Opinion of the Advocate-General



Opinion of the Advocate-General

I – Introduction

1. ‘All that glisters is not gold.’ Shakespeare wrote these words in The Merchant of Venice , (2) when the Prince of Morocco, in attempting to win Portia’s heart, chooses the golden casket. In the sphere of ‘golden shares’, that adage ought to have percolated deep into the minds of the Member States, determined to transmute into a substitute for that most prized of metals shareholdings in undertakings operating in strategic sectors or providing public services.

2. However, in that unbridled alchemical activity governments frequently forget the correcting influence of Community law, which renders worthless the exorbitant and carefully armour-plated privileges which they seek to confer on themselves, setting themselves above the common run of shareholders. They are doubtless motivated by the best of intentions, shielded by the notion of the public interest, but this desire does not justify any deviation from the rules imposed by the provisions of the EC Treaty.

3. The present action brought by the Commission against the Italian Republic forms part of the line of cases on ‘golden shares’ which, since the case of Commission v Germany , (3) has been taken to mean any legal structure applicable to individual companies which preserves or helps to perpetuate the influence of the State on such companies. (4) In essence, the Commission asks the Court of Justice to declare that the criteria contained in a decree on the exercise of exceptional powers granted by law to certain public authorities are incompatible with the free movement of capital and with the freedom of establishment.

II – Legal framework

A – Community law

4. The validity of national legislation on golden shares challenged by the Commission is usually examined by the Court of Justice in the light of two of the fundamental freedoms of the EC Treaty: the right of establishment and the free movement of capital. The first paragraph of Article 43 EC, which is relevant in the case of the former, provides that:

‘Within the framework of the provisions set out below, restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be prohibited. Such prohibition shall also apply to restrictions on the setting-up of agencies, branches or subsidiaries by nationals of any Member State established in the territory of any Member State.’

5. The Treaty covers the free movement of capital in Article 56(1) EC:

‘Within the framework of the provisions set out in this Chapter, all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited.’

6. Given the importance of its content, Article 295 EC is also to be mentioned:

‘This Treaty shall in no way prejudice the rules in Member States governing the system of property ownership.’

7. With regard to secondary legislation, of particular importance is Directive 88/361/EEC, (5) which sets out in Annex I thereto a nomenclature for the classification of the capital movements referred to in Article 1. This includes, in particular, ‘participation in new or existing undertakings with a view to establishing or maintaining lasting economic links’ (direct investments) (6) and ‘acquisition by non-residents of domestic securities dealt in on a stock exchange’ (portfolio investments). (7)

B – Italian law

8. Article 4(227) to (231) of the 2004 Italian Finance Law (‘the Finance Law’) (8) amended Decree-Law No 332 of 31 May 1994, (9) converted into law with amendments by Law No 474 of 30 July 1994 on the acceleration of procedures for the sale of shareholdings held by the State and public bodies in joint stock companies. (10)

9. Article 4(227) governs the special powers granted to the Italian State over certain companies; principally, subparagraph 1 of Article 4(227) recasts Article 2(1) of Decree-Law No 332 to provide that:

‘The President of the Council of Ministers shall determine, by decree …, those companies controlled directly or indirectly by the State and operating in the defence, transport, telecommunications, energy resources and other public service sectors, the articles of association of which are to stipulate that, prior to the adoption of any measure resulting in a loss of control, there shall be inserted, by resolution to that effect passed at an extraordinary general meeting of the company, a provision conferring on the Minister for Economic Affairs and Finance one or more of the following special powers, to be exercised in consultation with the Minister for Productive Activities …’

10. The exceptional powers of the Italian State are then described in detail in Article 2(1)(a) to (d); they can be summarised as follows:

(a) the power to oppose the acquisition by investors of significant shareholdings representing at least 5% of voting rights in such companies or such lower percentage as the Minister for Economic Affairs and Finance may fix by decree;

(b) the power to oppose contracts and agreements between shareholders representing at least 5% of voting rights or such lower percentage as the Minister for Economic Affairs and Finance may fix by decree;

(c) the power to veto resolutions for the dissolution of the company, transfer of the undertaking, merger, demerger, transfer abroad of the company headquarters, amendment of articles of association removing or modifying the special powers; and

(d) power to appoint a non-voting director.

11. On 10 June 2004 the President of the Italian Council of Ministers adopted the Decree (11) referred to in Article 4(230) of the Finance Law; Article 1(1) of this Decree stipulates that:

‘The special powers referred to in Article 2 of Decree-Law No 332/1994 shall be exercised solely when justified by important and compelling reasons in the public interest concerning, more particularly, public policy, public security, public health and defence, and shall take the form of measures appropriate and proportionate to the protection of those interests, such as the application of appropriate time-limits, without prejudice to observance of the principles of domestic and Community law and, above all, of the principle of non-discrimination.’

12. Article 1(2) of the Decree lays down the criteria for the public authorities to exercise the special powers as follows:

‘Without prejudice to the purpose indicated in paragraph 1, the special powers provided for in Article 2(1)(a), (b) and (c) of Decree-Law No 332/1994 shall be exercised in the following circumstances:

(a) real and serious risk of an interruption of the minimum national supply of energy and petroleum products or in the supply of related and subsequent services and, in general, of the supply of raw materials and goods essential to the public as a whole, and interruption of the supply of a minimum service in the telecommunications and transport sectors;

(b) real and serious risk to the continuous performance of obligations vis-à-vis the public as a whole in connection with the supply of a public service and to the performance of the duties entrusted to the company in order to serve the public interest;

(c) real and serious risk to the security of plant and networks in essential public services;

(d) real and serious risk to national defence, military security, public policy and public security;

(e) health emergencies.’

