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5 Eur. Competition J. 1 (2009)

handle is hein.journals/eurcompet5 and id is 1 raw text is: European Competition Journal THE CURRENT FINANCIAL CRISIS AND STATE AID IN THE EU ABEL M MATEUS A. INTRODUCTION We are in the middle of the worst financial and economic crisis since the Great Depression. We argue that an aggressive and timely state aid and intervention is required. The European Commission has acted on the measures notified by the Member States in a fast and adequate manner, and has issued a generally appropriate guidance, according to a cost-benefit analysis. But this was the response to the first wave of the crisis. We argue that bank guarantees and recapitalisation may not be enough to re-launch economic activity and some economies may require the cleaning-up of bad debts, which needs a revision of the guidelines. All the major developed economies are expected to have a negative GDP growth rate in 2009, with a slow recovery in the second half of 2010. The US has already been in recession since the end of 2007, and unemployment rates may well reach close to 10% in the US and 12% in the euro area before the crisis is over. Equity prices have already registered the largest drop since the Great Depression, falling by 50% between the peak last year and current levels. The crisis, triggered by the burst of the real estate bubble in mid-2007,1 reached a serious stage in September 2008, when the financial systems of the US and Europe seemed on the brink of collapse. After this first wave, the decrease in housing and stock prices and the accumulation of losses in the financial sector led to a sharp fall in lending and a decrease in investment and consumer demand. The deterioration of the real economy will further deteriorate the balance sheets of banks and continue to feed into a vicious circle that will have to be reversed by appropriate monetary, fiscal and structural policies. * Visiting Professor at University College of London and British Institute of International and Competition Law. 1 There have been similar financial crisis in the last 50 years, namely the S&L crisis of the 1980s, the Nordic crisis of the early 1990s and the Japanese crisis of the 1990s. In all of them real estate bubbles played a major role. For a compilation of crisis and their characteristics see C Reinhart and K Rogoff. This Time is Different: a Panoramic View of Eight Centuries of Financial Crisis, mimeo, Harvard University (April 2008), available at http://www.economics.harvard.edu/ faculty/rogoff/RecentPapersRogoff (accessed December 2008). See also C Reihart and K Rogoff, The Aftermath of Financial Crisis (December 2008), at the same website. April 2009

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