Report for the Hearing in Case C-261/89

I — Facts and written procedure

1. During the period 1983 to 1988, the Italian authorities drew up and presented to the Commission a reorganization and improvement plan for the State-owned aluminium industry. By letters of 14 December 1984 and 25 November 1985, the Commission of the European Communities initiated the procedure provided for in Article 93(2) of the Treaty with respect to the financial contributions envisaged by the said plan. The Italian Government submitted its comments on this procedure by letters of 12 March, 12 November and 21 November 1986, in the latter of which it undertook to reduce the financing provided for the undertakings in question by LIT 200000 million. By decision of 17 December 1986 the Commission found that the amendments made by the Italian Government related to the features on which it had expressed reservations and that the capital contributions from public funds had been reduced by LIT 200000 million, which brought the injections of capital between 1983 and 1986 to a total of LIT 989000 million. The Commission therefore decided to terminate the two procedures. However, it requested the Italian Government to provide no further aid in whatever form to the State-owned aluminium industry until the end of 1988 and asked the government to keep it informed annually of the payment of aid, investments and the restoration of economic and financial efficiency.

2. On 18 September 1987 the Italian authorities decided to authorize EFIM (the agency for holding shares in and financing manufacturing industries) to issue, at the expense of the State, a debenture loan of which LIT 100000 million would be allocated to financing investments in the undertakings Alumínia (LIT 70000 million) and Compagnia Sarda Alluminio, hereinafter referred to as ‘Comsal’ (LIT 30000 million). The Commission learned of this and sent the Italian Government a letter dated 27 October 1987 requesting to be notified of these financial measures under Article 93(3) of the Treaty. The Italian Government replied by letter of 29 March 1988 providing information about these measures. Having regard to this letter, the Commission took the view that the provision of LIT 100000 million to Alumínia and Comsal must be regarded as a State aid under Article 92(1) of the Treaty and initiated the procedure under Article 93(2) of the Treaty by letter of 28 September 1988, giving the Italian Government notice to submit its comments. These were provided by letters of 31 January and 7 March 1989. Finally, on 24 May 1989, the Commission took the decision terminating the procedure; Article 1 thereof provides: The Italian Government brought the present action against that decision.

‘The two aids in the form of interest-free loans to be converted into equity capital amounting to LIT 70000 million and LIT 30000 million, granted by the Italian Government to the undertakings Alumínia and Comsal, are incompatible with the common market within the meaning of Article 92(1) of the EEC Treaty given that these aids have been granted in breach of the provisions of Article 93(3) of that Treaty and of the conditions laid down in the Commission's decision of 17 December 1986.’

3. The application was lodged at the Court Registry on 17 August 1989. Upon hearing the report of the Judge-Rapporteur and the views of the Advocate General the Court decided to open the oral procedure without any preparatory inquiry.

II — Conclusions of the parties

4. The Italian Government claims that the Court should: (i) declare void the contested Commission decision of 24 May 1989; (ii) order the defendant to pay the costs. The Commission contends that the Court should: (i) dismiss as unfounded the application brought by the Italian Government against the decision taken by the Commission on 24 May 1989 in pursuance of Article 93(2) of the EEC Treaty; (ii) order the Italian Republic to pay the costs.

Ill — Pleas in law and arguments of the parties

5. The pleas in law and arguments of the parties centre on: (a) the fact that the financial measures at issue came within the LIT 989000 million ceiling authorized by the Commission; (b) the designation of the financial measures which are the subject of the contested decision as aids; (c) the Commission's failure to proceed to assess the compatibility of the financial measures with the common market in the context of the derogations set out in Article 92(3)(c).

(a) Conformity of the financial measures at issue with the ceiling of LIT 989000 million authorized by the Commission

