Opinion of Mr Advocate General Jacobs delivered on 19 January 1995. - Commission of the European Communities v Italian Republic. - State aid - Commission decision ordering repayment - Non-implementation. - Case C-349/93.



European Court reports 1995 Page I-00343



Opinion of the Advocate-General

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1. This is one of three related cases in which the Commission has instituted proceedings under Article 93(2) of the Treaty against Italy. (1) In this case the Commission seeks a declaration that, by failing to recover aid of LIT 70 000 million unlawfully granted to the undertaking Aluminia and aid of LIT 30 000 million unlawfully granted to the undertaking Comsal in 1987, Italy has failed to fulfil its obligations under Commission Decision 90/224/EEC of 24 May 1989 (2) on aid granted by the Italian Government to Aluminia and Comsal, two State-owned undertakings in the aluminium industry ("the decision").

2. In December 1984 and November 1985 the Commission initiated two separate procedures under Article 93(2) with regard to the financial aspects of a plan submitted to it by the Italian authorities for the restructuring of the State-owned aluminium industry for the period 1983-1988. By a decision dated 17 December 1986, the Commission terminated those procedures and authorized the aid envisaged in the restructuring plan subject to certain conditions. One of those conditions was that the Italian Government would provide no further aid in any form whatever to the State-owned aluminium industry until the end of 1988.

3. By Law No 910 of 22 December 1986, (3) the Italian Government authorized EFIM (Ente di partecipazione al finanziamento delle industrie manifatturiere), a State agency responsible for holding shares in, and financing, manufacturing industries, to issue debenture stock of LIT 150 000 million. The interest on the stock as well as any other charges were to be paid by the State. On 18 September 1987 the Italian authorities authorized EFIM to use LIT 100 000 million of the debenture stock to finance investments in Aluminia (LIT 70 000 million) and Compagnia Sarda Alluminio Spa (Comsal) (LIT 30 000 million), two State-owned aluminium undertakings. Those measures were not notified to the Commission in accordance with Article 93(3) of the Treaty.

4. Once the Commission learnt of the decision of the Italian Government to provide funds for investments in the State-owned aluminium industry, it requested the Italian authorities to provide further information. On the basis of the information thus obtained the Commission took the view that the provision of funds amounting to LIT 100 000 million to Aluminia and Comsal was State aid within the meaning of Article 92(1) of the Treaty and on 28 September 1988 it initiated the procedure provided for in Article 93(2). That procedure led to the adoption on 24 May 1989 of the decision in issue, Articles 1 and 2 of which provide as follows:

"Article 1

The two aids in the form of interest-free loans to be converted into equity capital amounting to LIT 70 000 million and LIT 30 000 million, granted by the Italian Government to the undertakings Aluminia 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.

The said aids shall therefore be abolished by the Italian Government and recovered from the recipient undertakings.

The Italian Government may not convert the two loans of LIT 70 000 million and LIT 30 000 million into equity capital.

Article 2

The Italian Government shall inform the Commission within two months of the date of notification of this decision of the measures it has taken to comply therewith."

5. The Italian Government was notified of the decision by letter of 7 June 1989. It did not take the necessary measures to comply with the decision within the period specified in Article 2. It brought an action for the annulment of the decision which was dismissed by the Court in its judgment in Italy v Commission. (4) In its judgment the Court rejected the arguments of the Italian Government that there was no State aid within the meaning of Article 92(1) and that the Commission had failed to assess the compatibility of the aid with the common market in the light of the derogation laid down in Article 92(3)(c).

6. Following the judgment of the Court the Commission invited the Italian Government, by letters dated 3 December 1991 and 27 January 1992, to take the necessary measures to recover the illegal State aid in accordance with the decision and to inform the Commission accordingly. The Government did not respond to those letters. Consequently, on 26 June 1992 the member of the Commission responsible for competition wrote to the Government stating that he would propose to the Commission that enforcement proceedings should be instituted. By a letter of 14 October 1992 the Italian authorities requested an additional period of grace, stating that the abolition of the aid in question had to be addressed within the general framework of the programme for the privatization of public undertakings which the Italian Government was proposing to implement. By a letter dated 10 March 1993 the Commission stressed the urgent need to eliminate the distortions of competition arising from the failure to implement the decision and fixed 31 March 1993 as the final date for its implementation. Since the Commission did not receive any response to that letter, it initiated the present proceedings.

