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

(ERDF Reduction of financial assistance Change to the financing plan without the consent of the Commission Maximum rates of financing laid down for specific measures Concept of significant change Article 24 of Regulation (EEC) No 4253/88 Duty to state the reasons on which the decision is based Action for annulment)

In Case T-74/07,

Federal Republic of Germany, represented by M. Lumma and C. Blaschke, acting as Agents, assisted by C. von Donat, lawyer,

applicant,

Commission of the European Communities, represented by G. Wilms and L. Flynn, acting as Agents,

defendant,

ACTION for annulment of Commission Decision C(2006) 7271 final of 27 December 2006 on the reduction of the period of the financial contribution of the European Regional Development Fund (ERDF) granted to the Operational Programme under the Community initiative INTERREG II in the Saarland, Lorraine and Western Palatinate regions in Germany,

composed of O. Czúcz (Rapporteur), President, I. Labucka and S. Frimodt Nielsen, Judges,

Registrar: C. Kristensen, Administrator,

having regard to the written procedure and further to the hearing on 25 June 2008,

gives the following

Legal context

1. From 1989 to 1999, the rules concerning implementation of the economic and social cohesion provided for in Article 158 EC were laid down in Council Regulation (EEC) No 2052/88 of 24 June 1988 on the tasks of the Structural Funds and their effectiveness and on coordination of their activities between themselves and with the operations of the European Investment Bank and the other existing financial instruments (OJ 1988 L 185, p. 9). That regulation was the principal measure governing the Structural Funds and, in particular, the European Regional Development Fund (ERDF). Regulation No 2052/88 was amended, inter alia, by Council Regulation (EEC) No 2081/93 of 20 July 1993 (OJ 1993 L 193, p. 5).
2. Article 1 of Regulation No 2052/88 sets out the priority objectives which Community action through the Structural Funds is to attain.
3. Article 4 of Regulation No 2052/88 concerns complementarity, partnership and technical assistance. It provides as follows:

'1. Community operations shall be such as to complement or contribute to corresponding national operations. They shall be established through close consultations between the Commission, the Member State concerned and the competent authorities and bodies ... designated by the Member State at national, regional, local or other level, with all parties acting as partners in pursuit of a common goal. These consultations shall hereinafter be referred to as the 'partnership'. The partnership shall cover the preparation and financing, as well as the ex ante appraisal, monitoring and ex post evaluation of operations.

The partnership will be conducted in full compliance with the respective institutional, legal and financial powers of each of the partners.'

4. Article 5(2) of Regulation No 2052/88, entitled 'Forms of assistance', provides that '[i]n the case of the Structural Funds ..., financial assistance may be provided [inter alia] in [the form of] part-financing of operational programmes'. Article 5(5) defines the expression 'operational programme' as 'a consistent series of multiannual measures which may be implemented through recourse [inter alia] to one or more Structural Funds'.
5. Article 13(3) of Regulation No 2052/88, under the heading 'Differentiation of rates of assistance', provides:

'The rates of Community assistance granted by the Funds ... shall be subject to the following ceilings:

a maximum of 75% of the total cost and, as a general rule, at least 50% of public expenditure in the case of measures carried out in the regions eligible for assistance under Objective 1;

a maximum of 50% of the total cost and, as a general rule, at least 25% of public expenditure in the case of measures carried out in the other regions.

...'

6. On 19 December 1988, the Council adopted Regulation (EEC) No 4253/88 laying down provisions for implementing Regulation (EEC) No 2052/88 as regards coordination of the activities of the different Structural Funds between themselves and with the operations of the European Investment Bank and the other existing financial instruments (OJ 1988 L 374, p. 1). Regulation No 4253/88 was amended by Council Regulation No 2082/93 of 20 July 1993 (OJ 1993 L 193, p. 20).
7. Article 17 of Regulation No 4253/88, entitled 'Financial contribution from the Funds', provides:

'...

2. The financial contribution from the Funds is to be calculated in relation to either the total eligible cost of, or the total public or similar eligible expenditure (national, regional or local, and Community) on, each measure (operational programme, aid scheme, global grant, project, technical assistance, study).

...

4. The rates of contribution for individual measures forming part of operational programmes may be differentiated in accordance with agreements to be concluded within the framework of the partnership.'

8. Article 24 of Regulation No 4253/88, entitled 'Reduction, suspension and cancellation of assistance', provides as follows:

'1. If an operation or measure appears to justify neither part nor the whole of the assistance allocated, the Commission shall conduct a suitable examination of the case in the framework of the partnership, in particular requesting that the Member State or authorities designated by it to implement the operation submit their comments within a specified period of time.

2. Following this examination, the Commission may reduce or suspend assistance in respect of the operation or a measure concerned if the examination reveals an irregularity or a significant change affecting the nature or conditions for the implementation of the operation or measure for which the Commission's approval has not been sought.

3. Any sum received unduly and to be recovered shall be repaid to the Commission...'

9. Finally, Article 25 of Regulation No 4253/88 concerns monitoring of the implementation of assistance. Article 25(5) provides as follows:

'The monitoring committee shall ... adjust ..., in conformity with available resources and budgetary rules, the financing plan envisaged, including any transfers between Community sources of finance and the consequential adjustments of the rates of assistance ...

These amendments shall be notified immediately to the Commission and the Member State concerned. They shall become effective as soon as confirmation has been provided by the Commission and the Member State concerned; such confirmation shall be given within a period of 20 working days from receipt of this notification, the date of which will be confirmed by the Commission by acknowledgement of receipt.

Other amendments required shall be decided by the Commission, in collaboration with the Member State concerned, after the monitoring committee has delivered its opinion.'

