EU probes Rock bailout plan

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Late last year, the EU authorised Britain to provide emergency aid for six months to the victim of the subprime crisis.

Since then, Britain has filed a long-term restructuring plan for Northern Rock that the European Commission will investigate to ensure it does not unduly distort trade.

Taxpayers have so far advanced subsidies of £55 billion to prop up Northern Rock.

Neelie Kroes, the EU competition chief, said a broad look at how the government plans to save Northern Rock was merited given the financial markets' turmoil, the sizeable aid that has been mobilised to save the bank "and the risks of distortion of competition" it may create.

"The commission needs to open a formal investigation into UK measures to restructure Northern Rock to ensure legal certainty," she said.

Northern Rock was nationalised in February after exposure to short-term money markets forced it to seek emergency funding from the Bank of England, leading to Britain's first bank run in more than a century.

"Rescue aid must be temporary and reversible," Ms Kroes said.

Under EU rules, if a government gives such aid for longer than six months, it must file a longer-term restructuring.

Britain filed such a plan on March 17. It provides for cutting the bank's lending and balance sheet and having it repay over time government and Bank of England loans and guarantees while rebuilding deposits.