1999/268/EC: Commission Decision of 20 January 1999 on the acquisition of land under the German Indemnification and Compensation Act (notified under document number C(1999) 42) (Only the German text is authentic)
Date: 1999-01-20
Institutions: European Commission
Subjects: Germany, State aid, acquisition of property, agricultural real estate, aid to agriculture, restriction on competition

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 20 January 1999

on the acquisition of land under the German Indemnification and Compensation
Act

(notified under document number C(1999) 42)

(Only the German text is authentic)

(1999/268/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

into force in 1994, permitted measures which could be
deemed incompatible with the common market.

Having regard to the Treaty establishing the European
Community, and in particular the first subparagraph of
Article 93(2) thereof,

Having given interested parties a time limit within which
to submit their comments pursuant to the above Article
and having taken account of those comments,

Whereas:

I

The Commission, by decision of 18 March 1998, initiated
the procedure provided for in Article 93(2) of the EC
Treaty against the acquisition of land under the Indemni-
fication and Compensation Act
(Ausgleichsleistungsge-
setz) (EALG) (by letter SG(98) D/2532 of 30 March 1998).

In that letter the Commission asked Germany to submit
its comments within one month of its receipt. In accord-
ance with Article 93(2) the other Member States and
interested parties were given due notice by means of
publication of the letter in the Official Journal of the
European Communities (1) and were requested to submit
their comments.

The Commission initiated the procedure because it was
unable to ascertain whether the EALG, which had entered

(1) OJ C 215, 10.7.1998, p. 7.

The Commission was unsure whether the measures in
question could be defined as State aid within the meaning
of Article 92(1) of the Treaty or as other measures not
covered by aid legislation in compensation for the expro-
priation of property. Although the Commission acknow-
resettled
ledged the possibility of compensation for
farmers (Wiedereinrichter),
it expressed doubts as to
whether that possibility applied to newly settled farmers
(Neueinrichter) and certain legal entities.

In respect of those measures defined as aid, the Commis-
sion doubted whether the maximum aid intensities for
the acquisition of agricultural land (pursuant to Article
92(3)(c) of the EC Treaty, 35 % for agricultural land in
areas which are not less-favoured) had been complied
with.

the procedure was to clarify
The further purpose of
whether, and if so to what extent, the measures constitute
discrimination against west German citizens and other
citizens of the Community which is incompatible with
Articles 6 and 52 and following of the EC Treaty.

Germany submitted its comments to the Commission by
letter dated 29 May 1998 (Section II). No other Member
State submitted comments but hundreds of interested
parties did (Section III). Germany submitted further in-
formation to the Commission by letters of 22 October
and 16 December 1998 and in a meeting held on 18
December 1998.

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II

Germany submitted the following position with regard to
the Commission letter of 30 March 1998 initiating the
procedure:

1. Applicability of Articles 92, 93 and 94 of the EC

Treaty

Germany felt that the acquisition of land should be
exempt from the aid controls under Articles 92, 93
and 94 of the EC Treaty firstly, because in temporal
terms the measure was a scheme which should really
have been adopted by the German Democratic
Republic and secondly, because its contents consti-
tuted a scheme for the settlement of open property
issues which did not fall within the scope of the EC
Treaty’s aid provisions. It gave the following detailed
position.

Land acquisition schemes under the EALG formed
part of the reform of east German agricultural and
forestry property ownership rules introduced by the
GDR to comply with west German rules and there-
fore constituted a general measure deriving from
special historical circumstances. Their legal mission
and purpose were set out in the GDR’s first State
Treaty and in the Unification Treaty.

1.1. State Treaty of 18 May 1990

establishing

A fundamental principle of the State Treaty between
the Federal Republic of Germany and the German
Democratic Republic
a monetary,
economic and social union of 18 May 1990 (the State
Treaty) was the creation of private ownership. In the
Treaty the two parties committed themselves to a
free, democratic,
federal and social basic order
governed by the rule of law (first sentence of Article
2(1)) and private ownership (Article 1(3)). The GDR
expressly undertook to model the law of the GDR on
such a rule of law (Protocol on guidelines, A.I.1). In
other words, through the State Treaty the GDR had
already committed itself to creating private owner-
ship governed by the rule of law to replace State
ownership.