Background to the dispute

10. By Decision C (95) 2271 of 28 September 1995, the Commission granted Community financial assistance for an operational programme in the framework of the Community initiative INTERREG II in the Saarland, Lorraine and Western Palatinate regions. Article 2 of the decision granting financial assistance provides that 'the detailed arrangements for the grant of financial assistance, including the contribution of the Funds to the various sub-programmes and measures which form part of the present programme ... are set out in the financing plan for the programme annexed' to that decision. While the body of the decision granting financial assistance thus refers to the third level of programming ('measures or group of measures') by the term 'measure', the financing plan annexed thereto refers to that level by the term 'group of measures'. The financing plan states, moreover, in the column headings setting out the Community and national contributions respectively, that each of those contributions represents 50% of the total costs of each priority axis and of each measure or group of measures.
11. The decision granting financial assistance was amended by two Commission Decisions of 7 April 1998 and 29 December 1999. The latest version, following the last amendment, of the decision granting financial assistance provided for a total cost of EUR 66 898 400, of which EUR 23 726 800 was borne by ERDF and EUR 42 171 600 by the national authorities. A footnote to the financing plan annexed to each of those amending decisions stated that it was warranted that the Community funds did not exceed 50% of the total public expenditure.
12. In accordance with the detailed arrangements for implementing the programme laid down in the decision granting the financial assistance, that implementation was the responsibility of the monitoring committee which was to be instituted within the partnership. The monitoring committee was, inter alia, to ensure compliance with the legislation, including that relating to the eligibility of schemes and projects, and to prepare and consider any proposals for amendment to the assistance. All essential questions relating to the implementation of the programme were to be decided unanimously. The Commission was represented on the monitoring committee and held a right to vote.
13. By letter of 12 May 1999, the Commission requested that changes to the programme be submitted to it for approval before 31 July 1999 if they involved an increase in the overall amount or transfers between the funds. That request was dealt with during the meeting of the monitoring committee of 17 June 1999. During that meeting, the Commission's representative added that it was appropriate definitively to set out the total amount of ERDF assistance for the operational programme.
14. Having regard to the closure on 31 December 1999 of the programmes financed by the Structural Funds for the programming period 19941999, on 9 September 1999 the Commission adopted Guidelines for the financial closure of operational assistance (19941999) from the Structural Funds ('the Guidelines') and transmitted them to the Member States. In the German version, the Guidelines stated the following:

'6. Financing plans

6.1 The financing plan may not be amended after the final date for commitments.

6.2 The financial closure of programmes must be carried out on the basis of the version of the financing plan in effect (generally, a financing plan broken down into three levels, namely, programme, sub-programme and measure). The accounts submitted by the Member States should show the same level of detail as the financing plan annexed to the decisions approving the operational interventions and, therefore, must generally show expenditure actually incurred, broken down to the level of measures.

The contribution of each Fund by measure may be exceeded by 20% as long as the total amount of the sub-programme, as set out in the current financing plan, has not increased.

...

7. Final settlement

7.1. Member States are required to transfer the entire amount of Community assistance received to the final beneficiaries. Given that there have been some problems in the past in this matter when the final settlement is carried out, Community contribution, calculated in accordance with the procedures set out in 6.2 above, is limited to whichever of the following two amounts is the smaller:

(a) the amount produced by applying to the declared expenditure the rate of Community co-financing established under the current financing plan for the measure;

(b) the amount of Community assistance actually owed to the final beneficiaries (paid and to be paid in respect of the measure) ...'

15. During the written procedure following the meeting of the monitoring committee of 10 November 1999, the Regional Policy and Cohesion Directorate-General of the Commission stated, by letter of 3 May 2000, that it did not object to the proposed amendments concerning the projects approved under the programme in question and asked that it no longer be informed of later amendments to the projects, unless there was a significant change affecting the nature or conditions for the implementation of the operation or measure (subject-matter of projects, costs, beneficiaries, etc), within the meaning of Article 24 of Regulation No 4253/88, and/or an impact on the Community budget.
16. The closing documents were sent to the Commission by letter of 20 March 2003 with an application for payment of the balance. In their application for payment, the German authorities took the view that the total Community contribution was to be calculated by adding the Community contribution to each of the projects carried out which, in turn, was to be calculated by applying the level of contribution decided upon by the monitoring committee, which was close to 50% for most projects except for those very expensive projects for which a lower level of contribution had been set, to the total project costs. Having regard to the fact, however, that for some of the projects the overall eligible costs were lower than expected, the amounts set out in the application for payment did not match the amounts stated in the financing plan annexed to the last amending decision. Thus, the amount requested as ERDF contribution to the operational programme was lower than the amount stated in that financing plan for all priority axes and for all measures or groups of measures with the exception of the measure or group of measures 3.2, for which the amount requested as ERDF contribution was slightly higher than the amount stated in the financing plan.
17. By Decision C (2006) 7271 of 27 December 2006 ('the contested decision'), the Commission reduced the period of the contribution of the ERDF to the operational programme for North-Rhine Westphalia under the Community initiative INTERREG II in the Saarland, Lorraine and Western Palatinate regions by EUR 933 691.04. In that decision, the Commission gave the following reasons for the reduction in the Community assistance in question.
18. The Commission states that programmes subsidised by the Community Funds must be implemented in accordance with the decisions granting financial assistance and the financial tables which it approved, and that no amendment was possible after 31 December 1999, the deadline for undertakings, since the programming period was already closed. It states that, while in the decision granting financial assistance the ERDF contribution was set at 50% of the public expenditure for the entire programme, the amending decision of 7 April 1998 provided for different levels of financing for each measure or group of measures. It notes that the declared overall expenditure and the amounts of ERDF contribution corresponding to each measure or group of measures did not match the amounts stated in the relevant financing plan. However, it explains that, having regard to the fact that in the Guidelines it decided not to deal with certain divergences upwards or downwards in comparison to the financing plan as important changes, it accepts, in accordance with point 6.2 of those Guidelines, upward divergences by applying a certain flexibility by means of compensation within the same priority axis. Nevertheless, in the case of solely downward divergences, it applies point 7 of the Guidelines and limits the Community contribution to the lower of two amounts: the amount produced by applying the rate of financing for each measure or group of measures to the declared expenditure or that actually owed to the beneficiaries. Thus, with regard to measures or groups of measures 1.2, 2.2, 3.1, 4.1 and 4.2, the Commission refuses to pay the amount requested by the German authorities, corresponding to the amount owed to the beneficiaries, on the ground that its payment would cause the rates of financing laid down for those measures or groups of measures in the relevant financing plan to be exceeded and would therefore give rise to an amendment thereof.