III – Pre-litigation procedure

13. As the Italian Government has not, in its defence to the action or in its rejoinder, contested the Commission’s factual background on any point, the statement of the facts of the case as it appears in the application must be accepted, albeit stripped of elements which are unnecessary for the purposes of reaching a decision in this matter.

14. In a letter of formal notice dated February 2003, the Commission drew the attention of the Italian Government to the question of the compatibility with Community law of Article 66 of Finance Law No 488 of 23 December 1999 and of the Decree of the President of the Council of Ministers of 11 February 2000 on the privatisation of State undertakings.

15. In reply, the Italian authorities indicated, in June 2003, that the Decree was a consequence of the Court’s judgment in Commission v Italy (12) and, in November, that at the end of that year they would adopt legislation in keeping with Community law.

16. Following the adoption of these changes, in January 2004 the Italian Government made available to the Commission the text of the Finance Law for that year, which authorised the President of the Council of Ministers, within 90 days of the entry into force of the law, to issue a decree setting out the criteria for the exercise of the special powers.

17. On 30 June 2004 the Commission received communication of this implementing legislation, the contested Decree.

18. On 22 December 2004 the Commission issued a further letter of formal notice to the Italian authorities as it took the view that the amended provisions and the new criteria relating to the exercise of the special powers did not expunge the infringement of the EC Treaty provisions on free movement of capital and freedom of establishment.

19. On 24 May 2005 the Italian Government replied to the effect that Decree-Law No 332 and the Decree of 10 June 2004 constituted a system of ‘golden shares’ relating to the management of companies with a State shareholding, which complied with the requirements of Community law.

20. This reasoning did not satisfy the Commission, which sent the government in question a reasoned opinion on 18 October 2005. On 20 December 2005 the Italian authorities disputed this opinion and consequently the Commission decided to bring the case before the Court of Justice.

IV – The procedure before the Court of Justice and the claims of the parties

21. The Commission’s application was lodged at the Registry of the Court of Justice on 13 July 2007 and the Italian Government’s defence was lodged on 5 October of the same year.

22. The reply was delivered on 16 November 2007 and the rejoinder on 7 February 2008.

23. The Commission seeks a declaration from the Court of Justice that, by adopting Article 1(2) of the Decree of the President of the Council of Ministers of 10 June 2004 defining the criteria for the exercise of the special powers referred to in Article 2 of Decree-Law No 332 of 31 May 1994, converted into law with amendments by Law No 474 of 30 July 1994 and amended by Article 4(227)(a), (b) and (c) of the Finance Law, the Italian Republic has failed to fulfil its obligations under Articles 43 and 56 of the EC Treaty. It also seeks an order for costs against the Italian Government.

24. The latter contends that the action for failure to fulfil obligations should be dismissed and that costs should be awarded against the Commission.

25. At the hearing held on 2 October 2008 the representatives of the Italian Government and the Commission presented their oral arguments.

V – Analysis of the failure to fulfil obligations

A – Preliminary observations

1. The subject-matter of the dispute

26. In its written pleadings, (13) the Italian Government makes reference to the inadmissibility, not of the action as a whole, but of the majority of the arguments upon which the allegation of infringement rests. It takes the view that, in reality, the criticisms made in the application and in the reply are not directed so much at the contested Decree as at the special powers contained in Decree-Law No 332; however, as the reasoned opinion did not challenge these powers, the Commission alleges an infringement arising out of the regulation of these special powers, thus covertly broadening the subject-matter of the action.

27. The applicant, on the other hand, states in the reply (14) that it questions only the proportionality of Article 1(2) of the Decree in issue and, in particular, the criteria for the exercise of the Italian State’s exceptional powers; it criticises them for not being clear and specific enough to allow investors to ascertain the exact circumstances in which the State can make use of the extraordinary powers. It recognises, however, the need to make the analysis of proportionality in relation to the legitimacy of using the special powers and even to the opportuneness of using them. (15)

28. According to established case-law, the pre-litigation procedure set out in Article 226 EC defines the scope of an action brought under that article. Consequently, the Commission’s reasoned opinion and the application must be founded on the same grounds and submissions and it follows that a complaint which has not been formulated in the opinion cannot be considered. (16) From this case-law it may be inferred that the purpose of this overlapping of the pre‑litigation stage and the application to the Court of Justice is to give the Member State concerned the opportunity both to comply with its obligations under Community law and adequately to explain the submissions in its defence which it considers relevant to counter the allegations of the Commission.

29. The Italian Government’s plea of inadmissibility cannot be accepted, since a comparison of the letter of formal notice, (17) the reasoned opinion (18) and the application shows not only that the Commission simply seeks a judicial decision on the contested Decree, but also that in the last of these documents the subject-matter of the dispute has been restricted to the Decree, while the documents which pre-date the application contain some elements rebutting the validity of the special powers themselves. (19)

30. In any event, even if it were a case of narrowing the debate, the Court of Justice has accepted that this is possible in the context of actions for failure to fulfil obligations and has distinguished this from cases where the debate is extended. (20)

31. Furthermore, the Italian Government’s reasoning is mere sophistry in that it implies that the Commission, in condemning the Decree in question, is really concerned with the nature of the special powers, since it is not lawful to rule on the exercise of the powers without bringing them before the Court. By equating the statement of the special powers with their application, it confuses the provision that grants the powers (Article 2(1)(a) to (d) of Decree-Law No 332) with the provision that governs their exercise (Article 1(2) of the Decree).

32. In short, the dispute between the Commission and the Italian Government concentrates, in terms of its scope, on the proportionality of the relevant provisions of the Decree, all the submissions made by the Commission in its pleadings remaining valid.

33. It is open to question how sound the special powers contained in Decree-Law No 332 are in the light of the Treaty rules on free movement, but the particular features of infringement proceedings prevent the Court of Justice from embarking upon an analysis of this compatibility of its own motion, for this would involve making an ultra petita ruling.