7. In its submissions to the Court the Commission states that, by failing to recover the illegal aid granted to Aluminia and Comsal and thus to comply with the decision, the Italian Government has infringed Article 93(2) of the Treaty. The infringement of Article 93(2) has grave adverse consequences for the functioning of the common market since the undertakings Aluminia and Comsal continue to benefit from unlawful aid. The Commission points out that that aid was paid more than five years ago. It states that the plan for the privatization of public undertakings referred to by the Italian Government does not justify Italy' s failure to implement the decision.

8. The Italian Government states that, within the framework of the programme for the privatization of public undertakings, it decided by Decree-Law No 340 of 18 July 1992 to liquidate EFIM, which was facing grave financial difficulties. Decree-Law No 340 was confirmed by Decree-Law No 362 of 14 August 1992, Decree-Law No 414 of 20 October 1992 and Decree-Law No 487 of 19 December 1992. That Decree-Law was converted by the Italian Parliament into Law No 33 of 17 February 1993. (5) Law No 33 provided that, as part of the liquidation of EFIM, all public undertakings which belonged to EFIM, including Aluminia and Comsal, would be wound up or sold to third parties. Depending on their individual circumstances, some undertakings would be sold immediately, others would be sold after restructuring, and others would be wound up. With regard to undertakings in the aluminium sector, Article 2(2)(e) of Law No 33 expressed a preference for their restructuring in view of the fact that they were located in under-developed areas with a high level of unemployment.

9. The Italian Government claims that the inclusion of Aluminia and Comsal in the liquidation of EFIM and the legal status of their assets create objective difficulties in implementing the decision. It concedes that those difficulties do not exonerate it from the obligation to recover the unlawfully paid aid. However, it claims that the decision should be implemented in a manner to be determined in cooperation with the Commission in the framework of the programme for the restructuring of the aluminium industry, which accompanies the liquidation of EFIM. It points out that the compatibility of that programme with Article 92 of the Treaty is currently under examination by the Commission.

10. Following the placing of EFIM in liquidation the Commission published in the Official Journal on 17 March 1993 a "notice pursuant to Article 93(2) of the EEC Treaty to other Member States and other parties concerned regarding aid which Italy has decided to grant to EFIM". (6) The Italian Government communicated its response to that notice by letter of 24 March 1993. It states that after finalizing its plan for the restructuring of the aluminium industry it submitted the plan to the Commission so that the Commission could examine its compatibility with Article 92 and also its compatibility with the Commission' s decision. The Government claims that, before introducing the present proceedings, the Commission should have taken into account the legal regime in force following the liquidation of EFIM and the response of the Government to the Commission' s notice of 17 March 1993.

11. The Government states that, according to Article 4(3) of Law No 33, the liquidation of EFIM must be completed within a period of two years, which expires on 21 January 1995. Any undertakings belonging to EFIM which remain unsold at that time will be liquidated. Where an undertaking is sold, recovery of aid takes place upon the sale; where an undertaking is liquidated, recovery of aid takes place upon liquidation. With regard to Comsal, recovery of aid, and therefore compliance with the decision, is subject to the control of the Commission in the context of the procedure under Article 93(2) initiated by the Commission' s notice of 17 March 1993. Given the difficulties surrounding the liquidation of EFIM and the possibility that the aid in question may be recovered when the liquidation is completed, the Italian Government concludes that there is no failure to comply with the decision.

12. I cannot accept those arguments. Under Article 93(2), where the Commission finds that State aid is not compatible with the Treaty, "it shall decide that the State concerned shall abolish or alter such aid within a period of time to be determined by the Commission". Thus, the Commission may order the national authorities to recover aid which has been paid unlawfully. (7)

13. Articles 1 and 2 of the decision lay down in clear terms the obligation of the Italian Government to recover the unlawfully paid aid from the undertakings Aluminia and Comsal. The Government does not dispute that it has failed to recover it. It states that the inclusion of Aluminia and Comsal in the winding up of EFIM make recovery difficult.

