Brussels to investigate “unfair state aid” to Portuguese banks

The EU is carrying out a detailed probe to see if four of the legendary ‘PIIGS’ – namely Portugal, Greece, Spain and Italy – have been illegally underwriting banks which have accumulated assets considered low-quality in the rest of the euro zone. The story, leaked this week by the Financial Times, “raises the spectre of another shock to Europe’s banks”. But this far Brussels is simply at the “conversations” stage, says the paper.

The FT adds that the Portuguese, Greek, Spanish and Italian governments have “all declined to comment” on the probe, which “would pose a severe challenge for southern European banking systems that are still struggling to cover from the eurozone crisis”.

Any withdrawal of government support for what a termed “deferred tax assets” could “dramatically weaken some banks’ capital buffers, explains the paper.