1.2. Joint Declaration of 15 June 1990

However, the open property issues created particular
problems. For that reason on 15 June 1990, the
contracting parties to the State Treaty agreed on a
Joint Declaration on the settlement of open property
Issues before ratifying the Treaty. The settlement, as

defined by its purpose, was, of course, restricted to
the territory of the GDR which, since it at no time
formed part of the common market, could not be
made subject to the provisions of the EC Treaty, even
for the settlement of open property issues. Nor was
the purpose to help enterprises to adapt
to the
changing competitive situation, but to provide the
necessary measures to remodel ownership conditions
against
the background of decades of deprivation
suffered by those concerned. The purpose of the
settlement therefore lacked any relationship to the
mission of the Community under the EC Treaty. The
purpose of the planned settlement, thus restricted to
the settlement of open property issues, was specified
in the preamble to the Joint Declaration.

‘The division of Germany, the resultant migration of
the population from east to west and the different
rules of
law in the two German States created
numerous property law problems affecting many cit-
izens of the German Democratic Republic and the
Federal Republic of Germany. The two governments
base their attempts to solve the property issues on
the creation of a balance between different interests
based on a reconciliation of interests within society.
Legal certainty and unambiguity and the right to
own property are the principles by which the
Governments of the German Democratic Republic
and the Federal Republic of Germany will be guided
in settling the open property issues. This is the only
way to create lasting legal concord in a future
Germany'.

In commerce and industry the GDR itself created
the legal basis for
the reintroduction of private
ownership: the Privatisation and Reorganisation of
Publicly Owned Assets Act, otherwise known as the
Trusteeship Act (Treuhandgesetz), of 17 June 1990,
provided the basis for the business sector to privatise.
However, that was the only sector in which the basis
for restructuring property was created. The conver-
sion of State-owned businesses into private com-
panies belonging to the Trust Agency (Treuhandan-
stalt) allowed the Agency to sell to anyone under
market-economy principles. Directly after, while the
GDR was still a separate State, the privatisation of
industrial and other commercial businesses began.
The GDR was faced with particular problems in the
restructuring of State-owned agricultural and forestry
property. Although in principle the Trusteeship Act

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prescribed privatisation in this sector too, it attached
restrictive conditions: it stipulated that the special
economic,
and prop-
erty-law features of the sector had to be taken into
account in the process of privatisation and reorgan-
isation (Article 1(1), first sentence, and (6) of the Act).

environmental,

structural

In view of the special nature of land reform, the two
governments agreed when negotiating the Joint
Declaration that lasting legal concord could only be
secured if the extreme conflicts of interest between
the current exploiters and the previous owners could
be satisfactorily reconciled. The preamble to the
Declaration therefore stated that a settlement accept-
able to all parties had to be created. In the agricul-
tural sector, this settlement was based on the exclu-
sion of
and on
restitution to former owners
preventing the agricultural production cooperatives
from exercising a unilateral ownership option. The
settlement would therefore clarify who could become
owner of the former State-owned land and under
what conditions. The GDR had a strong interest in
such a declaration since it had seen no possibility of
reviewing the expropriations which took place
the Joint
between 1945 and 1949 (point 1 of
Declaration) and therefore wished to safeguard the
interests of east German citizens with regard to the
use of the land. Moreover, the GDR was also obliged
to solve those ownership problems because of the
creation of a private ownership system (point 13 of
the Joint Declaration). As a result of the progress of
the unification process, the GDR ran out of time
before the ownership problems could be solved.

1.3. The Unification Treaty of 31 August 1990

The Unification Treaty, too, came into being when
the GDR was still a separate State and was therefore
outside the scope of the EC Treaty. In its negotiation
of the Treaty the GDR stuck rigidly to its position as
expressed in the Joint Declaration.