Procedure and forms of order sought by the parties

19. By application lodged at the Registry of the Court of First Instance on 12 March 2007, the Federal Republic of Germany brought the present action.
20. The Federal Republic of Germany claims that the Court should:

annul the contested decision;

order the Commission to pay the costs.

21. The Commission contends that the Court should:

dismiss the action;

order the Federal Republic of Germany to pay the costs.

Law

22. The Federal Republic of Germany relies, essentially, on three pleas in law, alleging an infringement of Article 24 of Regulation No 4253/88, failure to state reasons and failure to observe the requirements of the 'partnership' provided for in Article 4 of Regulation No 2052/88 respectively.

The first plea, alleging infringement of Article 24 of Regulation No 4253/88

Arguments of the parties

23. The Federal Republic of Germany claims that the Commission infringed Article 24 of Regulation No 4253/88 in that it reduced the financial assistance in question without the conditions laid down in that provision being fulfilled. It takes the view, on the one hand, that the differences between the overall costs stated in the financing plan and the final overall costs, and the resulting changes in the ratio between the ERDF contribution and the overall costs cannot be regarded as 'significant changes' within the meaning of Article 24 of Regulation No 4253/88 and, in any event, that the Commission gave its advance approval and, on the other, that the Commission failed to exercise the discretion conferred on it by that provision to determine whether the Community contribution was justified.
24. In the first place, with regard to the significance of the change, the Federal Republic of Germany submits, firstly, that since the financing plans were indicative and, by their nature, only provisional, there are no grounds for regarding each change as significant. It thus disputes the Commission's assertion, in recital 12 in the preamble to the contested decision, that it is empowered to 'regard submission of an application for payment of the balance as inadmissible where one or a number of measures show a discrepancy in comparison to the final financing plan'. In that regard, it submits that, since the amounts of the ERDF contribution stated in the financing plan are maximum amounts, the reduction of an amount cannot be regarded as a discrepancy.
25. The Federal Republic of Germany contends, secondly, that, irrespective of the definition of the expression 'significant change', there were no such changes in the implementation of the programme at issue since it was carried out in accordance with the latest version of the decision to grant assistance and the decisions of the monitoring committee. In that regard, it submits that the financing plan in force provided merely, on the one hand, for a maximum amount of ERDF contribution and, on the other, a maximum rate of ERDF contribution equalling 50% of the total costs applicable to all levels of the programme and, in particular to the level of individual projects. It notes that those limits were not exceeded.
26. It disputes the Commission's assertion, set out in recitals 2 and 13 in the preamble to the contested decision, that the decisions amending the decision to grant financing amended the financing plan in such a way that it laid down maximum rates of financing applicable to the level of measures or groups of measures of below 50%. It takes the view that those decisions were not intended to increase or reduced the maximum amount of the contribution for each measure or group of measures, but that the rate of contribution laid down, a maximum of 50% of the total costs, remained unchanged, as is apparent from the annotations in the financing plans annexed to those decisions, where it was guaranteed that the Community funds would not exceed 50% of the total public expenditure (see paragraph 11 above). The Federal Republic of Germany asserts, despite the fact that those plans provided for an increase in the national expenditure, that that increase had led only to an accounting reduction in the financing quota by the ERDF funds and not to the fixing of specific rates for each measure or group of measures.
27. Consequently, it submits that the rates indicated by the Commission in recitals 1 and 13 in the preamble to the contested decision were not fixed by the amending decisions and arise simply from the fact that, for certain projects, the ERDF assistance was fixed by the monitoring committee above the ceiling of 50%, such that the accumulated amounts stated in the financial plans of the amending decisions for the various measures or groups of measures are of necessity lower than that ceiling rate.
28. The Federal Republic of Germany submits, thirdly, that the Commission cannot rely, as it does in recitals 17 and 21 in the preamble to the contested decision, on point 7a of the Guidelines to find that the discrepancies between the expected costs and actual costs of the projects constitute a significant change within the meaning of Article 24(2) of Regulation No 4253/88, since the Guidelines do not refer to that provision and thus cannot constitute the legal basis of a reduction in the ERDF assistance. In that regard, it adds that, since those Guidelines were adopted only in September 1999, it was therefore no longer possible totally to rework a programme which had been under way since 4 November 1994. Furthermore, in recital 24 in the preamble to the contested decision, the Commission itself points out that the Guidelines are internal in nature.
29. In any event, it takes the view that, even if it is accepted that point 7a of the Guidelines is applicable, the reduction is not justified in the present case. In that regard, it recalls that the choice of the lowest amount, stipulated in point 7a and 7b, is necessary, in accordance with point 7.1 of the Guidelines, to ensure 'transfer [of] the entire amount of Community assistance received to the final beneficiaries'. It deduces therefrom that the amount referred to in point 7a constitutes only the reference value in respect of the amount which is actually paid to the final beneficiary and takes the view that that point accordingly does not contain any actual rule relating to reduction in the assistance. However, it asserts that in the disputed programme, the reference value corresponds to the ERDF assistance granted provided that the rate of financing does not exceed 50% of the overall costs. In those circumstances, it submits that, in the present case, the Commission is taking into account three separate amounts and accepting, on each occasion, only the lowest.
30. Fourthly, it submits that the Commission itself was not of the opinion, during the implementation of the programme, that discrepancies in costs at project level were significant since, in its letter of 12 May 1999 (see paragraph 13 above), it stated that the amendments which were to be submitted to it were only those which implied an increase in the total amount of the contribution of the Funds or transfers between them. Furthermore, in its letter of 3 May 2000 (see paragraph 15 above), the Commission confirmed that customary amendments to the projects did not constitute a 'significant change' within the meaning of Article 24 of Regulation No 4253/88.
31. In the second place, with regard to the Commission's alleged agreement, the Federal Republic of Germany submits that, even if the amendments at issue constituted significant changes requiring the Commission's approval, they should be regarded as having been approved by it since they were the result of the agreement of the monitoring committee, of which a representative of the Commission who exercises its powers is a member. In that regard, it points out that Article 17(4) of Regulation No 4253/88, which authorises the conclusion of agreements regarding individual projects, does not prohibit the monitoring committee from fixing the ERDF assistance in conjunction with the Commission.
32. In the third and final place, with regard to the Commission's failure to exercise its discretion, the Federal Republic of Germany submits that, even if the differences between the financing plan and the application for payment were to be considered significant changes not approved by the Commission, the fact that the latter's approval was not requested merely constitutes an infringement of procedural rules and, in accordance with the principle of proportionality, is not such as to justify reduction of the ERDF financial assistance and the refusal to pay the balance. Thus it takes the view that the Commission should have taken into account the impact of its decision on the projects subsidised which continued as intended. It adds that the Commission has not explained why the ERDF assistance granted by the monitoring committee set out in the application for payment was no longer justified, whether at the level of measures or groups of measures or at project level.
33. The Commission contests all those arguments.

