subject of State Aid. Notwithstanding, the current Financial Crisis has raised State Aid awareness through the roof now when nearly every government within the European Economic Area is applying for an exemption to the State Aid rules located in Article 107(1) TFEU and Article 61(1) of the EEA... (More)
European State Aid Law is rapidly becoming one of the most important area of law within the European Union. Since the beginning of 1970 the Commission and the Court have had to deal with more and more State Aid cases as it grew in correspondence with its growth. There has not been an extensive work done on State Aid until this Millennium with the works of Kelyn Bacon and Mark Heidenhain right up there as one of the most detailed works done on the subject of State Aid. Notwithstanding, the current Financial Crisis has raised State Aid awareness through the roof now when nearly every government within the European Economic Area is applying for an exemption to the State Aid rules located in Article 107(1) TFEU and Article 61(1) of the EEA Agreement. In fact, to see the growing value of State Aid rules one only needs to look at one number: 4506,47. In reality, that number says more than words ever could as it represents the total amount of State Aid granted in the Financial Crisis from the beginning of 2008 to the 30th of September in 2011 by the 27 EU Member States.
The thesis seeks to examine State Aid granted to the banks in the context of the Financial Crisis by the Commission and ESA. In order to sufficiently illustrate the importance of a closer examination of those State Measures one needs to have a basic understanding of the State Aid Rules. Thus, the author, will examine the conditions of State Aid located in Article 107(1) TFEU. In addition, the author will raise current controversial issues in applying the conditions at the Court when appropriate. Moreover, the Commission´s role will be further examined and the exemption power based in Article 107(3) that the Treaty expects them to fulfill. Then, gradually the author will move under the scope of ESA within the EFTA part of the European Economic Area and extensively discuss several decisions issued by ESA on the Icelandic Banks. The bad effects of the Financial Crisis really started in Iceland when the Big Icelandic Banks fell in a considerable short amount of time. Those banks held over 80% of the market and all required the Icelandic authorities to step in and rescue them. It had a huge effect on the Icelandic Economy as suddenly a debt free treasury had large amounts of debt with the currency plummeting at an alarming rate. What makes the situation even more remarkable is the unbelieveable amounts of debt that followed for the Icelandic authorities estimated at two or three times its GDP. In reality, because of the large amounts of debt that came with the banks Iceland could not go the more traditional way that existed in Europe at the time. Therefore, forcing them to take extra-ordinary measures to rescue and restructure the banks with the result being three new banks: Íslandsbanki, New Kaupthing and New Landsbankinn. (Less)
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@misc{2797137,
  abstract     = {European State Aid Law is rapidly becoming one of the most important area of law within the European Union. Since the beginning of 1970 the Commission and the Court have had to deal with more and more State Aid cases as it grew in correspondence with its growth. There has not been an extensive work done on State Aid until this Millennium with the works of Kelyn Bacon and Mark Heidenhain right up there as one of the most detailed works done on the subject of State Aid. Notwithstanding, the current Financial Crisis has raised State Aid awareness through the roof now when nearly every government within the European Economic Area is applying for an exemption to the State Aid rules located in Article 107(1) TFEU and Article 61(1) of the EEA Agreement. In fact, to see the growing value of State Aid rules one only needs to look at one number: 4506,47. In reality, that number says more than words ever could as it represents the total amount of State Aid granted in the Financial Crisis from the beginning of 2008 to the 30th of September in 2011 by the 27 EU Member States.
The thesis seeks to examine State Aid granted to the banks in the context of the Financial Crisis by the Commission and ESA. In order to sufficiently illustrate the importance of a closer examination of those State Measures one needs to have a basic understanding of the State Aid Rules. Thus, the author, will examine the conditions of State Aid located in Article 107(1) TFEU. In addition, the author will raise current controversial issues in applying the conditions at the Court when appropriate. Moreover, the Commission´s role will be further examined and the exemption power based in Article 107(3) that the Treaty expects them to fulfill. Then, gradually the author will move under the scope of ESA within the EFTA part of the European Economic Area and extensively discuss several decisions issued by ESA on the Icelandic Banks. The bad effects of the Financial Crisis really started in Iceland when the Big Icelandic Banks fell in a considerable short amount of time. Those banks held over 80% of the market and all required the Icelandic authorities to step in and rescue them. It had a huge effect on the Icelandic Economy as suddenly a debt free treasury had large amounts of debt with the currency plummeting at an alarming rate. What makes the situation even more remarkable is the unbelieveable amounts of debt that followed for the Icelandic authorities estimated at two or three times its GDP. In reality, because of the large amounts of debt that came with the banks Iceland could not go the more traditional way that existed in Europe at the time. Therefore, forcing them to take extra-ordinary measures to rescue and restructure the banks with the result being three new banks: Íslandsbanki, New Kaupthing and New Landsbankinn.},
  author       = {Þórarinsson, Jóhann Gunnar},
  keyword      = {"State Aid" "Financial Crisis" "107(1) TFEU" "61(1) EEA Agreement" "Banking Crisis" "EEA" "EFTA" "ESA" "Commission" "Soft Law and the Banking Crisis" "State Aid Exemptions" "Article 107(3)(b) TFEU" "Article 107(3)(c) TFEU" "Big Icelandic Banks" "ESA decisions on the Icelandic banks" "Big Icelandic Banks" "Glitnir bank" "Landsbankinn" "Kaupthing bank"},
  language     = {eng},
  note         = {Student Paper},
  title        = {State Aid and the Financial Crisis - A Special View from Iceland},
  year         = {2012},
}