(BRUSSELS) - State bailouts of shell-shocked banks should not give unfair advantages over rivals, Europe's top competition watchdog said Monday in new guidelines for the growing number of government-led rescues.

Desperate to contain the financial crisis raging across Europe, a growing number of governments are setting aside billions of euros to inject into ailing banks.

"EU state aid rules require that measures taken do not give rise to disproportionate distortions of competition," the European Commission said in a statement.

Governments have also called on the European Commission, which polices state aid in Europe to ensure it does not give unfair advantages, to show flexibility in reviewing bailouts.

The commission said that rescues should avoid "discriminating against financial institutions based in other member states" or "allowing beneficiary banks to unfairly attract new additional business."

It also said that rescues should be limited in time and should require the private sector to contribute.

Ireland angered its EU partners earlier this month when it offered an unlimited state guarantee for a wide range of liabilities, including deposits, held by the country's six biggest banks.

A number of other countries protested that it gave the Irish banks an unfair advantage because the guarantee was not open to foreign rivals operating in Ireland, prompting Dublin to tweak the package.

The commission said that for its part it would make a point of reviewing any state bailouts within 24 hours of being notified if possible.

"Support schemes such as guarantees or recapitalisation schemes can be cleared by the commission very quickly if they fulfil conditions which guarantee that they are well-targeted and proportionate," it said.

While often accused in the past of blocking crucial aid for failing firms, the commission has made a point of fast-tracking its state aid reviews for troubled banks and shown no intention of vetoing help for them.

Commission guidance on state aid for banks in crisis - briefing

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