Findings of the Court

34. Having regard to the arguments of the Federal Republic of Germany, it is appropriate to consider in turn (i) whether the differences between the amounts laid down in the financing plan and those in the application for payment constitute a 'significant change' within the meaning of Article 24 of Regulation No 4253/88, (ii) whether the Commission gave its advance approval and, (iii) whether the Commission failed to exercise the discretion conferred on it by that provision to determine whether the Community contribution was justified.
35. In the first place, with regard to the existence of significant changes within the meaning of Article 24 of Regulation No 4253/88, the Federal Republic of Germany submits, essentially, that the discrepancies between the costs set out in the financing plan and the actual costs do not constitute significant changes on the ground, firstly, that the financing plan annexed to the decision granting financial assistance is merely indicative; secondly, that those discrepancies do not breach the conditions laid down in the latest version of the decision granting financial assistance and by the monitoring committee; thirdly, that point 7a of the Guidelines does not permit the disputed discrepancies to be defined as significant changes; and, finally, that the Commission accepted that discrepancies at project level did not constitute significant changes.
36. Firstly, with regard to the allegedly indicative and provisional nature of the financing plan annexed to the decision granting financial assistance, it is appropriate to refer to paragraphs 60 to 64 of the judgment in Joined Cases T-349/06, T-371/06, T-14/07, T-15/07 and T-332/07 Germany v Commission [2008] ECR I-0000, in which argument substantially identical to that put forward by the Federal Republic of Germany in the present case was rejected (see, to that effect, with regard to the Community judicature's ability to give reasons for a decision by reference to an earlier decision ruling on substantially identical questions, Case C-229/04 Crailsheimer Volksbank [2005] ECR I-9273, paragraphs 47 to 49, and judgment of 11 July 2007 in Case T-47/03 Sison v Council, not published in the ECR, paragraph 102). In that judgment, the Court held that it followed from the legislation as interpreted by the case-law that all financial assistance granted by the Structural Funds was to be implemented in accordance with the decision approving it and, in particular, with the financial table annexed to that decision and that, consequently, amendments to a financing plan approved by the Commission which are implemented without the latter's consent lead, in principle, to a reduction in the assistance granted to the programme at issue.
37. In that regard, the Court rejects the argument of the Federal Republic of Germany that the monitoring committee can amend the financing plan without submitting amendments to the Commission where they do not require the grant of additional resources to the programme. It is clear from Article 25(5) of Regulation No 4253/88 that any amendment to the financing plan is either communicated to the Commission and to the Member States concerned for confirmation immediately upon its adoption by the monitoring committee or adopted directly by the Commission itself, in collaboration with the Member State, after an opinion is given by the monitoring committee. It follows that there can be no amendment to the financing plan without the advance or subsequent approval of the Commission.
38. Secondly, with regard to the argument of the Federal Republic of Germany that the discrepancies between the amounts stated in the financing plan and the final amounts do not infringe the conditions laid down by the latest version of the decision granting financial assistance, since, in particular, the rate of contribution applied does not exceed the ceiling rate of 50% of the total costs, it must be stated that, by that argument, the Federal Republic of Germany seeks to dispute the assertion in the contested decision that the latest version of the decision granting financial assistance provides for specific rates of contribution for each measure or group of measures lower, in most cases, than 50%.
39. In that regard, it should be noted that the rates of contribution to which the Commission refers in the contested decision are the result of the ratio between the amount of the ERDF assistance and the total costs for each measure or group of measures laid down in the financing plan. Clearly, in calculating the rates of ERDF contribution on the basis of the amounts laid down in the financing plan, the Commission merely applied Article 17(2) of Regulation No 4253/88, pursuant to which the ERDF financial contribution is fixed as a percentage and is calculated either in relation to the total costs or in relation to all eligible public expenditure as set out in the financing plan (see, to that effect, the judgment of 27 June 2007 in Case T-65/04 Nuova Gela Sviluppo v Commission, not published in the ECR, paragraph 82).
40. Although it is indeed true that Article 17(2) of Regulation No 4253/88 is based on the principle of a single rate of contribution for the entire action (operational programme, aid scheme, etc), Article 17(4) of that regulation expressly authorises the fixing of rates of contribution for individual or specific measures, it being understood that 'individual measures' within the meaning of that provision must of necessity correspond to a programming level stated in the financing plan. It is apparent from case-law that the rate of Community contribution constitutes one of the methods of assistance defined at the time of its grant, later amendment of which is subject to the procedures laid down in Article 25(5) of Regulation No 4253/88 (Nuova Gela Sviluppo v Commission, paragraph 39 above, paragraph 92). Furthermore, that interpretation is the only one compatible with Article 25(5) of Regulation No 4253/88, which provides that adjustments to the financing plans annexed to the decisions granting financial assistance entail amendment of the rates of assistance and thus makes it quite clear that such rates of assistance are in effect laid down by financing plans and that their amendment follows automatically from other amendments made to a plan. Furthermore, it is clear that it is only in this way that, in a situation such as that of the present case, where the final costs are lower than those laid down in the financing plan, that reduction in costs can be divided between the Community and the Member States in the same proportion as that in which they would have contributed to the costs if those had been at the level provided for in the financing plan established under the partnership.
