First Home Programme Starts On The Wrong Foot European Commission Considers Investigation

ANA Săbiescu

The State-driven First Home programme designed to help Romanians take mortgage loans and stimulate the recovery of the construction and real estate markets has prompted the European Commission to start considering whether it may be a form of State aid or a breach of fair competition regulations. As a first step, the Commission has asked the Romanian authorities to provide details regarding the First Home programme to verify compliance with the European Union regulations on competition, according to an announcement by Jonathan Todd, European Commission Spokesperson in charge of Competition.

Prime Minister Emil Boc said the Government had based the First Home programme on the system of State guarantees as defined by the State Budget Law, in full compliance with the European Union regulations. In turn, the National Guarantee Fund, a State-run institution empowered to issue State guarantees for mortgage loans under the programme, responded that the Romanian Competition Council had been consulted prior to the start of the programme and had found no irregularity. Therefore, in the Fund"s view, it is the Competition Council that should answer before the Commission.

"Personally I do not think there are any competition issues about the programme. We did study the documentation on Competition and consulted the Competition Council before we even started the programme. The Council assured us that everything was compliant with the regulations. We did not discriminate among citizens or the types of homes, be they newly built by developers or pre-existing. I am not aware of additional regulations for individuals, but that does not mean they do not exist. I repeat, personally, I do not think there are any problems," said Aurel Saramet, President of the National Credit Guarantee Fund for Small- and Medium-Sized Enterprises, when asked by BURSA to comment on the Commission"s interest in the First Home programme.

Bogdan Chiritoiu, President of the Competition Council, explained that "the Commission is requesting a general presentation of the First Home programme in order to conduct a preliminary analysis for compliance with the regulations on State aid, as the Commission is the only authority competent to pass judgement in this respect." According to him the programme contains measures designed to help Romanians buy their first home and help the market overcome the banks" reluctance to issue new loans and the cash shortage caused by the economic crisis.

"Additionally, the State guarantee will enable people to take mortgage loans with a much smaller advance payments. Specifically, the advance payment will decrease from the regular 30-50% to only 5% for the loans taken under this programme. Also due to the State guarantee, the interest rate will decrease from the current 10-12% to less than 6%, which will bring the overall cost of the interest rate down by 42-49%," said the president of the Competition Council, concluding that "the First Home programme is non-discriminatory, time-limited and strongly socially-oriented."

His deputy, Alexe Gavrila, Vice President of the

Competition Council, further told BURSA that the terms and conditions of the First Home programme had been endorsed by the plenum of the Council but "it is possible that someone interested in the matter, a player on the concerned market, may have complained to the European Commission," being discontent with certain aspects. "We have analyzed the programme, had several rounds of talks with the Government and came to a formula we accepted. I do not expect any problems," Gavrila said.

The Commission"s spokesman did not offer further details about the verification but, if the First Home programme turns out to be in violation of EU regulations on competition and State aid, the Commission can start an infringement procedure. The Commission can also refer the case to the European Court of Justice, which can impose financial penalties on Romania.

The president of the Competition Council further stressed that the Council had performed all necessary verifications to ensure the observance of European law and Romanian law. The Council will answer the European Commission"s request in the near future, as no deadline was imposed.