THE EUROPEAN Commission must ensure banks reimburse state aid as soon as the financial sector has recovered, according to a report adopted by the European Parliament yesterday.

Introducing the report, Belgian MEP Derk Jan Epping said this reimbursement was important to ensure fair competition within the internal market.

He said EU member states had partly or entirely nationalised financial institutions with taxpayers’ money. “This will have to be unravelled. But once member states start withdrawing from financial institutions to restore their private status there is a danger that they will leave behind a dowry, a sort of wedding gift. Dowries may be used to prop up the position of financial institutions in the private market,” he said, adding this would be unfair.

Massive state aid to the banks, while preventing a meltdown of the financial sector and the wipeout of the savings and pensions of millions of Europeans, created distortion of competition, he said. “That is why it has to end as soon as possible.”

He said the EU in general was losing its competitiveness, as evidenced by latest figures for foreign direct investment. A UN report this week showed such investment in the EU dropped by 20 per cent last year but at the same time the US attracted 43 per cent more foreign investment than in 2009, while in Latin America it rose by 21 per cent and in Asia it rose by 10 per cent.

“And why is that? The money goes to where the action is. Apparently investors regard Europe as a continent of inaction, only generating poor growth figures.

EU enlargement commissioner Stefan Füle, standing in for EU competition commissioner Joaquín Almunia, said the commission would examine the effects of temporary state aid measures on competition during the financial crisis.