41. It follows that the Federal Republic of Germany cannot claim that amendment of the national and Community contributions to the different measures or groups of measures, determined in amending decisions, did not have the consequence of amending the rate of ERDF contribution to each measure or group of measures thus giving rise to rates different from and, in the majority of cases, lower than 50%. To accept its argument that only the maximum and single rate of 50% was fixed would amount to taking the view that the definitive rate of ERDF contribution can be determined only at the time of closure of the programme, contrary to the provisions of the rules as interpreted by case-law (see paragraph 39 above).
42. In those circumstances, the fact that the reasoning of the amending decisions does not expressly state that the new ratio between the total costs laid down and the Community contribution implies that specific rates for each measure or group of measures were substituted for the single rate of 50% is irrelevant since that substitution follows directly from the legislation. Furthermore, clearly, as the Commission observes, the grounds for the decisions at issue referred to Article 25(5) of Regulation No 4253/88.
43. Finally, it must be noted that the fixing of a specific rate of contribution for each measure or group of measures does not imply that the amending decisions gave rise to a reduction in the ERDF assistance since, as the Commission points out, that assistance would have been paid in its entirety if the final costs of the programme had been at the level provided for in the financing plan which was a result of those decisions.
44. That conclusion cannot be called into question by the arguments of the Federal Republic of Germany based, inter alia, on the fact that, in the present case, on the one hand, it was stated in the financing plans annexed to the amending decisions that it was warranted that the Community funds would not exceed 50% of the total public expenditure and, on the other, the operational programme had been implemented in accordance with the decisions of the monitoring committee.
45. With regard to the argument based on the annotation appearing in the financing plans annexed to the amending decisions according to which it was warranted that the Community funds would not exceed 50% of the total public expenditure, as the Commission observes, that indication does not prevent the view being taken that the decision granting financial assistance, as amended by those decisions, provided for rates of contribution lower than 50% for certain measures or groups of measures, since that ceiling rate of 50% was to be observed at the level of individual projects. Thus it was not possible to finance a project at a rate much higher than 50% and to provide for much lower rates for other projects under the same measure or group of measures, even if the overall rate laid down for the measure or group of measures had been observed.
46. With regard to the argument that the operational programme was implemented in accordance with the decisions of the monitoring committee, it is sufficient to note that it is clearly apparent from the contested decision and from the table annexed thereto that the operational programme in question was not implemented in accordance with those decisions since part of the funds allocated to that programme was, in the end, not used. As the Commission observes, it is precisely the fact that the programme was not completely carried out as specified which is the basis of the present dispute, since the parties disagree on the manner in which the Community contribution is to be calculated when the total programme costs are lower than expected. The fact that the projects were carried out correctly is indeed important but is not sufficient for the view to be taken that the plan was correctly carried out, since for those purposes it is essential that all the conditions laid down by the decision granting financial assistance, including the rates of contribution, be observed.
47. Thirdly, with regard to the argument that point 7a of the Guidelines does not permit definition of the disputed discrepancies as significant changes, it must first be noted that, as is apparent from the second citation of and recital 28 in the preamble to the contested decision, the Commission did not base its decision to reduce assistance on the Guidelines but on Article 24 of Regulation No 4253/88. In the Guidelines, the Commission has merely reminded the Member States of its interpretation of the applicable provisions and informed them that, in accordance with the discretion conferred on it by Article 24 of Regulation No 4253/88, it had decided, as it states in recital 15 in the preamble to its decision, to accept discrepancies which meet certain conditions. Since it had undertaken in the letter to the Member States to use its discretion to apply Article 24 of Regulation No 4253/88 in accordance with the criteria laid down by the Guidelines, the Commission gave reasons for the contested decision by referring to those Guidelines, but that does not imply that the legal basis of the contested decision is constituted by the Guidelines. Next, the fact that the Guidelines were adopted only in September 1999 does not imply, contrary to the claims of the Federal Republic of Germany, that their adoption required a reworking of the programmes under way. In accordance with the findings in paragraphs 36 to 46 above, the obligatory nature of the financing plan and the existence of a rate of contribution fixed per measure or group of measures which follows from the applicable legislative provisions so that point 7 of the Guidelines, the contents of which appear in no way contrary to those provisions, did not require any amendment of the programmes.
48. In any event, it is clear that the Commission did not incorrectly apply point 7 of the Guidelines in the present case since, as follows from paragraphs 39 to 46 above, 'the rate of Community co-financing established under the current financing plan' to which point 7a of the Guidelines refers can be understood only as referring to the rates of financing calculated according to the ratio between the Community contribution and the total costs laid down in the financing plan for each measure or group of measures and stated by the Commission in recital one in the preamble to the contested decision, and not as referring to a maximum and single rate of 50%.
49. Finally, with regard to the argument that the Commission accepted that the discrepancies at project level were not important changes, it must be noted that the fact that the Commission requested in its letter of 12 May 1999 (see paragraph 13 above) that amendments be submitted to it for approval if they involved an increase in the overall amount or transfers between the funds before a certain date does not imply that it took the view that other changes could be freely introduced into the programme by the national authorities, despite the obligation of the monitoring committee, laid down in Article 25(5) of Regulation No 4253/88, to notify any amendment to the Commission and await its confirmation. Equally, it is not apparent from the letter of 3 May 2000 (see paragraph 15 above) that changes to projects never fall within the scope of Article 24 of Regulation No 4253/88. On the contrary, in that letter the Commission states clearly that it is only where there are no significant changes and no effect on the Community budget that changes affecting projects need not be communicated to it. Thus, as the Commission asserts, the discrepancies at a project level will fall within the scope of Article 24(2) of Regulation No 4253/88 only where they lead to discrepancies in relation to amounts stated in the financing plan.
