Bankers with long memories will remember when a sovereign guarantee from a less developed country was regarded as safe. Then came Mexico’s insolvency and the 1980s emerging-market-debt crisis. Now lenders to European borrowers are becoming vigilant – not because they are worried about borrowers’ incipient insolvency, but because of EU rules governing guarantees provided by member states or state-owned entities.
Under the EC treaty, anything which threatens to distort competition between member states is deemed to be incompatible with the common market.
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