6. The Italian Government takes the view that the ceiling of LIT 989000 million has been respected because, it states, the decision of 17 December 1986 approved the contributions paid to the aluminium sector until the end of 1985 and the financing for 1986 for the same sector amounting to LIT 200000 million. It alleges that MCS, the holding company in the aluminium sector, had benefited from financing during 1986-88 amounting to LIT 290900 million, but that in 1988 it had repaid loans for LIT 100000 million and that consequently it had received a total of LIT 190900 million. Contrary to the Commission's statement that when the decision was adopted, public contributions of capital amounting to LIT 989000 million had already been fully paid, the Italian Government claims that: (1) that statement contradicts the contested decision in which it is stated that the Commission decided to terminate the procedures initiated with regard to the aid which the Italian Government ‘had already granted or was proposing to grant’; (2) the technical note of 25 June 1986, on which the Commission bases its argument, nowhere mentions payments as having already been effected; (3) if, taking the figures which it supplied itself, the Commission managed to reconstitute a payment up to the end of 1986 amounting to LIT 974600 million, there would be a difference of 15000 million as compared with the total amount authorized, so that the Commission ought to have confined its complaint to LIT 85000 million of the total amount at issue. The Commission observes, to begin with, that the Italian Government's statement that it had respected the ceiling of LIT 989000 million is quite unfounded because: (1) it provides no evidence making it possible to check the basis of this argument; (2) the Commission never authorized Italy to make, in 1986-88, capital contributions amounting to LIT 200000 million in addition to the LIT 989000 million envisaged for 1983-86 in the decision of 17 December 1986, which provided that no further aid was to be granted until the end of 1988; (3) the aid at issue cannot be part of the amount of the aid authorized by the Commission, because that amount had already been fully paid when the decision of 17 December 1986 was adopted. Furthermore, the Commission takes the view that the Italian Government's designation of the contributions at issue as an integral part of the LIT 989000 million ceiling authorized by the Commission contradicts the statements of the Italian authorities themselves which are, chronologically, as follows: (1) the technical note drafted by the EFIM-MCS group, dated 24 June 1986: in the table appended to that note, public financing for 1983-85 amounting to LIT 828000 million is acknowledged. The addition of LIT 146600 million, representing the increase in capital for 1986, gives LIT 974600 million. (2) The record of the meeting held at Rome on 30 July 1986, during which the Italian representatives stated that, of the total amount of injections of capital envisaged, only some LIT 200000 million had not been paid to EFIM. (3) In its comments of 31 January 1989, submitted in the context of the procedure under Article 93(3), it is acknowledged that the EFIM-MSC group received, as new capital, after the contributions effected up to 1985 (829000 million), a total of LIT 284000 million. (4) The note of 27 March 1990 from the Ministero delle Participazioni Statali fully confirms the amounts of LIT 828000 million received during 1983-85 (under the title ‘Financial contributions actually received by the aluminium sector’), LIT 284000 million for 1986-88 and LIT 1112000 million in all for 1983-88. Next the Commission contests the Italian Government's arguments against its statement that the total amount of LIT 989000 million had already been paid when the decision of 17 December 1986 was adopted : (1) The aid which the Italian Government ‘intended to grant’, as referred to in the contested decision, is not the new capital ‘which the government had already paid’ but other aid authorized by the Commission and referred to in the contested decision. (2) The attempt to bring the amount of incompatible aid to be repaid to LIT 85000 million is not plausible and is contrary to the oral and written statements of the Italian authorities.

(b) The designation of the financial measures referred to in the contested decision as aid

7. According to the Italian Government, the Commission has not applied correctly the criterion for assessing the existence of an aid, which hinges upon a comparison between the attitude of the State and the attitude which would presumably be adopted in the situation in question by a private investor. In the contested decision the Commission takes into account only the losses and total indebtedness of Alumínia and Comsal during 1985-87, but it does not attach any importance to the fact that in 1988 Alumínia drew up its balance sheet showing a net profit, that Comsal has progressively reduced its losses until by 1988 they were reduced to less than 50% of those suffered in 1987 or that the contributions at issue were intended for carrying out specific projects of productive investment. The Italian Government takes the view that the criterion of the comparison of a public shareholder with a private investor, which is in itself an abstract and general concept, can produce a valid result only if it is applied in a non-formalistic way, taking into account all the circumstances which play a part in determining the choice of an appropriate attitude, particularly the management prospects of the two companies and the allocation of the capital committed. The Italian Government thinks that the Commission is incorrect in stating that the data known at the time an aid was granted should be taken as the basis for assessing the aid. It thinks that account must be taken of forecasts of the undertaking's future development prospects. Such data would by no means be neglected by a private investor when making his economic selection and moreover they are taken into account by the Commission in laying down, in general terms, the criterion for assessing aids, where reference is made to the performance forecast within a reasonable period. The Italian Government also rejects the criterion of the possibility of obtaining on the capital market the resources to effect new investments, as it does not ensure a correct application of the principle of equality between public and private undertakings. In fact a private undertaking belonging to a large group could count on the financial capacity of the group without resorting to the capital market.

8. First the Commission disagrees with the Italian Government's view that the purpose of financial measures may be taken as a criterion for preventing a financial measure from being designated as an aid. It points out that under the outline which it published in 1984, capital contributions must be regarded as a State aid where the undertaking's financial situation does not make it possible to expect a normal return within a reasonable period on the capital invested or where the undertaking is not in a position to obtain on the capital market the resources subscribed. The specific purpose of an aid is therefore a mere matter of form. The Court has never attached any importance to this point (Case 323/82 Intermitís [1984] ECR 3809). The Commission emphasizes that the Court has declared that the criterion of the private investor is correct (Case 234/84 Belgium v Commission [1986] ECR 2263; Case C-301/87 France v Commission [1990] ECR I-307; and Case C-142/87 Belgium v Commission [1990] ECR I-959) and has acknowledged the importance of the figures relating to financial losses, indebtedness and the possibilities of self-financing for an undertaking receiving an aid (Case C-301/87 [1990] ECR I-307 and Case C-142/87 [1990] ECR I-959 already cited). For this purpose the Commission stresses that any assessment of the aids at issue should be based on the economic and financial facts known at the time the aids were granted. In this way the Commission ensures equal treatment between States which comply with the duty to give prior notification of aids and those which neglect that duty. Otherwise the latter would be in a privileged position. The figures for 1958-87 show considerable losses and indebtedness.