50. Secondly, with regard to the Commission's alleged approval of the changes at issue, it is appropriate to reject the argument of the Federal Republic of Germany that the presence of a Commission representative in the monitoring committee for the operational programme and its active participation in the carrying out of that programme mean that the Commission approved the changes made. It follows clearly from Article 25(5) of Regulation No 4253/88 that, although the monitoring committee has, in principle, the power to adapt the financing plan where that does not imply an increase in the total costs of the programme, any change which it makes must immediately be notified to the Commission and to the Member State concerned and becomes applicable only when it is confirmed by them. That provision can only be interpreted as meaning that the Commission representative within the monitoring committee is not the 'Commission' within the meaning of that provision since, given that he is a member of the monitoring committee, the obligation to notify the change after the decision is taken by the monitoring committee and the obligation to await confirmation from the Commission would be nugatory.
51. Furthermore, it is indisputable that the two decisions amending the decision to grant financial assistance, adopted pursuant to the third subparagraph of Article 25(5) of Regulation No 4253/88 since they are outside the powers of the monitoring committee, were adopted by the Commission as a collegiate body and not by its representative within the monitoring committee. The reference to the 'Commission' in Article 25(5) of Regulation No 4253/88 cannot be interpreted as referring alternately to the collegiate body and its representative within the monitoring committee according to the section of that provision under consideration.
52. In those circumstances, the view must be taken that it can be asserted that the Commission approved a change decided by the monitoring committee only if that change was formally communicated to it for that purpose (see, to that effect, Nuova Gela Sviluppo v Commission, paragraph 39 above, paragraphs 64 and 66; see, by analogy, the judgment of 22 November 2006 in Case T-282/04 Italy v Commission, not published in the ECR, paragraphs 72 and 78). Since the Federal Republic of Germany did not communicate the changes at issue to the Commission in the present case, it cannot claim that they were approved.
53. Thirdly and finally, with regard to the argument of the Federal Republic of Germany that the Commission did not exercise the discretion which Article 24 of Regulation No 4253/88 confers on it and, more particularly, to its argument that the fact that approval of the changes found by the Commission was not sought constitutes solely an infringement of the procedural rules and does not justify the Commission's reduction of the financial assistance and endangers the financing of projects correctly carried out, it is appropriate to recall that, in accordance with settled case-law, infringement of national or Community provisions governing assistance from Community funds, including those of a financial nature, justifies the reduction or withdrawal of the assistance granted (see, to that effect, Case C-199/03 Ireland v Commission [2005] ECR I-8027, paragraphs 29 to 34, and Case C-240/03 P Comunità montanadellaValnerina v Commission [2006] ECR I-731, paragraphs 76 and 97). Thus, it must be noted that, in its judgment in Italy v Commission, paragraph 52 above (paragraphs 72 and 78), concerning rural development plans financed by the European Agricultural Guidance and Guarantee Fund (EAGGF), the Court considered that the Italian Republic's failure to comply with a provision whose content is analogous to that of Article 25(5) of Regulation No 4253/88 entailed reduction of the assistance granted to the operational programme.
54. It is appropriate to observe that if the Court were to accept, as the Federal Republic of Germany asks, that, since it committed only one infringement of the procedural rules, the Commission could not reduce the assistance because that would affect projects correctly carried out, no consequences would attach to the infringement by the Federal Republic of Germany of its obligation to carry out the operational programme in accordance with the financing plan approved by the Commission. That approach would thus render that obligation pointless since it would be sufficient for national authorities to prove that certain projects had been correctly carried out in order to obtain all the financing granted, whether or not they had complied with the financial provisions which they had agreed with the Commission.
55. In any event, it is clear that the contested decision is not such as to endanger the financing of projects implemented. Since the costs of the operational programme at issue are lower than those laid down, the national authorities can use part of the national funds thus saved to supplement the financing of projects correctly implemented.
56. In that regard, the fact, relied on by the Federal Republic of Germany at the hearing in reply to a question from the Court, that, with regard in the present case to a programme prepared within the framework of the Community initiative INTERREG II, the national contribution comes from the budget of three different national authorities is irrelevant. The fact that, in the context of the relationships between different national authorities, projects not carried out must be financed by one of the national authorities and projects which are carried out must be financed by another does not preclude the view that the part of the national funds saved as a consequence of the non-implementation of certain projects can be used to supplement the financing of those projects which are implemented.
57. If the projects in question are truly of cross-border interest, as should be the case of any project intended to be financed within the framework of an operational programme under Community initiative INTERREG II, the national authorities whose projects have not been carried out, or which proved to be less costly, can assume part of the national contribution to projects which have been carried out in accordance with the requirements. In any event, it must be observed that requests for subsidy of an operational programme are submitted jointly by all the competent national authorities in the territories concerned by that programme and that the decisions granting financial assistance distinguish only between the Community contribution and the national contribution without differentiating between that of each national authority.
58. In the light of all the foregoing, the first plea of the Federal Republic of Germany is rejected.