Because the property ownership problems had yet to
be solved, the Joint Declaration was made an integral
part of the Unification Treaty (Article 41). It was not
until legislators in a unified Germany adopted the
land acquisition scheme in the Indemnification and
Compensation Act that the settlement acceptable to
all parties was achieved. Those legislators had to
create a scheme that had eluded the GDR. The legal
positions applying to the acceding territory as estab-

lished in the Joint Declaration and confirmed in the
Unification Treaty with the
sovereign GDR
continued in force under the scheme. The land
acquisition programme transposed, all at the insis-
tence of the new L(cid:132)nder, provisions from the Unifi-
cation Treaty in favour of
the interests of east
German citizens which were protected by its guar-
antee (Article 44). In a resolution of 19 December
1996 the Bundesrat confirmed, with regard to the
settlement of the open property issues, that the Joint
Declaration was an integral part of the Unification
Treaty, compliance with which by the new L(cid:132)nder
could be enforced by the Federal Constitutional
Court (BR-Drs. 871/96).

After further background details Germany stated that
a parliamentary majority in support of an amended
legal scheme which did not include the newly settled
farmers and legal entities resident on 3 October 1990
in the land acquisition programme would not be
achievable. It went on to conclude that this would
leave the land reform ownership issues unsolved
indefinitely since the entire process of forming a
political consensus would have to begin ab initio.
This would create further deep political rifts in
Germany.

2. Compensation for prejudice suffered

The Federal Government adhered to the broadly-
defined concept of prejudice. It explained that what
was at stake was the restoration of a basis for
economic activity under
responsibility.
The greatest possible degree of restoration of private
and balanced ownership structures, vital for reasons
of domestic growth and not least for political stability
in a country, had to be understood in the broad sense
as the elimination of a prejudice.

individual

The government
the Commission’s
stated that
comments on compensation for a disadvantage were
too narrow and did not take account of the special
nature of the transformation and integration of part
of a country structured as a State-controlled economy
into a market economy.

Moreover, an approach aimed at
individual cases
would not be practicable and could jeopardise legal
security in the new L(cid:132)nder. The requirement of indi-
vidual evidence of prejudice would also result in an
immense number of individual cases being notified.

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3. Right of acquisition by newly settled farmers
who were not old enough to be gainfully active
on the reference date

that sum in context'. No further explanation was
given.

Germany submitted the following position on this
category of newly settled farmers.

6. Distortion of competition and prejudice to the

common market

Such cases were only conceivable under special
circumstances and were for practical purposes insig-
nificant. Alongside the requirement of residence on
3 October 1990, the legislator had added the further
that eligible parties must, as at 1
requirement
October 1996, have established a new farm (concept
of newly settled farmer) and must have leased trust
land for a long period. The requirement of a long-
term lease agreement was also linked to the condi-
tion that the party involved had to manage the farm
and possess the appropriate vocational qualification
for managing an agricultural holding.

Thus, in the case hypothesised by the Commission,
the newly settled farmer must, in 1990, have been
too young to be gainfully active, must have acquired
his vocational qualification between 1990 and 1996
and must immediately afterwards have been awarded
a long-term lease agreement as at 1 October 1996.
But in the vast majority of cases the newly settled
farmers acquired their vocational qualification in
GDR times before 1990 and were employed as
salaried or waged workers in an agricultural produc-
tion cooperative or on a people’s estate. However, no
statistics existed on this matter.

4. Legal entities without resettled farmers as part-

ners

this point without practical

The possibility of this category acquiring land was
also at
significance.
Firstly, it was difficult to imagine a legal successor to
an agricultural production cooperative which did not
include a partner who could qualify as a resettled
farmer. Although it might have been the (excep-
tional) case in the past, the effect of the hitherto
published details of the Commission communication
and certainly its imminent publication in the Offi-
cial Journal of the European Communities would
have been to encourage such legal entities to adjust
their group of partners accordingly.

5. Loss of potential income

Germany had originally assumed a sum of DEM 3
billion for loss of potential
it
expected that ‘decreasing market values would place

income. However,

The following comments were made.

The fact of subsidised acquisition did not affect the
market or competitive position of the holding in
question vis-(cid:133)-vis competing holdings, since the
holding could only acquire leased land on which it
was already producing. Assuming acquisition using
borrowed capital, a comparison of the expenditure on
interest with the price of leasing the and at the time
produced the result that the acquisition had a more
or less neutral effect on profit, with the result that
neither the production structure nor the cost struc-
ture of the holding changed. The acquisition of the
land therefore had no impact on the supply behav-
iour of the holdings. Price levels and market margin
remained the same.

