Court of Justice of the European Communities (including Court of First Instance Decisions)

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1. Aid granted by States - Concept - Aid granted through the intermediary of a state-controlled body - Inclusion (EEC Treaty, Art. 92(1))
2. Aid granted by States - Concept - Financial assistance granted to an undertaking by a Member State - Assessment criterion - Reasonable nature of the operation for a private investor pursuing a medium or long-term policy (EEC Treaty, Art. 92(1))
3. Aid granted by States - Effect on trade between Member States - Impairment of competition - Aid granted to an undertaking operating in a sector where there is surplus production capacity and effective competition (EEC Treaty, Art. 92(1))
4. Aid granted by States - Recovery of unlawful aid - Obligation flowing from the unlawful nature of the aid (EEC Treaty, Art. 93(2))

1. In order to determine whether aid may be regarded as State aid within the meaning of Article 92(1) of the Treaty, no distinction should be drawn between cases where aid is granted directly by the State and cases where it is granted by public or private bodies established or appointed by the State to administer the aid.
2. In order to determine whether intervention by the public authorities in the capital of an undertaking, in whatever form, may constitute State aid within the meaning of Article 92 of the Treaty, it is necessary to consider whether in similar circumstances a private investor of a size comparable to that of the bodies administering the public sector might have provided capital of such an amount.
Although the conduct of a private investor with which the intervention of the public investor pursuing economic policy aims must be compared need not be the conduct of an ordinary investor laying out capital with a view to realizing a profit in the relatively short term, it must at least be the conduct of a private holding company or a private group of undertakings pursuing a structural policy - whether general or sectoral - and guided by prospects of profitability in the longer term.
3. Where an undertaking operates in a sector in which there is surplus production capacity and producers from various Member States compete, any aid which it may receive from the public authorities is liable to affect trade between the Member States and impair competition, inasmuch as its continuing presence on the market prevents competitors from other Member States from increasing their market share and reduces their chances of increasing their exports to that Member State.
4. The obligation to recover State aid declared unlawful is the logical consequence of a finding by the Commission that it is unlawful.

In Case C-305/89,
Italian Republic, represented by Luigi Ferrari Bravo, head of the Legal Department of the Ministry for Foreign Affairs, acting as Agent, assisted by Ivo Braguglia, Avvocato dello Stato, with an address for service in Luxembourg at the Italian Embassy, 5 Rue Marie-Adélaďde,
applicant,
v
Commission of the European Communities, represented by Antonino Abate, Legal Adviser, acting as Agent, with an address for service in Luxembourg at the office of Guido Berardis, a member of its Legal Department, Wagner Centre, Kirchberg,
defendant,
APPLICATION for the annulment of Commission Decision 89/661/EEC of 31 May 1989 concerning aid provided by the Italian Government to Alfa Romeo, an undertaking in the motor vehicle sector (Official Journal 1989 L 394, p. 9),
THE COURT,
composed of: O. Due, President, G.F. Mancini, T.F. O' Higgins, G.C. Moitinho de Almeida and G.C. Rodríguez Iglesias (Presidents of Chambers), Sir Gordon Slynn, C.N. Kakouris, R. Joliet, F.A. Schockweiler, F. Grévisse and M. Zuleeg, Judges,
Advocate General: W. Van Gerven.
Registrar: J.A. Pompe, Deputy Registrar,
having regard to the Report for the Hearing,
after hearing oral argument on behalf of the parties at the hearing on 20 November 1990,
after hearing the Opinion of the Advocate General delivered at the sitting on 10 January 1991,
gives the following
Judgment

1 By application lodged at the Court Registry on 5 October 1989, the Italian Republic brought an action under the first paragraph of Article 173 of the EEC Treaty for the annulment of Commission Decision 89/661/EEC of 31 May 1989 concerning aid provided by the Italian Government to Alfa Romeo, an undertaking in the motor vehicle sector (Official Journal 1989 L 394, p. 9).