34. For this reason, the circumstances of this action must be considered strange, at the very least: the Court of Justice is asked to rule on the proportionality of the exercise of certain special powers without its opinion first being sought on the compatibility of these powers with the fundamental freedoms of the EC Treaty. Given that it is quite possible that another action will be brought on this question, I would invite the Commission to imbue its inquisitorial zeal with a dose of coherence for the benefit of procedural economy, thereby ensuring a better use of public resources.

2. Relevance of Article 295 EC

35. Although the Italian Government has not put forward as an argument in its defence the requirement to observe Article 295 EC, which was analysed at length in the two joined Opinions which I delivered in Commission v Portugal , Commission v France and Commission v Belgium , (21) on the one hand, and in Commission v Spain and Commission v United Kingdom , (22) on the other, the nature of the special powers in dispute invites an examination of the approach put forward in these Opinions.

36. I therefore repeat my view that the expression ‘system of property ownership’ contained in Article 295 EC refers not to the civil rules concerning property relationships, but to the ideal body of rules of every kind, including public law rules, which are capable of granting ownership rights in respect of a business; in other words, rules which allow the person vested with such rights to exercise decisive influence on the definition and implementation of all or some of its objectives; similarly, it is necessary to interpret the provision purposively, dispensing, for the purposes of the Treaty, with a distinction between public and private undertakings based merely on the identity of its various shareholders; that distinction depends on the opportunity available to the State to impose certain economic policy criteria other than the mere pursuit of the greatest financial gain which is implicit in private business.

37. It should be recalled that the Treaty’s respect for the systems of property ownership in the legal orders of the Member States, enshrined in Article 295 EC, extends to any measure which, through intervention in the public sector, in the economic sense, allows the State to contribute to the organisation of the nation’s productive activity, particularly in the case of privatisation procedures in undertakings operating in sectors regarded as ‘strategic’ which had been gradually opened up. (23) I am thinking particularly of the intervention of public authorities in certain activities of vital national importance for the purpose of imposing economic policy strategies.

38. In this context, the criticism I made in my Opinion in Case C‑463/00 Commission v Spain and Commission v United Kingdom that the Court’s judgments have, without stating why, rejected the application and scope of Article 295 EC, still holds true, given that subsequent judgments have also failed to address it; the Court of Justice has merely indicated that it is undeniable that, depending on the circumstances, certain concerns may justify the retention by Member States of a degree of influence within undertakings that were initially public and subsequently privatised, when those undertakings operate in the sphere of essential services or the public interest. (24)

39. The Court of Justice added that those concerns cannot, however, entitle Member States to plead their own systems of property ownership, referred to in Article 295 EC, by way of justification for obstacles, resulting from privileges attaching to their position as shareholder in a privatised undertaking, to the exercise of the freedoms provided for in Community law, because that article does not have the effect of exempting the Member States’ systems of property ownership from the system of fundamental rules of the Treaty. (25)

40. My Opinion in the joined cases referred to above contains a very similar statement to the effect that the neutrality requirement in Article 295 EC in no way entails exemption from the mandatory provisions of the Treaty, which produce their effects in accordance with their terms, in particular the prohibition of discrimination on grounds of nationality. Article 295 EC does not, I repeat, deny these fundamental rules of the Treaty but it does prevent those measures from being considered per se incompatible with the Treaty because they are covered by the ‘presumption of validity’ conferred on them by the legitimacy of Article 295 EC. (26)

41. It is true that, according to my approach, the special powers of the public authorities at issue in the present case constitute rules for State intervention in the activities of certain undertakings for the purpose of imposing economic policy objectives and must be equated with forms of ownership of undertakings, whose organisation falls to the Member States by virtue of Article 295 EC; their existence does not, of itself, infringe the fundamental freedoms of the Treaty, although their actual exercise may do so.

42. So, in this case, on the one hand, the Commission criticises only the lack of proportionality, in the light of the EC Treaty, of certain aspects of the contested Decree relating to the exercise of the special powers granted to the Italian State under Decree-Law No 332; on the other hand, the principle of proportionality, broadly defined as the premiss that the legislative intervention of the State has to be appropriate to the end sought to be achieved, (27) is one of the general principles of the Community legal order, against which the legality of the exceptional powers of the Member States is to be measured. Thus, in previous Opinions I have argued that governments supporting legislation on ‘golden shares’ must demonstrate that the State’s involvement in privatised undertakings is appropriate to the end pursued (28) and now, in line with my reasoning set out in the preceding pages, I take the view that there is nothing to preclude such legislation being examined under the auspices of the principle of proportionality.

3. Article 43 EC versus Article 56 EC

43. It is the applicant’s claim that the Italian Republic has infringed the freedom of establishment and the free movement of capital.

44. In this respect, I have not changed my view that the natural and most suitable context for evaluating restrictions which fall under the heading of ‘golden shares’ is that of freedom of establishment, since the defendant Member State usually seeks to control the formation of privatised companies’ corporate will using powers of intervention as regards share structure (by influencing either the organisation of the shareholdings or specific management decisions), an aspect which has little in common with the free movement of capital. (29)

45. However, such powers may affect the right to freedom of establishment and make it less attractive, either directly where they impinge on access to share capital, or indirectly, where they reduce its allure by restricting the powers of the board of directors relating to the ownership or management of the company. (30) Contrary to the Court of Justice’s finding, (31) I am still of the opinion that the resulting restriction of the free movement of capital is incidental, rather than inevitable. I have already mentioned that this is the case as regards measures which affect the composition of the membership, but it is even more true as regards measures restricting the adoption of company resolutions (change of company object or disposal of assets, for example), such as those at issue in this case, making the link with the free movement of capital hypothetical or very tenuous. (32)

46. The distinction takes on a high degree of practical relevance in view of the fact that free movement of capital applies not only among the Member States but also between the Member States and non-member countries. (33) The implication is that, even if a measure such as a power of veto in the decision to dissolve a company in a strategic sector were found to be incompatible with Article 43 EC, it would still be effective as against shareholders of non-member countries.