Since the land acquisition programme therefore
caused no distortion of competition,
it could not
prejudice the common market either.

the holding vis-(cid:133)-vis

On the other hand, the long-term stability of the
holdings was improved since once the land was
acquired there was no uncertainty arising from the
need to renew leases. But this did not improve the
competitive position of
its
competitors. What it did was to increase the percen-
tage of farmed land under ownership. In the pre-
unification L(cid:132)nder that percentage had been 51,8 %
whereas the corresponding figure in the new L(cid:132)nder
was a mere 8,9 %. The land acquisition programme
was intended to help achieve a ratio between leased
and owned land comparable to the structures in the
pre-unification L(cid:132)nder. A further point to note was
that because of restrictions on disposal (re-convey-
ance notice in the Land Register in favour of the
Bodenverwertungs- und verwaltungs GmbH (BWG),
20-year ban on resale of the land) the land only had
limited value as collateral and could really only be
used to guarantee the purchase price. However, the
improved asset structure compared to that of a busi-
ness farming solely leased land could facilitate access
to more borrowed capital in the form of a personal
loan.

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7. With regard to the exemption in Article 92(2)(c)

of the EC Treaty

Germany argued:

It was true that the phrase ‘to compensate for the
economic disadvantages caused by (that) division' was
linked to the division of the country. However, that
was not the result of natural events hindering or
preventing links between the eastern and western
parts of the country but of ‘contemporary political
circumstances' (ECR[1960] 343 and following (415),
regarding Article 92(2)(c)). In view of the actual situa-
tion at the time of formulating the division clause,
the term

‘division' had to be understood not simply as the
physical erection of the border installations, as the
artificially created barrier, but rather as an expression
of
the
the overall political context consisting of
border and the introduction of a State-controlled
economic system. The isolation of the former GDR
and the creation of a centrally-controlled economy
were indissolubly linked and had to be regarded as a
uniform process. It was therefore not possible to
attribute the cause of the economic deficits which
had arisen in the new L(cid:132)nder on the one hand to the
physical blockade and on the other to the State-
controlled economic system.

The argument put forward by the Commission, that
the current economic problems being experienced in
the new L(cid:132)nder were not caused by the division, but
by its removal, could only be valid if the reasons for
the economic misery in the eastern L(cid:132)nder disap-
peared forever when the division disappeared and the
current difficulties could be attributed to new
circumstances not resulting from the former isolation
of, and State-controlled economy in, the GDR. That
the inadequacies of the state-controlled economic
system continued to exist after the demise of the
GDR was
establishment of
German unity and the concomitant introduction of
the market economy in eastern Germany were not an
event that broke the causal chain; the event merely
made the economic disadvantages more obvious.
They were nevertheless caused by the division of
Germany.

indisputable. The

direct consequences of the division of Germany and
thus caused by this
‘aberration'. The legislator
drafting the EALG was therefore justified in elim-
inating those consequences so as to raise standards to
a level comparable to the West.

8. With regard to the exemption in Article 92(3)(a)

of the EC Treaty

Germany did not base its argument on Article
92(2)(a) of
the EC Treaty. The elimination of a
could not be
one-off prejudicial
regarded as normal regional economic aid, but it
could be regarded as a sectoral aid to be examined
under Article 92(3)(c) of the EC Treaty.

circumstance

9. With regard to the exemption in Article 92(3)(c)

of the EC Treaty

The Federal Government notified the Commission
of the following with regard to Article 92(3)(c).

limits drawn by

The
the German legislator
(maximum 50 % ownership, maximum 600 000 or
800 000 yield index units) were intended to ensure
that the subsidised acquisition resulted in a balanced
ratio between leased and owned land. In that way
land acquisition as an entitlement to the leasers of
land was a suitable means of eliminating structural
disequilibria in the agricultural holdings in the new
L(cid:132)nder.

