While banks are being written massive cheques by the Government it is no surprise that in the past week we have had the motor manufacturers and the engineering employers starting to say, “Me too!”, Channel 4 and, no doubt, a host of others are also in the queue (or about to join it).

Whether this will present a resurgent political Left with the chance to seize the commanding heights of the economy remains to be seen. It certainly puts a whole new spin on the idea of state aid in the European Union. As Ross Denton, of Baker & McKenzie, said earlier this week: “For the past two decades state aid as an area of legal practice has been extremely small. Now it’s absolutely thriving.”

Although there has been little reference in the media to the involvement of the European Commission, its role in recent events has been critical. Lode Van Den Hende, of Herbert Smith, says: “The Commission has adopted a relatively light position on ‘state aid’ in financial services because of its systemic significance for the performance of the whole economy.”

In effect, what the Commission has managed to do is square the circle of maintaining the notion of a level playing field while individual European governments have been bailing out banks for all they are worth. Martin Hedemann-Robinson, of the University of Kent law school, points out that the basic ground rules and documentation for handling a crisis of this kind were laid down years ago and have actually worked well. “Under European Union rules it is necessary for governments to get permission from the European Commission first, before they intervene with support. And that is what the governments have been doing in the past couple of months.”

What has been very impressive is just how fast the Commission, in the form of Neelie Kroes, the Competition Commissioner, has moved in the face of the imminent crisis facing so many banks. “My usual experience of the commission is that it moves incredibly slowly but the speed in dealing with this crisis has been amazing,” said one lawyer who has been closely involved. Hedemann-Robinson added that the commission staff, under Kroes’s leadership had delivered, “a superb service”.

Sam Szlezinger, of Denton Wilde Sapte, says, though, that the incentives for the Commission to act flexibly have been considerable. “It does not want to be put in the position of being responsible for the collapse of leading banks at a time like this. So, instead, what it has done is produce a new set of rules which are, basically, a watereddown version of the old rules.”

In essence, the Commission has acknowledged publicly that in the present financial crisis a different code must be applied. Only last week, in fact, it adopted a recovery plan aimed at short-term measures to boost demand, save jobs and help to restore confidence, while also enabling “smart investment” to yield higher growth and sustainable prosperity in the longer term. In this context it also issued a consultative document on a “temporary framework” for state aid measures to support access to finance.

Even so it has been a delicately wrought set of approvals to enable the various bailouts to happen. Van Den Hende says that there are frequent disagreements between the Court of First Instance and the European Court of Justice on what constitutes permissible aid under EU regulations. The separate arrangements of “rescue” aid and “restructuring” aid that got the banks out of the immediate difficulties of the autumn and have helped to recapitalise them will be up for review in six months. “At that point it will be very interesting to see what the Commission decides to do,” Van Den Hende says. “I’m not sure how it will be able to judge the quality of the banks’ restructuring plans.”

In the (unlikely) event that the plans were judged to be unsatisfactory, a crisis could re-emerge. Kroes has said that it would be wrong to go back to the age of handouts but to allow a salvaged bank to slip away might be regarded as unacceptable.

By that stage, in any case, the battle lines may have opened up over keeping afloat industry in general. Here, lawyers are convinced that it will be much harder to budge the Commission. “Protecting jobs is not a reason to give state aid,” says Szlezinger — a statement that is likely to infuriate the trade unions. There are some exceptions, for example, for investment in research and development, small enterprises and environmentally friendly enterprises — but handouts to keep mainstream businesses alive are not likely to win commission approval.

This may lead to enormous tensions with the trade unions, especially if the new Obama regime decides to back America’s manufacturing industry. At that stage Europe could launch an attack on the US via the World Trade Organisation stage if it were felt that US subsidies to its manufacturers were putting European companies at a disadvantage. Yes, hold on to your wallets. It could get very rough.

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