(c) The Commission's failure to assess the compatibility of the financial measures with the common market, in particular having regard to Article 2(3)(c)

9. The Italian Government claims that it appears that the contested decision may be challenged on the ground that, having found that the financial measure at issue was a new aid not authorized by the decision of 17 December 1986, and being in any event required to consider the compatibility of that aid with the common market, the Commission based its decision on criteria quite different from those used for its decision on the ‘aluminium’ plan. In fact the contested measures come within the framework of the reorganization and rationalization of the production sector in question and are intended to be invested in production. In its decision of 17 December 1986 the Commission stated that the restructuring proposed by the ‘aluminium’ plan promoted the rationalization of the whole aluminium industry and that it was therefore ‘consistent with the objectives of Community policy’. It consequently took the view that the aid must be assessed in the light of Article 92(3)(c) of the Treaty. However, this point of view is completely overlooked in the contested decision, in which the Commission ought first to have resolved the question of the applicability to the measures in question of the criterion it had applied to measures of the same nature with regard to aims and to the economic sector. The Commission cannot shelter behind a suggestion that this obligation has lapsed owing to the purport of the decision of 17 December 1986, since the proper function of a decision which the Commission may adopt in pursuance of Article 93 of the Treaty is not to find that the obligations imposed by a prior decision have not been fulfilled; for such a finding the Commission should have applied directly to the Court under the second subparagraph of Article 93(2). The Italian Government next claims that the decision of 17 December contained a request, and not an order, to provide no further aid. According to the Italian Government, finally, the purport of that decision cannot be to lay down an absolute prohibition of future aid, based on a prior and irrevocable finding that such aid is incompatible with the common market; it must rather be assessed in relation to its purpose and to the economic and market situation at the time it is decided.

10. The Commission takes the view that by this argument the Italian authorities are attempting to question the decision of 17 December 1986, which, not having been challenged within the prescribed period, has become definitive. The Commission states, first, that the Italian Government has never requested or claimed, at the pre-litigation stage, that the aid at issue should qualify for one of the derogations laid down in Article 92(3), and has not provided any relevant information to that end. The Commission is therefore justified in concluding that it was entitled to terminate the procedure of reviewing the said aid and to adopt the final negative decision on the basis solely of the information available to it (see Case 234/84 Belgium v Commission [1986] ECR 2263, previously cited, Case 40/85 Commission v Belgium [1986] ECR 2321 and Case C-301/87 France v Commission [1990] ECR I-307, previously cited). Next it points out that the decision of 17 December 1986, being conditional rather than negative, did not need to be of the formal nature referred to in Article 189 of the Treaty but on the contrary took the form of a letter and was drawn up in customary diplomatic terms. Against this background, when the Commission requests a Member State to comply with the Treaty, it calls upon it to comply with its mandatory commitments. In this case the first of those commitments was that accepted by the Italian Government not to grant an amount of 200000 million. It was only after receiving and evaluating the commitment referred to that the Commission adopted the decision authorizing aid for a maximum of LIT 989000 million. The Commission emphasizes that, moreover, the situation of undertakings in receipt of the contested aid cannot be regarded as a new fact as regards the plan envisaged by the decision of 17 December 1986, because the two undertakings already belonged to the EFIM group at the time the plan was carried out. Their financial requirements must therefore have been known to the Italian authorities and should have been satisfied subject to the maximum authorized by the Commission, which the Italian authorities could not modify unilaterally. If the Italian authorities had contemplated new facts capable of altering the conditions imposed by the Commission, they should have informed the Commission in accordance with Article 93(2) and (3) following the interpretation of the judgment in Case 52/84 Commission v Belgium [1986] ECR 89. That does not imply that the decision of 17 December 1986 means that future aid is absolutely excluded but that to alter the conditions imposed by the said decision the institutional channels and the provisions of the Treaty must be respected. In the absence of any justification for altering the conditions laid down by the decision of 17 December 1986, the provision of aid in addition to that authorized by that decision, which has direct effect (see judgment in Case 77/72 Capolongo v Maya [1973] ECR 613) renders the aid in question incompatible with the common market, the concept of which involves also secondary legislation, that is, the decision of 17 December 1986 (see Case 47/69 France v Commmission [1970] ECR 487 and Case 74/76 /anelli & Volpi v Aleroni [1977] ECR 559). The failure to observe the conditions which the Commission attaches to the authorization of the aid therefore makes the authorization void and unjustified and is in itself a sufficient ground for establishing the incompatibility, as regards the substance, of any aid infringing them, in the absence at the appropriate time, of any factors capable of altering the conditions imposed.

G. C. Rodriguez Iglesias

Judge-Rapporteur

1 Language of the case: Italian.