47. By contrast, a finding that this extraordinary power contravened Article 56 EC, despite the secondary nature of the movement of money from non-member countries which is a precondition to the acquisition of a controlling shareholding, would leave the way open for such non-Community shareholders to carry through the dissolution, contrary to the Member State’s interest in the continuing provision of the public service supplied by the undertaking.

48. I do not deny that there are some measures which are capable of being evaluated using the criteria of both the fundamental freedoms here in play; I wish merely to draw attention to the fact that there exists another type of special powers whose inherent connection with the management of undertakings weakens the link with the free movement of capital to such an extent that a finding of nullity would lead to an excessively broad interpretation of Article 56 EC.

49. I would therefore argue in favour of more restricted fields of application for the two fundamental freedoms, contrary to the current tendency, which originated with the Court of Justice, to opt for the free movement of capital. I shall now leave this thought in outline for possible future elaboration and move on to a detailed examination of the Decree of 10 June 2004. I would mention at this point that the separation of the discussion of the failure to fulfil obligations in Section B(2)(a) and (b) below is dictated by the respective fundamental freedom in the light of which the Decree in issue is to be analysed.

50. Finally, it is worth mentioning that it may be inferred from the events that it was precisely the fear of investments for the purposes of establishment that has led the Italian State to pass the legislation to which the Commission objects. Even if it is not the sole motivation, there is an underlying desire to prevent undertakings in strategic sectors from falling into the hands of financial groups of dubious solvency from outside the Community which may have objectives incompatible with the policies of the Member States.

B – The proportionality of the contested Decree

1. Approach

51. The basis of the Commission’s application is that the contested Decree does not adequately define the criteria for the use of the exceptional powers so that an investor does not know in what situation the government means to use them. In this context, the Commission argues that, those criteria being drafted in very general terms, the State will intervene only when an investor attempts to acquire a significant tranche of shares in undertakings in the relevant economic sectors (defence, transport, telecommunications, energy and other public services), (34) implying that the decision is subjective, informed exclusively by the attributes of the investor.

52. The Commission adds that the expressions ‘real and serious risk’ and ‘health emergencies’ lack the objectivity and precision necessary to describe the circumstances in which those extraordinary powers are to be used, leaving the Italian authorities with a wide discretion and holding back or deterring investors, in particular those investors seeking to establish a base in Italy with the intention of influencing the management of the undertaking.

53. Furthermore, the Commission maintains that a national court called upon to resolve any action involving an actual instance of the exercise of the special powers would have no basis upon which to review the discretion of the administrative authority.

54. Finally, the Commission notes the lack of a causal link between the need to guarantee energy supplies, the provision of public services and the controlling of company membership, particularly in unharmonised sectors. In areas of activity with a degree of harmonisation of national legislation, the Commission cites Directives 2003/54/EC, (35) 2003/55/EC (36) and 2002/21/EC (37) (respectively ‘the electricity Directive’, ‘the gas Directive’ and ‘the telecommunications Directive’), indicating that these include measures to protect the continuity of supplies on a national level in those areas of the economy.

55. Leaving aside the submissions, referred to above, relating to the subject-matter of the dispute, the Italian Government is insistent that the debate should be conducted within the framework of freedom of establishment rather than that of the free movement of capital, because the acts at issue are intended as decisive interventions in the management of the undertakings.

56. In addition, it disputes the relevance of the Directives on the electricity and gas markets, given that the Decree in question has not introduced structural measures.

57. The Italian Government also relies on the principle of subsidiarity to support its argument that national legislation is best placed to address situations which are seriously detrimental to the national interest in the context of both public services and defence.

2. Evaluation

a) Introductory remarks

58. Before embarking upon an analysis of the pleas in law concerning failure to fulfil obligations, it is helpful to outline the parameters applied in doing so.

59. First, as the Commission’s action does not cover the special powers contained in Article 2(1) of Decree-Law No 332, they must be taken to be compatible with the freedom of establishment and free movement of capital guaranteed by the EC Treaty, as I have mentioned previously. Furthermore, as the Commission objects only to the lack of proportionality of the objectives regulated by the Decree, it is necessary to consider whether they are justified in the light of those freedoms.

60. In this regard, the Italian provision under discussion here offers a range of different types of justification for the distortion in the internal market that the exercise of the special powers might create, referring expressly to maintaining energy supplies and the provision of public services, the security of the infrastructure used for these, national defence and public policy, and health emergencies. (38)

61. Second, when it is a matter of ascertaining whether or not provisions of domestic law which interfere with fundamental freedoms are consistent with the Treaty, the principle of proportionality presupposes the promotion of market integration and the Court of Justice takes a stricter approach than when applying it in relation to provisions emanating from the Community institutions. (39)

62. Furthermore, with regard to my methodology, I would like to emphasise that the issue of the conditions for exercising the special powers contained in the contested Decree depending on, on the one hand, subparagraphs (a) and (b) of Article 2(1) of Decree-Law No 332 and, on the other, subparagraph (c) of the same provision, arises because the validity of the first two subparagraphs mentioned is to be assessed under Article 56 EC, while the legality of the third is to be assessed under Article 43 EC.

b) Proportionality of the contested Decree in respect of the powers contained in Article 2(1)(a) and (b) of Decree-Law No 332

