The European Commission has approved a British scheme to encourage banks to provide new lending to businesses in the country, the commission said here on Tuesday.
The commission found that "the measure is an appropriate, necessary and proportionate" means of remedying a serious disturbance in the British economy.
In particular it is "non-discriminatory, limited in time (two years) and scope and requires a risk-based remuneration."
The commission therefore decided that it was compatible with the rules on state aid to remedy a serious disturbance in a member state's economy.
"I appreciate the design of the scheme to make it self-financing and thus to reduce any potential aid to the minimum and limit distortions of competition," EU Competition Commissioner Neelie Kroes said in a statement.
Under its Working Capital Guarantee Scheme, Britain will offer banks up to 10 billion pounds (about 14.5 billion U.S. dollars) of guarantees, which will cover half of their portfolios of working capital loans to sound credit worthy companies that have an annual turnover of up to 500 million pounds (726 million dollars).
The plan was meant to stimulate banks to lend to businesses as their are reducing credit in the context of the current global financial crisis. (1 U.S. dollar = 0.6897 euros)