2 According to Article 1 of that decision,
"The aid in the form of capital contributions totalling Lit 615,1 billion awarded by the Italian Government through public holding companies IRI and Finmeccanica to Alfa Romeo is unlawful and therefore incompatible with the common market within the meaning of Article 92(1) of the EEC Treaty because it was provided in contravention of the rules of procedure laid down in Article 93(3). The aid is also incompatible because it does not satisfy the conditions for exemption provided for in Article 92(3)."
3 Under the first paragraph of Article 2 of the Decision,
"The Italian Government is hereby required to recover the aid referred to in Article 1 from Finmeccanica within two months from the date of notification of this Decision."
4 In the preamble to the contested decision the Commission states that Alfa Romeo, which is the second-largest Italian car manufacturer and forms part of the public holding company IRI (Istituto per la Ricostruzione Industriale, hereinafter referred to as "IRI"), accumulated losses steadily over the 14 years following the first oil crisis of 1973/74. The 10-year strategic plan adopted in 1980 proved to be ineffective and had to be revised at the end of 1983 and the beginning of 1984; Alfa Romeo' s financial results nevertheless deteriorated drastically during the years 1984 and 1985. A new three-year investment plan adopted in 1984/85 did nothing to resolve the basic structural problems of the company, surplus production capacity and high production costs and overheads.
5 In reply to a request from the Commission for information the Italian Government confirmed in November 1986 that in 1985 a sum of Lit 262.2 thousand million had been allocated to Alfa Romeo by Finmeccanica and IRI for the purpose of covering losses incurred in 1984 and the first half of 1985. The funds came from budgetary allocations made to the bodies administering State shareholdings - including IRI - pursuant to Law No 887/84 of 22 December 1984, the 1985 budget (Gazzetta Ufficiale della Repubblica Italiana 1984 No 365, ordinary supplement), and their distribution was the subject of a decision by the Comitato Interministeriale per la Programmazione Economica (Interministerial Committee for Economic Planning) of 3 April 1985 (Gazzetta Ufficiale 1985 No 163).
6 On 29 July 1987 the Commission initiated the procedure under Article 93(2) of the EEC Treaty. In the course of the procedure it found that an additional capital provision of Lit 408.9 thousand million had been granted to Alfa Romeo by Finmeccanica in 1986. The funds came from bonds issued by IRI pursuant to Decree Law No 547/85 of 19 October 1985 (Gazzetta Ufficiale 1985 No 248), converted into statute by Law No 749 of 20 December 1985 (Gazzetta Ufficiale 1985 No 299), which permitted public bodies, including IRI, to issue bonds bearing interest paid by the State, the proceeds from which were allocated by the Interministerial Committee on 28 November 1985 (Gazzetta Ufficiale 1986 No 6) and on the basis of Law No 41/86 of 28 February 1986, the 1986 budget (Gazzetta Ufficiale 1986 No 49, ordinary supplement No 1).
7 On 10 May 1988 the Commission extended the procedure initiated in 1987 to the aid granted in the form of that second injection of capital.
8 In November 1986 the negotiations initiated at the beginning of that year to transfer the motor-vehicle business of the Alfa Romeo group to another vehicle manufacturer culminated in an agreement of sale between Finmeccanica and Fiat whereby all the assets of Alfa Romeo were transferred to Fiat for a total of Lit 1 024.6 thousand million. Through a new subsidiary, Alfa-Lancia, Fiat assumed the financial liabilities of the former Alfa Romeo up to an amount of Lit 700 thousand million. The remaining assets and liabilities not taken over by Fiat were transferred to Finmeccanica.
9 Reference is made to the Report for the Hearing for a fuller account of the facts of the case, the course of the procedure and the pleas in law and arguments of the parties, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court.
