Case T‑28/16

Federal Republic of Germany

v

European Commission

(EAGF and EAFRD — Expenditure excluded from financing — Rural development — Land consolidation and village renewal — Criteria used for selection of operations — Principle of sincere cooperation — Subsidiarity — Legitimate expectations — Proportionality — Obligation to state reasons)

Summary — Judgment of the General Court (Second Chamber), 3 April 2017

Agriculture — EAFRD financing — Support for rural development — Eligibility of operations and expenses — Compliance with selection criteria laid down by national law — Operations linked to land consolidation and village renewal — Financial control by the Commission — Verification, by the Member State concerned, of the chosen selection criteria enabling identification of the operations to be financed as a priority in accordance with their merits

As regards the link between a regulation and provisions of national law to which it refers, the fact that a regulation is directly applicable does not prevent its provisions from empowering an EU institution or a Member State to take implementing measures and, in that event, the detailed rules for the exercise of that power are governed by the public law of the State concerned. Where a regulation contains such powers, it does not mean that the Member State has an unlimited discretion in the establishment of the implementing rules, or that they must have certain content. It is for a Member State to comply with the conditions and limits laid down by the EU rules which are specifically applicable in that context, or constitute the specific legal basis of the legislative activity at issue. In that regard, it is clear from recital 61 in the preamble to and Article 71(2) of Regulation No 1698/2005 on support for rural development by the European Agricultural Fund for Rural Development (EAFRD) that, in accordance with the principle of subsidiarity, the rules on eligibility of expenditure are in principle set at national level and expenditure is eligible only if used for operations decided in accordance with the selection criteria laid down by the competent body. In that context, it is for the national authorities to act in accordance with the guidelines and the limits laid down by the power conferred on them by Regulation No 1698/2005, first, in fixing the selection criteria in respect of the expenditure concerned and, second, in the application of those criteria. The detailed rules for implementing land consolidation and village renewal are, however, suitable to be laid down in their entirety exclusively by national law. Regulation No 1698/2005 does not allow the Commission to impose a particular legislative procedure or legislative choices for land consolidation and village renewal in the Member State concerned. (see paras 43-45, 47, 48)

The definition of ‘operation’ in Article 2(e) of Regulation No 1698/2005, in so far as it refers to ‘a project, contract or arrangement or other action’, implemented by one or more beneficiaries allowing achievement of the objective of support for rural development is extremely broad, which ensures that, in spite of the variety of the types of transactions concerned and whatever the particular situation of the national procedure in question, a selection, as required by the legislation, is implemented properly. Land consolidation and village renewal, once they are part of a project, contract, arrangement or any other actions that are intended to be actually put into effect, must be regarded as operations and must be subject to selection criteria as provided for in Regulation No 1698/2005. By contrast, it must be held that the concept of ‘measure’, within the meaning of Article 2(d) of Regulation No 1698/2005, inasmuch as it corresponds to ‘a set of operations contributing to the implementation of an axis’ should be considered to be an abstract category of operations which it is open to the Member States to select in their development programme in order to pursue achievement of one of the four axes mentioned by Regulation No 1698/2005. Thus, land consolidation is a measure when it refers to the general action of rationalising the use of agricultural land. The same is true of village renewal when it refers to the general action of improving the living environment in rural areas. Conversely, as soon as a land consolidation or renewal of a village is part of an identifiable action, linked in particular to a geographical location or an identified community of individuals, it must be deemed an operation. (see paras 51-53)

It is clear from Article 71(2) of Regulation No 1698/2005, read in conjunction with Article 2(c) of the same regulation, that the expenditure incurred in respect of operations such as land consolidation or village renewal must be carried out according to selection criteria. As is clear from Article 73 of Regulation No 1698/2005, it is for the Commission, in the context of shared management between the EU institutions and the Member States, to ensure sound financial management in accordance with Article 274 EC, the provisions of which are now contained in Article 317 TFEU. While the principle of sound financial management should not be reduced to a purely accounting definition, it implies that budgetary appropriations should be used in accordance with the principles of economy, efficiency and effectiveness, since that latter principle is intended to ensure the best ratio between the means employed and the results obtained, as is clear from Article 28a of Regulation No 1605/2002 on the Financial Regulation applicable to the general budget of the European Communities, as amended, and Article 30 of Regulation No 966/2012 on the financial rules applicable to the general budget of the Union. Compliance with those principles requires that the selection criteria chosen should make it possible to finance, as a matter of priority, the operations which best meet the objectives of rural development as they result from the four axes mentioned in Regulation 1698/2005. In this context, in view of the cooperation between the European Union and the Member States, although the list of selection criteria can be freely determined by the German authorities, without necessarily having a system of scoring or ranking of the operations, it must nevertheless make it possible to determine those which, as a matter of priority, must benefit from EAFRD support on the basis of their merits. In that context, the eligibility criteria for the operations must be distinguished from the selection criteria. At most, the eligibility criteria make it possible to establish that the operations fulfil the essential conditions in order to benefit from EAFRD financing, such as being broadly in line with CAP objectives as reproduced by the national authorities, but do not make it possible to identify the operations which should be given priority for funding, according to their merits. (see paras 62-64, 66, 68, 69)