14. According to the case-law of the Court, a Member State may not plead provisions, practices or circumstances existing in its internal legal system in order to justify a failure to comply with its obligations under Community law. (8) The only defence which a Member State may raise in proceedings under Article 93(2) is that the proper implementation of the decision is absolutely impossible. (9) In the present case, the Italian Government does not claim that the implementation of the decision is absolutely impossible nor does it provide any arguments which might support that conclusion.

15. The Court has held that if, in giving effect to a decision adopted under Article 93(2), a Member State encounters unforeseen or unforeseeable difficulties or perceives consequences overlooked by the Commission, it must submit those problems for consideration by the Commission together with proposals for suitable amendments. In such a case, the Commission and the Member State concerned must respect the principle underlying Article 5 of the Treaty, which imposes a duty of genuine cooperation on the Member States and Community institutions. They must work together in good faith with a view to overcoming difficulties whilst fully observing the Treaty provisions, in particular those on State aid. (10)

16. So interpreted, the principle of cooperation may alleviate the harsh consequences of the rule that the only defence which a Member State may raise in proceedings under Article 93(2) is that the proper implementation of the decision is absolutely impossible. However, in order for a Member State to benefit from that principle, certain conditions must be fulfilled. First, it must make genuine efforts to recover the unlawfully paid aid. In principle, those efforts must commence immediately after the adoption by the Commission of its decision ordering the recovery of the unlawful aid. Secondly, if the Member State encounters objective difficulties it must inform the Commission promptly of those difficulties. Thirdly, it must submit to the Commission concrete proposals as to how those difficulties could be overcome whilst fully observing the Treaty provisions on State aid.

17. In the present case it cannot be said that the conduct of Italy has been consistent with the duty of cooperation. The decision was notified to Italy on 7 June 1989. The Commission initiated the present proceedings on 7 July 1993. The Italian Government had ample time to comply with the decision. Following the judgment of the Court in Case C-261/89, which dismissed Italy' s application for annulment of the decision, the Commission repeatedly invited the Government to take the necessary implementing measures. As shown above, the Italian Government did not respond positively to the Commission' s invitations. (11)

18. The Government does not explain what the objective difficulties are which prevent it from recovering the aid. Even if it were accepted that the liquidation of EFIM makes the recovery of aid from Aluminia and Comsal difficult, it is not clear why the Government could not recover the aid independently of, and prior to deciding upon, the liquidation of EFIM. I note that the liquidation of EFIM came into effect on 18 July 1992 by Decree-Law No 340 of 1992, long after the expiry of the period within which the Government was required to comply with the decision.

19. Nor does the Government refer to any efforts that it has made with a view to effecting recovery. Although it refers to the possibility of recovering the aid in a manner to be decided in cooperation with the Commission, it has made no specific proposals to the Commission for the adoption of suitable measures. Instead, it makes vague references to the possibility of the aid being recovered in the future when the liquidation of EFIM is concluded.

20. The Italian Government refers to the Commission' s notice of 17 March 1993. I cannot see how that is relevant to the present proceedings. As already stated, on 17 March 1993 the Commission published in the Official Journal a notice pursuant to Article 93(2) to other Member States and other parties concerned regarding aid which Italy decided to grant to EFIM.

21. In that notice the Commission states that, although the Italian authorities informed the Commission of the measures placing EFIM into liquidation, they did not comply with the obligation of notification provided for in Article 93(3). Any aid granted will therefore be treated by the Commission as non-notified. The Commission also states that undertakings once owned by the EFIM group are being sold or transferred to other Italian State-owned undertakings as part of the liquidation of EFIM. No indication of the method of the valuation of the assets of those undertakings has been given and, in view of the lack of transparency, it is not possible to determine whether or not the normal liquidation procedure is being followed and thus whether or not aid is included in the disposals. (12) The Commission explains the various ways in which, in its view, aid might be granted.

