European Commission Extends ELG Scheme

Today the European Commission announced that they are allowing the government’s new guarantee scheme, the Eligible Liability Guarantee, to be extended from including securities issued before June 1 (i.e. tomorrow) to securities issued up to the end of June.

Now the fact that the Commission had only allowed the scheme to cover bonds issued before June 1 seems pretty clear from this press release announcing its original approval on November 20 last year. It says “The instruments guaranteed under the scheme may be issued from 1 December 2009 until 1 June 2010.”

I have to admit that until now I had thought the ELG scheme covered securities issued up to the end of September. For instance, here’s the Department of Finance’s press release welcoming the November 20 decision from the Commission. It describes the new guarantee as follows: “It will apply to certain liabilities (including deposits) incurred by participating institutions during the period up to 29 September 2010.”

And here’s an FAQ about the scheme issued after it came into operation in December. It also mentions 29 September 2010 as the date up to which securities could be issued and covered by the scheme. On the face of it, this seems at odds with the European Commission’s statement about the scheme. It is possible that this statement from the FAQ reconciles the apparent contradiction:

The ELG Scheme is therefore scheduled for review by the European Commission in June 2010 and the references to 29 September 2010 below must therefore be read in that context.

But strictly speaking, this doesn’t seem enough to fully reconcile the two sets of statements. Realistically, it seems to me that the correct interpretation of the scheme was that it applied to debt issued up to June 1, at which point the Commission could assess the scheme and potentially extend it. (Of course, we’re into angels-on-pins legalistic territory here and there may be some complex sense in which government and Commission statements on the scheme were, in fact, consistent.)

In any case, it certainly seems as though September 29 is the government’s preferred end-date for the ELG. In that sense, today’s one month extension may be a disappointment to them. Perhaps there’s another extension coming next month. It will also be interesting to see if any debt securities get issued under the scheme during this month.