10 In seeking the annulment of the decision the Italian Republic raises a number of pleas alleging that there was no State aid within the meaning of Article 92(1) of the Treaty. In the alternative, it raises various pleas alleging that the Commission' s conduct was unlawful and that the aid was compatible with the common market. Lastly, the Italian Republic criticizes the fact that Finmeccanica was required to repay the aid.
Pleas alleging that there was no State aid adversely affecting competition within the meaning of Article 92(1) of the Treaty
11 The Italian Republic puts forward three pleas alleging that the injections of capital were not undertaken by the State, that they were consistent with the normal behaviour of a private investor and that they did not adversely affect competition within the Community.
12 In the first place, the Italian Republic claims that the Commission is wrong in considering the injections of capital at issue to be State aid when in fact they were the result of independent business decisions taken by IRI or Finmeccanica. In particular, the applicant maintains that the Commission has failed to demonstrate that the financial allocations made by the State to IRI, contained in legislative measures, were used to provide the capital.
13 As the Court has consistently held (see in particular the judgment in Joined Cases 67, 68 and 70/85, Van der Kooy v Commission [1988] ECR 219, paragraph 35) no distinction should be drawn between cases where aid is granted directly by the State and cases where it is granted by public or private bodies established or appointed by the State to administer the aid. In the present case, there is considerable evidence in the documents before the Court that the injections of capital were the result of action attributable to the Italian State.
14 According to Legislative Decree No 51 of 12 February 1948 laying down the new statutes of IRI (Gazzetta Ufficiale 1948 No 44), ratified by Law No 561 of 17 April 1956 (Gazzetta Ufficiale 1956 No 156), the Italian State gave IRI a capital fund, and IRI controls the capital of Finmeccanica. Furthermore, the Italian Government appoints the members of IRI' s management board, which in turn appoints the members of Finmeccanica' s management board. Lastly, although IRI is required to operate in accordance with economic criteria, it does not have full freedom of action, since it must take account of directives issued by the Interministerial Committee for Economic Planning. Taken as a whole, those factors show that IRI and Finmeccanica act, in essence, under the control of the Italian State.
15 Even if the capital funds allocated to IRI or Finmeccanica were not specifically used for the injections of capital in question, there can be no doubt that that capital came from public funds intended for economic intervention.
16 Those findings are sufficient to show that the contested injections of capital are the result of action on the part of the Italian State and therefore qualifies as "aid granted by a Member State" under Article 92(1) of the Treaty.
17 In the second place, the Italian Republic complains that the Commission has not stated why a private investor would not have provided the capital in question, regard being had to the special features of the sector concerned and the investments involved. In a mixed economy, the allocation of funds by the State to bodies managing the public sector is of course an economic policy decision, but intervention by bodies such as IRI or companies such as Finmeccanica is guided by considerations of long-term profitability, in the light of the special features of the sector. In describing the injections of capital as State aid simply because the funds come from public resources, the Commission has thus infringed Article 222 of the EEC Treaty.
18 It should be pointed out in this connection that, according to settled case-law, investment by the public authorities in the capital of undertakings, in whatever form, may constitute State aid where the conditions set out in Article 92 are fulfilled.
19 In order to determine whether such measures are in the nature of State aid, it is necessary to consider whether in similar circumstances a private investor of a size comparable to that of the bodies administering the public sector might have provided capital of such an amount.
20 It should be added that although the conduct of a private investor with which the intervention of the public investor pursuing economic policy aims must be compared need not be the conduct of an ordinary investor laying out capital with a view to realizing a profit in the relatively short term, it must at least be the conduct of a private holding company or a private group of undertakings pursuing a structural policy - whether general or sectorial - and guided by prospects of profitability in the longer term.
