The European Commission is turning the European banking landscape into an enormous all-you-can-eat buffet for financial institutions in the United States and Asia, according to accounting giant KPMG. "They see all these nice little snacks laid out for them," says Marcel van den Broek, a Dutch consultant at the firm.

Van den Broek and Age Lindenbergh analysed the effects of state aid on European banks and draw one clear conclusion: "The aid was initially helpful and brought stability, but the actions the Commission took after that were too harsh," says Lindenbergh. "They have gone overboard, they are pulling down banks instead of helping them."

European banks have been more restricted after receiving state aid than their American counterparts. As a result of the European Commission's interference the European banking sector is now highly fragmented and weakened, the consultants say.

"Anglo-Saxon investors - mainly private equity firms such as Lone Star [a Texan company that was in the race to take over part of bankrupt DSB bank] - come to us for information on future bargains. They are mostly funds that specialise in managing credit portfolios," says Lindenbergh. The KPMG consultants fear this won't contribute to a strong banking industry desired by all, including the European Commission.

Something in return for the bailouts

Lindenbergh and Van den Broek's criticism counters the accolades antitrust commissioner Neelie Kroes has been getting for her handling of the banks. Kroes' directorate general has scrutinised the state aid for ING, KBC, Commerzbank, Lloyds, Royal Bank of Scotland and others who were thrown a lifeline by their governments. Her fans praise Kroes' approach because it helps restore competition between European banks.

"Banks think they are treated unfairly," Lindenbergh says. "It is obvious they have to do something in return for the bailouts. But at the time the banks received the support, it was completely unclear what the sanctions would be. They had to wait months to learn the consequences."

"The rules were only drawn up while the game had already started," Van den Broek adds.

The toughness of Kroes' policies has now become clear. ING, Commerzbank and WestLB, for example, have to divest 45 percent of their assets. That is out of proportion, according to the KPMG men. "The government interference is experienced as imperative," says Lindenbergh.

'Level playing field will be a long time coming'

Kroes does refer to existing EU treaties in her restructuring proposals, KMPG acknowledges, "but the way a company is finally broken up is subject to negotiations. There are no rules for that. The only similarity [between the different cases] is the measures are substantial and the part where the problems originated is usually hived off," Lindenbergh says, referring to ING subsidiary ING Direct USA.

Furthermore, the banks are not discharged of their obligations even when they repay the state aid. "The consequences of the reform plans from Brussels will weigh on the banks for years. ING can reimburse the bailout, but it will still be cut into pieces," the consultants say, adding this will distort the banking landscape for years to come.

Lindenbergh: "The European Commission stepped in to prevent state aid from distorting free competition, but as a result a level playing field will be a long time coming." KPMG says the Commission is too focused on small banks and not enough on the risks of its policies.

But despite their criticism towards Brussels, not a single bank has actively opposed the harsh measures. "They have not reported to us," says Van den Broek. But there is a logical explanation, he admits. A bank cannot file a case before the European Court; that is up to the member state where the bank has its headquarters. And although the banks feel disadvantaged, it is unlikely governments will act on their behalf right now. The damage done by the financial industry is too big to justify that.