EU squabbles over bank aid and recession response

By Ilona Wissenbach and Paul Carrel

BRUSSELS (Reuters) - Tensions over state support for banks surfaced as European Union finance ministers met on Tuesday to discuss how much money governments could mobilise to combat recession.

European Union Competition Commissioner Neelie Kroes, facing fierce pressure from member states to approve state aid to ailing banks, pledged after meeting the ministers that the EU executive would approve new rules shortly.

Kroes said in a statement that the Commission expected banks that received state aid to give commitments to lend to the real economy.

"The Commission will shortly adopt a communication giving detailed guidance on how to assess such recapitalisations under the state aid rules," she said.

However, the Commission separately announced that proposed German assistance for Commerzbank does not respect European Union rules on state aid.

"There is a regime for supporting banks which has been approved by us. However, the support for Commerzbank does not apparently respect the regime," spokesman Jonathan Todd said.

Germany had been in dispute for weeks with the Commission over whether state aid for Commerzbank complies with the terms of a German bank rescue fund the EU has approved.

German Finance Minister Peer Steinbrueck said earlier Berlin, Paris and other EU capitals were unhappy with the European Commission approach to vetting state aid to banks caught up in a worldwide financial markets crisis.