22. The Commission' s notice makes no reference to Aluminia. With regard to Comsal (renamed Alumix), the Commission states that in the liquidation process of EFIM further funds for the restructuring of Comsal are foreseen, that is to say, funds in addition to LIT 30 000 million referred to in the decision. No restructuring plan has been submitted to the Commission in relation to those funds. The Commission concludes that "it is highly likely that the implementation of such a plan will involve aid" and that, since the details of the plan have not been communicated to it, it cannot determine whether such aid is compatible with the Treaty. (13)

23. It is clear from the Commission' s notice that the Commission has initiated the procedure provided for in Article 93(2) in respect of aid granted to the EFIM group which is different from the aid which is the subject-matter of the decision. Contrary to what the Italian Government argues, the fact that the liquidation of EFIM and the financial situation of Comsal are under investigation by the Commission in the context of a new procedure under Article 93(2) does not mean that the Commission should not have initiated the present proceedings. Although the possibility cannot be excluded that, following the liquidation of EFIM, the unlawful aid which is the subject-matter of these proceedings may be recovered at some time in the future, the case remains that Italy has failed to comply with the decision without a valid excuse.

24. In its application, the Commission states that the obligation of Aluminia and Comsal to repay the unlawful aid that they have received, plus interest, does not eliminate the harmful effects that the payment of the aid has already caused to other undertakings competing in the same market. It refers to the case-law of the Court according to which a declaration in proceedings under Article 169 that a Member State has failed to fulfil its obligations under the Treaty may establish the basis of liability which that Member State may incur as a result of its default towards other Member States, the Community or private parties. (14) It argues that similar principles apply to proceedings under Article 93(2) and asks the Court to make an express statement to that effect in its judgment in the present case.

25. There can be no doubt that a declaration by the Court that a Member State has failed to fulfil its obligations under the Treaty by failing to recover unlawfully paid State aid may establish the basis of liability which that Member State may incur as a result of its default. In particular, such a declaration may be of importance to undertakings competing with the beneficiary of the unlawful aid.

26. In the present proceedings, however, it is not necessary for the Court to make the statement sought by the Commission to the effect that a judgment against a Member State may establish the basis of liability which that Member State may incur towards third parties. Such a statement may be appropriate in infringement proceedings under Article 169 to show that the Commission has an interest in continuing the enforcement proceedings even after the defendant Member State has put an end to the infringement. (15) In this case, however, the interest of the Commission in bringing proceedings is not in question. It is therefore not necessary for the Court to make a statement concerning the liability which Italy may incur as a result of the judgment to be given in this case.

Conclusion

27. Accordingly, I am of the opinion that the Court should:

(1) declare that, by failing to implement Commission Decision 90/224/EEC of 24 May 1989 on aid granted by the Italian Government to Aluminia and Comsal, two State-owned undertakings in the aluminium industry, the Republic of Italy has failed to fulfil its obligations under the EEC Treaty;

(2) order the Republic of Italy to pay the costs.

(*) Original language: English.

(1) ° See also Case C-348/93 Alfa Romeo and Case C-350/93 Lanerossi .

(2) ° OJ 1990 L 118, p. 42.

(3) ° Gazzetta Ufficiale della Repubblica Italiana No 301 of 1986, Ordinary Supplement No 1.

(4) ° Case C-261/89 [1991] ECR I-4437.

(5) ° Gazzetta Ufficiale della Repubblica Italiana No 39 of 1993.

(6) ° OJ 1993 C 75, p. 2.

(7) ° Case 310/85 Deufil v Commission [1987] ECR 901, paragraph 24 of the judgment.

(8) ° Case C-5/89 Commission v Germany [1990] ECR I-3437, paragraph 18 of the judgment.

(9) ° Case 52/84 Commission v Belgium [1986] ECR 89 ( Boch case), paragraphs 14 and 16 of the judgment; Case 94/87 Commission v Germany [1989] ECR 175, paragraphs 8 and 9; Case C-183/91 Commission v Greece [1993] ECR I-3131, paragraph 10.

(10) ° Case 52/84 Commission v Belgium, cited in note , paragraph 16 of the judgment; Case 94/87 Commission v Germany, cited in note , paragraph 9; Case C-183/91 Commission v Greece, cited in note , paragraph 19.

(11) ° See above, paragraph .

(12) ° OJ 1993 C 75, pp. 2-3.

(13) ° Op. cit., p. 4.

(14) ° Case C-263/88 Commission v France [1990] ECR I-4611, paragraph 9 of the judgment; Case 154/85 Commission v Italy [1987] ECR 2717, paragraph 6.

(15) ° See the cases referred to in note .