63. These two subparagraphs of the aforementioned provision provide that the Minister for Economic Affairs and Finance, in consultation with the Minister for Productive Activities, has the power to oppose the acquisition by investors of significant shareholdings in companies in the aforementioned sectors representing at least 5% of voting rights (subparagraph (a)), and to oppose contracts and agreements between shareholders representing at least 5% of voting rights (subparagraph (b)). (40)

64. So far, in the absence of a definition of the concept of ‘capital movements’ in the EC Treaty, the case-law has given indicative value to the nomenclature annexed to Directive 88/361, (41) which provides that the concept comprises direct investments, these being the purchase of a right to participate in a company by means of a shareholding which allows the possibility of involvement in its management or control, and indirect investments, such as the acquisition of securities on the capital market for the purpose of investing money but without intending to influence the management or control of the undertaking (also known as ‘portfolio investments’). (42)

65. The Court of Justice has analysed these two categories of investment and considers that national measures which prevent the acquisition of shares in the companies concerned or make it more difficult or which discourage operators from other Member States from investing in the capital of such companies constitute ‘restrictions’ within the meaning of Article 56(1) EC. (43)

66. Although I have already indicated that the special powers given to these ministers are not under consideration in this action, the foregoing analysis confirms that both the right to oppose the purchase of shareholdings representing at least 5% of the capital of an undertaking and the power to block contracts that such shareholders may enter into with other shareholders must be assessed in respect of their compatibility with Community law in the light of Article 56 EC, for it is clear that they would cause interference with the purchase of shares, even if it is only a dissuasive effect.

67. Owning such a quantity of securities is not in itself sufficient to ensure control of the company, although the fragmentation of shareholdings in large companies makes it easier for groups of investors with relatively low percentages of shares to participate in the management of the undertaking.

68. Focusing on the analysis of proportionality of the Italian Decree, one might well venture to say that it would not pass even the appropriateness test, (44) for, as argued by the Commission, there is no trace of a logical connection between the rights of opposition in subparagraphs (a) and (b) of Article 2(1) of Decree-Law No 332 and the conditions for their exercise according to the Decree.

69. So it is difficult to understand how the acquisition of shares or a shareholders’ agreement could cause a real and serious danger of interruption in energy supplies or a real and serious danger of disruption in the continuity of public services; nor is it clear how they might constitute a real and serious threat to the security of the infrastructure and networks of essential public services, or to national defence or public security or, still less, how they might constitute a health emergency, however sick the investors or the parties to the shareholders’ agreement might be.

70. The Italian Government has neither produced any evidence nor provided any information that could counter the Commission’s reservations, which appear to be well founded. This negative view is compounded by the fact that the competent ministers are empowered to reduce the percentage below 5%, without giving any reason, as a figure below this threshold accentuates the impression that the exercise of the power of veto is entirely arbitrary. (45)

71. As a result, it is less important to analyse the argument relating to the applicability of the electricity, gas and telecommunications Directives, as this would not cure the initial defect of the mismatch between the powers and the regulation of their exercise in the contested Decree; moreover, these pieces of legislation are of doubtful relevance as they are limited to regulating matters of competition in the relevant market and contain only common minimum standards to ensure that public service requirements are respected. (46)

72. Regarding the argument of the Italian Government that the principle of subsidiarity can be invoked to support the validity of the Decree because it guarantees the right of the Member States to intervene in order to protect their vital interests, it should be noted that it must be applied, in the words of the EC Treaty itself, in a manner which respects its general provisions and objectives, particularly as regards the maintaining in full of the acquis communautaire . (47)

73. Moreover, the Court of Justice has ruled that, although the Member States are free to determine the requirements of public policy and public security in the light of their national needs, such requirements must, in the Community context, be interpreted strictly, so that their scope cannot be determined unilaterally without being subject to control by the institutions of the Union. (48)

74. It has also ruled that a system of prior authorisation for direct foreign investments (49) or of opposition ex post facto , (50) which gives only a general definition of the financial transactions to which they apply due to the threat they pose to public policy or public security, does not enable affected parties to be apprised of the specific circumstances in which a prior consent is required or in which the veto will be used; the Court itself has criticised this lack of precision regarding the rights and obligations of individuals deriving from Article 56 EC as being contrary to the principle of legal certainty.

75. In short, using the principle of subsidiarity in such imprecise terms is contrary to the legal certainty required by the Court of Justice in order to avoid the harshest effects of the Member States’ obligations under the Treaty.

76. In accordance with the foregoing, I propose that the Court of Justice should declare that, by adopting provisions such as those contained in Article 1(2) of the Decree of the President of the Council of Ministers of 10 June 2004 in relation to subparagraphs (a) and (b) of Article 4(227) of the Finance Law, the Italian Republic has failed to fulfil its obligations under Article 56 of the EC Treaty.

c) Proportionality of the contested Decree in respect of the powers contained in Article 2(1)(c) of Decree-Law No 332

77. It will be recalled that the provision under consideration provides that decisions relating to dissolution, transfer, merger, demerger, moving the registered office of the company abroad, amending the objects or statutes of the company so as to remove or modify the special powers in relation to the public undertakings in question are subject to the veto of the Minister for Economic Affairs and Finance and the Minister for Productive Activities.

78. In point 49 of this Opinion, I stated my preference for a clearer delimitation of the circumstances in which the free movement of capital applies and those that fall within the scope of the freedom of establishment and, in doing so, I rejected the notion that, when it comes to analysing them in the light of the basic freedoms guaranteed by the EC Treaty, they are necessarily the same.