The second plea, alleging a failure to state reasons

Arguments of the parties

59. The Federal Republic of Germany submits, with regard to the Commission's reference in recital 16 in the preamble to the contested decision to point 6.2 of the Guidelines, that the Commission does not explain why an 'upwards' discrepancy in relation to the expenditure laid down in the financing plan falls within the scope of the Guidelines whereas a 'downwards' discrepancy constitutes a significant change within the meaning of Article 24(2) of Regulation No 4253/88. It takes the view that, if the Commission had applied the margin of 20% laid down by the Guidelines in the present case, no reduction would have been made. In that regard, it adds that the Commission's failure to apply that margin is particularly incomprehensible since, according to the Commission, all of the ERDF assistance could have been paid, even without having recourse to that rule, if it had been properly requested (recital 20 in the preamble to the contested decision). It asserts that it does not understand why the Commission, which has given a fundamental importance to the rates of financing laid down in the financing plan for each measure or group of measures in the contested decision, does not accept application of the Guidelines to allow, instead of an excess of 20% in the assistance provided for by the plan, an excess of the same proportion in the rate of financing, particularly since the amount requested remains lower than the assistance provided for by the plan.
60. With regard to the table in the Annex to the contested decision, the Federal Republic of Germany submits that it is incomprehensible and takes the view that that could be due to the fact that neither the explanations nor the column headings are given in German, the procedural language. It thus submits that the infringement of Article 3 of Regulation No 1 of the Council of 15 April 1958 determining the languages to be used by the European Economic Community (OJ English special edition: Series I Chapter 1952-1958, p. 59) is the basis of another error in reasoning. It disputes the Commission's assertion that the mathematical formulae contained in the table are clear.
61. The Commission disputes that the contested decision is vitiated by defective reasoning.

Findings of the Court

62. With regard to recital 16 in the preamble to the contested decision, the Federal Republic of Germany submits, firstly, that the Commission does not explain why an 'upwards' discrepancy in relation to the expenditure laid down in the financing plan could be accepted whereas a 'downwards' discrepancy constitutes a significant change within the meaning of Article 24 of Regulation No 4253/88. It is appropriate to note that the Commission states, in recitals 12 and 15 in the preamble to the contested decision, that any discrepancy, whether upwards or downwards, constitutes a significant change. Next, it states, in recital 16 in the preamble to the decision, that upwards discrepancies can be accepted, provided, however, that their size is limited (to 20% of the amount of the measure in question) and that they are set off within the sub-programme/priority axis by an equivalent downwards discrepancy so that 'the amount of the sub-programme ... is not increased'. In those circumstances, it is clear that the Commission has not taken the view that 'upwards' discrepancies were always accepted while 'downwards' discrepancy were not and that, consequently, the contested decision could not contain reasoning in that respect.
63. The Federal Republic of Germany submits, secondly, that the Commission does not explain why in the present case it did not apply the discretionary margin of 20%, provided for in point 6 of the Guidelines. In that regard, the Court finds that it is apparent from point 6.2 of the Guidelines and from recital 19 in the preamble to the contested decision that the discretionary 20% was applied, contrary to the allegations of the Federal Republic of Germany, but that it could be applied only in the context of priority axis 3, since it was only in that axis that there is a measure or group of measures for which the amount laid down in the financing plan was exceeded. It is plain from that reasoning that point 6.2 of the Guidelines could not be applied for the other axes since one of the conditions for its application was not met, that is to say, that the amount laid down for at least one measure or group of measures be exceeded.
64. Thirdly, the Federal Republic of Germany asserts that it does not understand why the Commission does not apply the Guidelines in such a way that an excess of 20% of the rate of contribution laid down for a measure or group of measures can be accepted if it does not entail an excess in the assistance laid down for the priority axis in the same way as an excess in the amount of assistance laid down for a measure or group of measures is accepted, under point 6.2 of those Guidelines, if it does not entail an excess in the amount of assistance laid down for the priority axis. In that regard, it is appropriate to observe that the Federal Republic of Germany appears to be seeking an application mutatis mutandis of the Guidelines. However, the Commission has stated, in recital 24 in the preamble to the contested decision, that the Guidelines should, as instructions to its services, be implemented in accordance with the principle of equal treatment so that it could not apply them to the programmes of the Federal Republic of Germany differently from the manner of their application to programmes of other Member States. It follows that the contested decision contains a sufficient statement of reasons on that point.
65. Next, with regard to the table annexed to the contested decision, the Federal Republic of Germany takes the view that it is incomprehensible, because neither the explanations nor the column headings are written in German, and disputes the Commission's assertion that the mathematical formulae which it contains are easy to understand. It is sufficient to state that, as the Commission points out, it is apparent from the references to the contents of the table made by the Federal Republic of Germany in the application that it understood it correctly. Furthermore, the reasoning set out in the body of the contested decision enables understanding of the calculation carried out for each measure or group of measures and the reasons for which the amount requested by the Federal Republic of Germany was or was not accepted.
66. In those circumstances, the second plea raised by the Federal Republic of Germany must be rejected.

