EU commission faces flak over WestLB stance

NICE, France, Sept 12 (Reuters) - The European Commission came under fire on Friday for resisting restructuring plans for German state bank WestLB.

European Competition Commissioner Neelie Kroes told a German newspaper earlier this month the WestLB WDLGgi.F[WDLG.UL] restructuring plan was unacceptable. Her spokesman subsequently said the plan failed meet the Commission's requirements.

The Commission’s stance was viewed critically by some European Union states in the light of the crisis in the banking sector, Austrian state secretary for finance, Christoph Matznetter said.

“The EU should take a broader view,” he told reporters on the margins of a meeting of EU finance officials in Nice, France.

German Finance Minister Peer Steinbrueck had on Thursday accused Kroes of harming WestLB by publically dismissing the restructuring plan in the middle of the review process.

Brussels is currently assessing the plan submitted by WestLB, in which the North Rhine-Westphalia state has a 38 percent stake, with local savings banks owning the rest.

The bank had to be protected by 5 billion euros ($7.15 billion) in public-sector guarantees after risky investments it made turned sour in the global financial market crisis.

The Commission approved the public-sector protection as part of a rescue plan and must now approve the restructuring to ensure competition between WestLB and other banks is not distorted.

The Commission has been pushing for a partial privatisation or merger of the lender with another of the country’s regional wholesale banks in return for approving state aid for restructuring.

Those critical of the EU executive said it should be more flexible to help a sector that has been hard hit by global financial market turmoil and the credit crunch.

Diplomats said EU finance ministers meeting in Nice urged more flexible use of state aid for the banking sector.

“That could have serious effects on financial stability,” one EU diplomat said of the Commission’s dismissal of the WestLB plan.

Jonathan Todd, spokesman for Kroes, said: “The Commission will continue to apply the state aid rules to the banking sector on an even handed basis with a view to ensuring the viability and stability of the financial system.” (Reporting by Ilona Wissenbach and Huw Jones, writing by Paul Carrel, editing by Swaha Pattanaik)