79. In this context, I am convinced that the measures referred to in Article 2(1)(c) of Decree-Law No 332 belong under the freedom of establishment. In fact, the case-law of the Court of Justice indicates that, in order to ascertain whether a national provision falls under one freedom or another, it is necessary to look at the subject-matter of that provision, (51) adding that national provisions applicable to the ownership by a national of one Member State of a holding in the capital of a company located in another Member State which gives definite influence over the company’s decisions and permits involvement in its activities are covered by the freedom of establishment. (52)

80. However, anyone proposing or promoting such decisions will need to hold sufficient shares to be able to pass a favourable resolution of the general meeting of shareholders, because only thus will the requisite majority be achieved to have such a strong influence on the activities of the undertaking; in fact, some decisions can even endanger the existence of the undertaking and consequently national legislators have taken the precaution of requiring a qualified majority of the capital represented in the general meeting for their adoption. (53)

81. In any case, the cross-border movement of funds giving rise to the acquisition of the tranche of securities occurred at an earlier stage, without any disruption, thus reducing the link with the free movement of capital to the level of a schoolboy hypothesis. Furthermore, although it cannot be ruled out that the legislation may act as something of a deterrent (causing foreign investors not to be interested in any undertaking which introduces into its statutes a clause such as the one under consideration), a large proportion of the measures in question have been harmonised within the Community in accordance with the freedom of establishment, specifically under Article 44(2)(g) EC. (54) This is completely logical if one considers the link between the decisions referred to in Article 2(1)(c) of Decree-Law No 332 and this fundamental freedom of the Treaty.

82. In any event, it is not worthwhile going into detail on the classification of the measures, since it is not their validity which is being called into question but that of the criteria for their exercise under the contested Decree. I should wish, nevertheless, to reiterate my absolute conviction that this type of action taken by the organs of a company falls under the freedom of establishment of Article 43 EC and not under the free movement of capital, which I do not consider relevant, even assuming that there does exist a disincentive to foreign investment, because the relationship is so tenuous.

83. Returning to the analysis of the proportionality of the Decree in issue, I am of the opinion that, apart from amending the statutes to remove or modify the special powers in the case of public undertakings, the right to veto the remaining decisions seems appropriate to the objective pursued, given that, for example, the dissolution of the undertaking or the amendment of its objects is liable to interrupt the continuity of energy supplies and/or the supply of other public services, contrary to the legitimate and essential interests of the Member State, which is committed to the continued well-being of its citizens.

84. However, I seriously doubt that it is necessary, for there are solutions which impinge less seriously on the functioning of the common market and which make it easier to predict the actions of foreign investors; I am thinking specifically of the Italian State’s retaining a blocking interest in companies in which it considers it advisable to maintain its presence.

85. I have already mentioned the unanimous criterion within European company law that resolutions such as those referred to in subparagraph (c) of Article 2(1) of Decree-Law No 332 should not be effective without a requirement not only for an increased or qualified majority in the shareholders’ meeting (usually an extraordinary general meeting), but also a requirement as to the quorum.

86. In this context, provided it is not abused, retaining a tranche of securities sufficient to undermine any attempt to propose a resolution with the scope of those in question in companies which provide public services has the undisputed advantage of tailoring the public interest sought by the relevant administrative provisions to fit the pattern of national company law, without contravening Community law. Moreover, in practically every case, this solution does not entail any additional cost for the State, since it involves not the acquisition of a specific number of shares, but, given the peculiarities of such companies, which until quite recently were under the absolute control of the government, only the disposal by the public authorities of the necessary number of shares so as to continue to control the destiny of such undertakings.

87. In addition, as it is legitimate for the State to feel an obligation to control the continuity and stability of supplies and the provision of public services, there is nothing to prevent the State from giving the regulators of the energy, telecommunications and other markets the supervisory powers to ensure that, for example, the dissolution of an electricity company, which would mean the disappearance of a supplier of such important goods or services, does not adversely affect citizens.

88. In summary, the contested Decree is not proportionate in relation to the powers whose exercise it is regulating or in relation to Community law. Consequently, I propose that the Court of Justice declare that, by adopting provisions such as those contained in Article 1(2) of the Decree in relation to Article 4(227)(c) of the Finance Law, the Italian Republic has failed to fulfil its obligations under Article 43 EC.

d) Epilogue

89. The action brought by the Commission against the Italian Republic concerns, most particularly, the acquisition by investors from outside the Community of holdings of some significance in companies operating in sectors regarded as strategic or in the public service sector, occasionally giving rise to suspicion on the part of European governments. This is demonstrated in the Italian Government’s defence, which states that the criteria (of the contested Decree) can be identified only in relation to the characteristics of the purchaser of the shares. (55)

90. It has even been claimed that the main purpose of ‘golden shares’ legislation relates to the conditions under which non-European bodies can enjoy the privileges associated with ownership of undertakings in the most sensitive sectors, rejecting solutions such as reciprocity and opting for agreements which introduce golden shares into the statutes, with the blessing of the majority of shareholders. (56)

91. Bearing this in mind, I feel that the approach that I am suggesting is sufficiently respectful of Member States’ concerns regarding extra-Community investment groups. By regarding the national Decree on the exercise of the special powers contained in Article 4(227)(a) and (b) of the Finance Law as disproportionate and therefore contrary to Article 56 EC, the Italian Republic is prevented from enforcing the legislation in issue against either Member State nationals or nationals of non-member countries, because the free movement of capital applies outside the Community, as mentioned previously.

92. However, the governments retain some leeway to hold extra-Community investors with dubious objectives in check by limiting their ability to take the actions referred to in Article 4(227)(c) of the Finance Law; in practice, the fact that the right to veto these decisions which are so fundamental to the existence of the undertaking has been dealt with under Article 43 EC means that its incompatibility with the freedom of establishment does not prevent the Member States from using the veto against major shareholders from outside the Community, for such shareholders cannot rely on the fundamental right of establishment.

VI – Costs

93. Article 69(2) of the Rules of Procedure of the Court of Justice stipulates that the unsuccessful party is to be ordered to pay the costs, if the other party has applied for them. Since the Italian Republic has been unsuccessful and the Commission has applied for an order for costs against it, it must be ordered to pay the costs of the action.

