Case C-110/02

Commission of the European Communities

v

Council of the European Union

(Aid granted by the Portuguese Government to pig farmers – Aid intended to allow the repayment of aid declared incompatible with the common market – Council decision declaring such aid compatible with the common market – Illegality – Third subparagraph of Article 88(2) EC)

Summary of the Judgment

State aid – Power of the Council to authorise aid by way of derogation in view of exceptional circumstances – Conditions for exercise – Application to the Council by the Member State concerned before a decision by the Commission declaring the aid incompatible with the common market and taking of a decision within a period of three months – Limit – Thwarting of a previous decision by the Commission

(Arts 87 EC, 88 EC and 89 EC)

The intention of the EC Treaty, in providing through Article 88 EC for aid to be kept under constant review and supervised by the Commission, is that the finding that aid may be incompatible with the common market is to be arrived at, subject to review by the Community judicature, by means of an appropriate procedure which it is the Commission’s responsibility to set in motion. Articles 87 EC and 88 EC thus reserve a central role for the Commission in determining whether aid is incompatible.

As is clear from its very wording, the third subparagraph of Article 88(2) EC covers an exceptional case. In fact, the Council, acting unanimously, ‘on application by a Member State’, may decide that aid which that State is granting or intends to grant must be regarded as compatible with the common market ‘in derogation from the provisions of Article 87 or from the regulations provided for in Article 89’, if such a decision is justified by ‘exceptional circumstances’.

The power conferred upon the Council by the third subparagraph of Article 88(2) EC being therefore clearly exceptional in character, the further provisions in the third and fourth subparagraphs of Article 88(2), whereby, on the one hand, application to the Council by a Member State suspends examination in progress at the Commission for a period of three months, and, on the other, in the absence of a decision by the Council within that period, the Commission is to give a ruling, undeniably indicate that, where that period has expired, the Council is no longer competent to adopt a decision under that third subparagraph in relation to the aid concerned. The taking of decisions the operative parts of which might prove contradictory is thereby avoided.

Consequently, if the Member State concerned has made no application to the Council under the third subparagraph of Article 88(2) EC before the Commission declares the aid in question incompatible with the common market and thereby closes the procedure referred to in the first subparagraph of Article 88(2), the Council is no longer authorised to exercise the exceptional power conferred upon it by the third subparagraph in order to declare such aid compatible with the common market.

Nor can the Council thwart the effectiveness of such a decision by declaring compatible with the common market, in accordance with that provision, an aid designed to compensate the beneficiaries of the unlawful aid declared incompatible with the common market for the repayments they are required to make pursuant to that decision.

(see paras 29-33, 45)