The third plea, alleging failure to comply with the requirements of the 'partnership'

Arguments of the parties

67. The Federal Republic of Germany submits that, while the disputed programme was drawn up jointly and the amounts of financing for the projects fixed in compliance with the programme, the Commission, by failing to comply with the conditions laid down therein, unilaterally amends the ERDF assistance and does not comply with the requirements of the 'partnership'.
68. It submits that the calculation method applied by the Commission implies that there is no longer any overall financing guarantee for any of those projects since the competent services and those responsible for the projects cannot determine the amount of the ERDF assistance before the expiry of the time-limit for incorporation of expenditure on 31 December 2001 and for lodging the application for payment.
69. Furthermore, it submits that the Commission does not comply with the requirements of the 'partnership' either, in that its conduct is contrary to the principle of protection of legitimate expectations since its representative within the monitoring committee did not explain to his partners the significance of the amount stated in the financial tables before the expiry of the time-limit for the undertaking, nor that the financing of the projects decided in the monitoring committee was compromised. In the reply, it asserts that the Commission seeks to play down its participation in the monitoring committee. It submits that that participation did, however, influence the implementation of the programme and asserts that the Commission's cooperation in the determination of ERDF assistance to projects, in accordance with the internal rules of the monitoring committee, was carried out in compliance with the legal framework laid down. It takes the view that, however, the method of calculation applied by the Commission is incompatible with the decisions of the monitoring committee and need not be followed, at the very least where the Commission previously had a hand in contrary decisions of the monitoring committee.
70. It adds that under the 'partnership' it was required, where there was a fundamental divergence in view on the implementation of the programme, that the Commission authorise it to rectify the application for payment.
71. The Commission challenges those arguments.

Findings of the Court

72. At the outset, it should be recalled that, pursuant to Article 4(1) of Regulation No 2052/88 (see paragraph 3 above), the concept of 'partnership' is used stating that '[Community operations] shall be established through close consultations between the Commission, the Member State concerned and the competent authorities and bodies ... designated by the Member State'. The partnership relates, inter alia, to the preparation, financing, monitoring and assessment of operations and must be carried out in full compliance with the respective institutional, legal and financial competences of each of the partners.
73. Next, with respect to the argument that the Commission did not comply with the requirements of the 'partnership' inasmuch as it unilaterally altered the conditions of the ERDF assistance, it is clearly apparent from an examination of the first plea that, contrary to the assertion of the Federal Republic of Germany, the Commission did not depart from the conditions laid down in the latest version of the decision granting financial assistance and, consequently, did not unilaterally alter the ERDF assistance. Furthermore, having regard to the fact that the rates of financing are fixed by the decision granting financial assistance, it is not possible either to assert that the method of calculation applied by the Commission, in accordance with the provisions applicable and with the decision granting financial assistance, means that it is not possible to determine in advance the amount of Community assistance.
74. With regard to the argument that the Commission's conduct is contrary to the principle of protection of legitimate expectations because of the attitude of its representative within the monitoring committee, it is sufficient to recall that, in accordance with settled case-law, for legitimate expectations to arise, precise assurances complying with the applicable rules must have been given by an authorised person (see, to that effect, Case T-203/97 Forvass v Commission [1999] ECR-SC I'A'129 and ECR II-705, paragraph 70, and Case T-347/03 Branco v Commission [2005] ECR II-2555, paragraph 102). In the present case, besides the fact that the lack of warning from the Commission representative on the monitoring committee regarding the existence of the financing rates at the level of measures or groups of measures cannot be regarded as precise assurances, especially since it is apparent from the documents that he confirmed that he would abstain from voting with regard to decisions on projects in order not to anticipate the assessment of the Commission's internal financial check, those 'assurances' would not, in any event, be in accordance with the applicable law, as follows from the above examination.
75. Finally, with regard to the argument of the Federal Republic of Germany that the Commission should authorise it to correct its application for payment, the Federal Republic of Germany, far from accepting the Commission's interpretation and requesting that it be allowed to submit a new application, seeking payment of a higher amount for the measures or groups of measures for which the initial application requested an amount lower than that resulting from application of the rate of financing laid down by the financing plan, in fact brought the present action to dispute that interpretation. In those circumstances, the Commission could not, even if it were possible under the applicable legislation, authorise correction of the application on its own initiative.
76. In those circumstances, the present plea must be rejected and, consequently, the action as a whole must be dismissed.

Costs

77. Under Article 87(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party's pleadings. Since the Federal Republic of Germany has been unsuccessful, it must be ordered to pay the costs, in accordance with the form of order sought by the Commission.

On those grounds,

THE COURT OF FIRST INSTANCE (Fourth Chamber)

hereby:

1. Dismisses the action;

2. Orders the Federal Republic of Germany to pay the costs.

Czúcz

Labucka

Frimodt Nielsen

Delivered in open court in Luxembourg on 28 January 2009.

[Signatures]

---

* Language of the case: German.