21 In this case, the documents before the Court show that Alfa Romeo has, since the first oil crisis in 1973/74, incurred continual operating losses totalling Lit 1 084.5 thousand million between 1979 and 1986, owing largely to surplus production capacity and excessive production costs. In the light of the deterioration in Alfa Romeo' s financial results in 1984 and 1985 - a rapid increase in losses, deteriorating net debt and negative cash flow - the Commission was entitled to conclude that a private investor, even one operating at the scale of a group in a broader economic context, could not, in the normal circumstances of a market economy and even in the longer term, have expected an acceptable return on the capital invested, which by 1986 had reached a total of Lit 1 387.5 thousand million.
22 The Italian Republic cannot reasonably maintain that the injections of capital were linked to the implementation of a plan for restructuring the undertaking, since the 10-year investment plan adopted in 1980 had proved inadequate, despite revision in 1983/84, to remedy Alfa Romeo' s financial situation at the time when the contested injections of capital were made. Since there was no genuine restructuring plan including provision for reduction of the surplus production capacity to be found throughout the motor vehicle sector, for an improvement in the productivity of existing capacity and for a significant cut in production costs, the Commission could legitimately take the view that the injections of capital were intended simply to wipe out the debts of the recipient undertaking so as to ensure its survival.
23 In those circumstances the Commission was entitled to consider that a private investor, even one pursuing a comprehensive long-term policy without regard to immediate returns, would not, in the normal circumstances of a market economy, have made the injections of capital carried out by Finmeccanica; it was thus entitled to regard them as State aid.
24 Similarly, in regarding the provision of capital to Alfa Romeo by the Italian State, acting through IRI, a public body and Finmeccanica, a company, as aid incompatible with the common market, the Commission did not contravene Article 222 of the Treaty, under which that Treaty may in no way prejudice the rules in Member States governing the system of property ownership. By treating, in those circumstances, the injections of capital carried out by a public body as aid incompatible with the common market, the Commission has in no way encroached on the rules governing property ownership and has merely given identical treatment to public and private owners of an undertaking.
25 Finally, the Italian Republic argues that the provision of capital did not adversely affect competition within the Community. It claims that Alfa Romeo' s share in the European market was marginal and that the contested intervention did not lead to any reduction in the market share of competing undertakings.
26 In that connection it should be observed that where an undertaking operates in a sector in which there is surplus production capacity and producers from various Member States compete, any aid which it may receive from the public authorities is liable to affect trade between the Member States and impair competition, inasmuch as its continuing presence on the market prevents competitors from increasing their market share and reduces their chances of increasing exports. It is sufficient to note that, on the Italian market alone, Alfa Romeo' s share was 14.6% in 1986.
27 It follows from the foregoing that the contested injections of capital were liable to affect competition within the Community.
28 Accordingly, the main pleas in law put forward by the Italian Republic, alleging that there was no State aid adversely affecting competition within the meaning of Article 92(1) of the Treaty, must be rejected.
Pleas alleging that the conduct of the Commission was unlawful
29 With regard to the allegedly unlawful conduct of the Commission, the Italian Republic argues that the Commission refrained from taking action for a long period, infringed the principle of equal treatment and failed to give reasons for the contested decision.
30 As regards the complaint that the Commission did not initiate the procedure under Article 93(2) of the Treaty until July 1987, although the budget making provision for budgetary allocations to IRI had been adopted in 1984, it must be noted that, as the Commission has rightly explained in the course of the procedure, the delays were due to the conduct of the Italian Republic, which did not notify the aid whilst it was still in draft form and did not cooperate actively during the administrative inquiry. This complaint cannot therefore be upheld.
31 The same is true of the complaint that the position taken by the Commission in this case is contrary to the position it has adopted with regard to similar measures in the context of the ECSC. As the Commission observes, the arguments relating to the ECSC Treaty are irrelevant in the context of Articles 92 and 93 of the EEC Treaty. In any event, the Italian Republic did not invoke the special procedural rules governing aid for ECSC conversion zones.