VII – Conclusion

94. In accordance with the foregoing considerations, I propose that the Court of Justice should:

(1) declare that, by adopting provisions such as those contained in Article 1(2) of the Decree of the President of the Council of Ministers of 10 June 2004 defining the criteria for the exercise of the special powers referred to in Article 2 of Decree-Law No 332 of 31 May 1994, converted into law with amendments by Law No 474 of 30 July 1994, and amended by the Finance Law, the Italian Republic has failed to fulfil its obligations under Article 56(1) EC in relation to Article 4(227)(a) and (b) of the Finance Law and under Article 43 EC in relation to subparagraph (c) of the same provision;

(2) order the Italian Republic to pay the costs.

(1) .

(2) – Act II, Scene VII.

(3) – Case C‑112/05 [2007] ECR I‑8995 and my Opinion delivered on 13 February 2007.

(4) – Van Bekkum, J., Kloosterman, J. and Winter, J., ‘Golden Shares and European Company Law: the Implications of Volkswagen ’, European Company Law , Volume 5/1, February 2008, p. 8.

(5) – Council directive of 24 June 1988 for the implementation of Article 67 of the Treaty (OJ 1988 L 178, p. 5).

(6) – Point I.2 of Annex I.

(7) – Point III.A.1 of Annex I.

(8) – Law No 350 of 24 December 2003 (GURI No 299 of 27 December 2003).

(9) – GURI No 126 of 1 June 1994.

(10) – GURI No 177 of 30 July 1994.

(11) – GURI No 139 of 16 June 2004.

(12) – Case C‑58/99 [2000] ECR I‑3811.

(13) – Specifically, at points 4 and 14 of the defence, a contrario sensu , and points 2, 4 and 43 of the rejoinder, in fine.

(14) – Point 3 et seq. of that pleading.

(15) – Point 5 of the reply.

(16) – See, for example, Case 76/86 Commission v Germany [1989] ECR 1021, paragraph 8; Case C‑96/95 Commission v Germany [1997] ECR I‑1653, paragraph 22; Case C‑206/96 Commission v Luxembourg [1998] ECR I‑3401, paragraph 13; and Case C‑350/02 Commission v Netherlands [2004] ECR I‑6213, paragraphs 19 and 20.

(17) – Letter from the Commission to the Permanent Representation of the Republic of Italy dated 6 February 2003.

(18) – Letter of the Commission to the Representation dated 18 October 2005.

(19) – Penultimate paragraph on page 7 of the letter of formal notice and last paragraph on page 6 of the reasoned opinion.

(20) – Case C‑279/94 Commission v Italy [1997] ECR I‑4743, paragraph 25.

(21) – Case C‑367/98 Commission v Portugal [2002] ECR I‑4731, Case C‑483/99 Commission v France [2002] ECR I‑4781 and Case C‑503/99 Commission v Belgium [2002] ECR I‑4809, the Opinion in which was delivered on 3 July 2001.

(22) – Case C‑463/00 Commission v Spain [2003] ECR I‑4581 and Case C‑98/01 Commission v United Kingdom [2003] ECR I‑4641, the Opinion in which was delivered on 6 February 2003.

(23) – See also my Opinion in Case C-112/05 Commission v Germany , point 47 et seq.

(24) – See, for example, Case C‑463/00 Commission v Spain , paragraph 66, and Joined Cases C‑463/04 and C‑464/04 Federconsumatori and Others [2007] ECR I‑10419, paragraph 41.

(25) – Case C‑463/00 Commission v Spain , paragraph 67; Commission v France , paragraph 44; and Commission v Belgium , paragraph 44.

(26) – Opinion in Commission v Portugal , Commission v France and Commission v Belgium , point 67, and in Case C‑463/00 Commission v Spain and Commission v United Kingdom , point 37.

(27) – Schwarze, J., European Administrative Law , Sweet & Maxwell, 1st revised edition, London, 2006, p. 679.

(28) – Opinion in Case C‑463/00 Commission v Spain and Commission v United Kingdom , point 37.

(29) – Opinion in Case C‑463/00 Commission v Spain and Commission v United Kingdom , point 36; see also my Opinion in Case C-112/05 Commission v Germany , points 58 and 59.

(30) – Velasco San Pedro, L.A. and Sánchez Felipe, J.M., ‘La libertad de establecimiento de las sociedades en la UE. El Estado de la cuestión después de la SE’, Revista de derecho de sociedades , No 19, 2002-2, p. 31.

(31) – Commission v Portugal and Commission v France , paragraph 56. See also Commission v Netherlands , paragraph 43.

(32) – Opinion in Case C‑463/00 Commission v Spain and Commission v United Kingdom , point 36.

(33) – See, for example, the recent judgment of 17 July 2008 in Case C‑207/07 Commission v Spain , paragraph 31.

(34) – The Commission asserts, and this has not been disputed by the Italian Government, that a clause concerning special powers has been inserted into the statutes of ENI SpA (energy and petrochemicals), Telecom Italia (telecommunications), Enel SpA (electricity) and Finameccanica SpA (defence).

(35) – Directive of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in electricity and repealing Directive 96/92/EC – Statements made with regard to decommissioning and waste management activities (OJ 2003 L 176, p. 37).

(36) – Directive of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in natural gas and repealing Directive 98/30/EC (OJ 2003 L 176, p. 57).

(37) – Directive of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services (Framework Directive) (OJ 2002 L 108, p. 33), which the Commission refers to in conjunction with Directive 2002/22/EC of the European Parliament and of the Council of 7 March 2002 on universal service and users' rights relating to electronic communications networks and services (Universal Service Directive) (OJ 2002 L 108, p. 51).

