EU approves French bank rescue plans

(BRUSSELS) - The European Commission approved on Monday French plans for recapitalising embattled banks, which had caused frictions between Brussels and Paris.

The approval came after the commission revised its rules for approving state bailouts of banks after coming under fierce fire from member states last week for holding up vital rescues.

Paris has been waiting for weeks for Brussels to clear its plans to recapitalise its banks, with the commission eager for assurances that competition would not be distorted as a result of the bailouts.

The commission said that the latest version of the French plan would encourage French banks to limit their recourse to state funds to shore up their capital.

The French government has offered up to 40 billion euros (51.2 billion dollars) to banks, with 10.5 billion euros already set aside for the country's six biggest banks.

Earlier Monday, EU Competition Commissioner Neelie Kroes said that Austrian bank rescue plans were expected to be cleared shortly after revising the bank bailout rules.

Caving into pressure from EU governments, Europe's state aid watchdog made the bailout rules more flexible, requiring banks to pay a risk premium for public money based on their health rather than a fixed rate for all.

Kroes said she expected the German government to rejig its proposed bank rescue plans, which should pave the way for EU approval of a massive injection of state capital into Commerzbank.

Berlin has clashed with Brussels for going too slow in considering whether not to approve the aid to Commerzbank.