32 As for the complaint that the Commission infringed the principle of equal treatment by declaring the aid to Alfa Romeo illegal whilst declaring aid granted to other European vehicle manufacturers to be compatible with the common market, it is clear from the documents before the Court that in the cases to which the Italian Republic has referred the Commission took into account the existence of restructuring programmes involving large reductions in production capacity, which were proportionate to the amount of aid. In the absence of any such restructuring plan at Alfa Romeo, guaranteeing that its business would in future be subject to normal conditions of competition, the Commission, in its economic assessment of the compatibility of the aid with the common market, did not contravene the principle of equal treatment.
33 Similarly, the plea that no reasons were stated for the contested decision must be rejected, since the preamble to the decision contains a detailed account of the grounds on which the Commission decided that the injections of capital in question constituted aid incompatible with the common market.
Pleas alleging that the aid was compatible with the common market
34 The Italian Republic further argues that the contested aid is compatible with the common market inasmuch as it is linked to a restructuring plan and meets the criteria in Article 92(3)(a) and (c) of the Treaty.
35 As regards the complaint that the Commission did not regard the injections of capital as ancillary aid directed at the restructuring and sale of Alfa Romeo, it must be noted that, as the Commission rightly contended, those injections of capital constituted rescue aid which did not satisfy the conditions set out in the Commission' s communication to the Member States of 24 January 1979, largely because they were not linked to a restructuring programme. As regards the argument that there was a link between the injections of capital and the subsequent takeover and restructuring of Alfa Romeo by Fiat, it need simply be stated that it is unfounded since the capital was provided independently of any projected takeover or restructuring plan.
36 The Italian Republic further claims that the aid falls within Article 92(3)(a), because it is intended to promote the economic development of an area - the Mezzogiorno - where there is serious underemployment, or within Article 92(3)(c), because it is intended to facilitate the development of certain economic activities or of certain economic areas. The submission must be rejected, since, as the Commission rightly pointed out in the contested decision, the disputed injections of capital constituted rescue aid which, in the absence of a genuine restructuring plan, could not bring about the lasting development of regions where there was serious underemployment or of specific economic activities or economic areas.
37 Consequently the Italian Republic' s alternative pleas in law, alleging that the Commission' s conduct was unlawful and that the aid was compatible with the common market, must also be rejected.
The repayment of the contested aid
38 The Italian Republic submits that Article 93(2) of the Treaty does not require repayment of aid but, at most, permits the Commission to impose that penalty provided that it gives reasons for doing so and shows that it is necessary to restore the market situation. In this case the obligation imposed on Finmeccanica to repay the aid does not state the reasons on which it is based and cannot serve to restore stability to the market.
39 The complaint that no reasons were stated is unfounded. In Section XI of the preamble to the contested decision the Commission sets out in detail the grounds on which it decided to demand the recovery of the aid from Finmeccanica, as the legal entity liable for the debts of Alfa Romeo exceeding the liabilities taken over by Fiat and as the beneficiary of all the proceeds of the sale of its assets.
40 As regards the argument of the Italian Republic that the obligation to repay the aid should not be borne by Finmeccanica, which had transferred the undertaking to an economic agent in the private sector, it is sufficient to note that Finmeccanica, as the holding company to which Alfa Romeo belonged at the material time, must be regarded as the recipient of the contested aid. As such, it is therefore required to repay that aid.
41 As for the argument that recovery of the aid can no longer restore stability to the market, it must be reiterated that, as the Court has consistently held (see most recently the judgment in Case 142/87, Belgium v Commission [1990] ECR 959, paragraph 66), recovery of unlawful aid is the logical consequence of the finding that it is unlawful.
42 It follows from the foregoing that the plea that the obligation imposed on Finmeccanica to repay the contested aid is illegal must also be rejected.
43 Since none of the pleas put forward by the Italian Republic have been upheld, its application must be dismissed in its entirety.

Costs
44 Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs. Since the Italian Republic has been unsuccessful, it must be ordered to pay the costs.

On those grounds,
THE COURT
hereby:
(1) Dismisses the application;
(2) Orders the Italian Republic to pay the costs.