(38) – Subparagraphs (a) to (e) of Article 2(1) of the contested Decree.

(39) – Tridimas, T., The General Principles of EU Law , 2nd edition, Oxford University Press, Oxford, 2006, p. 193; Galetta, D.‑U., Principio di proporzionalità e sindacato giurisdizionale nel diritto amministrativo , Giuffrè, Milan, 1998, p. 103 et seq.

(40) – In both cases, the Minister for Economic Affairs and Finance has the authority to reduce this percentage by decree.

(41) – Cited in footnote 5.

(42) – Case C‑222/97 Trummer and Mayer [1999] ECR I‑1661, paragraph 21; Commission v France , paragraphs 36 and 37; and Commission v United Kingdom , paragraphs 39 and 40.

(43) – Commission v France , paragraph 41; Case C‑174/04 Commission v Italy [2005] ECR I‑4933, paragraphs 30 and 31; and Case C‑265/04 Bouanich [2006] ECR I‑923, paragraphs 34 and 35.

(44) – My starting point is the commonly accepted idea that proportionality comprises two tests: that the provision in question must be appropriate to the objective pursued and that the provision must be necessary, which in Community law is usually referred to as ‘the least restrictive measure test’; in this regard, see Sarmiento Ramírez-Escudero, D., El control de proporcionalidad de la actividad administrativa , Tirant lo Blanch, Valencia, 2004, p. 641 et seq.

(45) – It is surprising to have to make this comment when, in Italian law, the principle of proportionality is generally associated with rationality, according to Fromont, M., Droit administratif des États européens , Presses Universitaires de France (Thémis droit), Paris, 2006, p. 294.

(46) – Article 3(2), relating to recital 27 in the preamble to the gas Directive and Article 3, in conjunction with recital 26 in the preamble to the electricity Directive; in addition, Directive 2002/22 concerns universal service and the obligations which that entails, which constitutes only one sector of the public services. See also Pießkalla, M., Golden Aktien aus EG‑rechtlicher Sicht – Eine Untersuchung staatlicher und privater Sonderrechte in Wirtschaftsgesellschaften unter besonderer Berücksichtigung der Kapitalverkehrsfreiheit , Dr. Kovac, Hamburg, 2006, p. 202.

(47) – Point 2 of the Protocol on the application of the principles of subsidiarity and proportionality, annexed to the EC Treaty by virtue of the Treaty of Amsterdam.

(48) – Case 36/75 Rutili [1975] ECR 1219, paragraphs 26 and 27.

(49) – Case C‑54/99 Église de scientologie and Scientology International [2000] ECR I‑1335, paragraphs 19 and 23.

(50) – Commission v France , paragraphs 50 and 52, and Case C‑463/00 Commission v Spain , paragraph 74.

(51) – Case C‑196/04 Cadbury Schweppes and Cadbury Schweppes Overseas [2006] ECR I‑7995, paragraphs 31 to 33; Case C‑452/04 Fidium Finanz [2006] ECR I‑9521, paragraphs 34 and 44 to 49; Case C‑374/04 Test Claimants in Class IV of the ACT Group Litigation [2006] ECR I‑11673, paragraphs 37 and 38; and Case C-207/07 Commission v Spain , paragraph 35.

(52) – Case C‑251/98 Baars [2000] ECR I‑2787, paragraph 22; Case C‑436/00 X and Y [2002] ECR I‑10829, paragraph 37; and Cadbury Schweppes and Cadbury Schweppes Overseas , paragraph 31.

(53) – Article 59(1) of Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European company (SE) (OJ 2001 L 294, p. 1); Article 39(1) of the third amendment to the proposal for a fifth Council directive based on Article 54 of the EEC Treaty concerning the structure of public limited companies and the power and obligations of their organs (COM(1991) 372 final); by way of example of Member State legislation, see also Articles 153 and 239 of French Law No 66‑537 of 24 July 1966 on companies; Paragraphs 179 (II), 182 (I), 193 (I) and 262 (I), No 2, inter alia, of the German Law on limited companies (Aktiengesetz) of 6 September 1965 (BGBl. I, p. 1089); Articles 2364 and 2368 to 2369 bis of the Italian Civil Code and Article 144(1) and Article 260(1)(1) of the consolidated version of the Spanish Law on limited companies, approved by Legislative Royal Decree 1564/1989 of 22 December 1989.

(54) – Basically, the following legislation, which I cite by number and reference to the Official Journal, omitting the full name so as not to overburden this footnote: Directive 68/151/EEC (OJ, English Special Edition 1968 (I), p. 41); Directive 77/91/EEC (OJ 1977 L 26, p. 1); Directive 78/855/EEC (OJ 1978 L 295, p. 36); Directive 78/660/EEC (OJ 1978 L 222, p. 11); Directive 82/891/EEC (OJ 1982 L 378, p. 47); Directive 83/349/EEC (OJ 1983 L 193, p. 1); Directive 84/253/EEC (OJ 1984 L 126, p. 20); Directive 89/666/EEC (OJ 1989 L 395 p. 36); Directive 89/667/EEC (OJ 1989 L 395, p. 40); Directive 2004/25/EC (OJ 2004 L 142, p. 12); Directive 2005/56/EC (OJ 2005 L 310, p. 1); Directive 2007/36/EC (OJ 2007 L 184, p. 17); and Directive 2007/63/EC (OJ 2007 L 300, p. 47).

(55) – Point 26 et seq. of the defence to the action for failure to fulfil obligations.

(56) – Goldschmidt, P.N., ‘Editorial – Golden Shares’, Cahiers de droit européen , 2007, No 3/4, p. 297. In favour of reciprocity, however, see Weiss, M., ‘Staatlicher Schutz vor Investitionen nach dem Urteil zum VW‑Gesetz’, EWS , 2008, No 1/2, p. 20.