When the object of the sale was being examined
what had to be taken into account from the State-aid
law point of view was that the land sold on beneficial
terms was subject to extensive disposal restrictions,
such as a 20-year ban on resale and an undertaking
by the purchaser to manage the land himself for the
same period of time. In addition, the BVVG had the
right of cession if the land was used for building
purposes and therefore increased in value during the
20-year resale ban.

Therefore, if land was purchased by someone who
had already leased it for a long period nothing would
change in respect of:

(cid:190) the structure, scope and intensity of production,

There were disadvantages in all the cases covered by
the land acquisition programme and these have been
defined in detail above. All the disadvantages were

(cid:190) liquidity and profitability (at an interest rate of
7 % the amount of borrowed capital needed was
roughly equivalent to a lease of DEM 5 per soil
point).

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The benefit to the farmer merely consisted in the posses-
sion after 20 years of agricultural land free of disposal
restrictions with an appropriate commercial value, the
land not being fully acceptable as collateral until that
time. Benefiting purchasers could not realise the normal
market price for such land.

resulted in a theoretical market price of DEM 4 044/ha
which a farmer would be prepared to pay under market
conditions for land subject to a resale ban. Compared to
the subsidised price of DEM 3 010/ha, the result was an
aid intensity of 25,6 %.

The benefit should therefore be calculated as follows.

The commercial value, relative to 4 300 yield index units,
was DEM 6 298/ha in 1996. The difference in value
compared to the price under the EALG (DEM 3 010/ha)
was DEM 3 288/ha. However, the purchaser could only
realise that ‘added value' after 20 years. Assuming that the
purchase value did not change in the next 20 years the
difference in value subject to interest from the date of
purchase (i = 5 %) was DEM 1 240/ha. That figure was
the benefit at the time of purchase. Accordingly the aid
intensity at the time of purchase was 29,2 %.

A similar result is arrived at if the question is posed under
what market conditions could the beneficiary today
achieve the ‘beneficial effect', i.e. increasing the percen-
tage ownership of land. The land was still subject to a
20-year ban on resale, so the benefit linked to the aid
could only be realised after 20 years and the purchaser
could not therefore make a speculative profit. In compar-
ison with the commercial value of land, free of disposal
restrictions, the value of such land, had to be discounted.
Since there was no market for such land a theoretical
commercial value had to be determined and compared
with the subsidised price.

Under those conditions an active farmer would only be
prepared to pay a purchase price corresponding to the
productive value of the land since he could only acquire it
for farming purposes (in fact, he was bound by a farming
plan that was to be drawn up and lodged with the pri-
vatising agency).

the cash value of

The farmer would therefore set the purchase price he was
prepared to pay at
the long-term
supportable lease capitalised over 20 years since the cash
value of the lease was equivalent to the productive value
under the farm’s production conditions. At lease interest
of DEM 5/soil point, the cash value of the lease was DEM
2 804/ha (i = 5 %). Since the disposal restrictions lapsed
after 20 years the farmer would be willing to give that
benefit an additional value. That benefit,
to
interest from the time of purchase, had therefore to be
added to the cash value of the lease (see above). That

subject

In addition, it had to be borne in mind that the extent of
the benefit arising from the privatisation of State-owned
land could not be established merely by comparing it
with market prices arising under quite different condi-
tions.

10. With regard to restricting the acquisition
opportunity to those resident on 3 October 1990

Germany argued:

(cid:190) Restriction of the reorganisation of property and
social structures under the EALG to the region of
the acceding territory resulted in a direct link
both to the former GDR inhabitants with ties to
the region and to the former owners. By setting a
reference date of 3 October 1990 the legislator
wished to ensure that those interested in acquisi-
tion who, or whose families had lived and worked
for decades in the GDR could participate in the
settlement which had to be created between them
and the former owners. The legislator adopting
the EALG had to link the modelling of the settle-
ment and the establishment of the conditions for
acquisition connected to it to the circumstances
prevailing in the acceding territory on 3 October
1990.

(cid:190) For

of

broad

compelling

social
reasons
continuity, too, the evolution of agriculture and
forestry intended via the land acquisition scheme
ought, in the event that there were no former
owners to consider, to have taken special account
of purchasers who had already been resident in
the region for a long period. When restructuring
the GDR, whose
the agricultural economy of
dominant feature was the agricultural production
cooperatives, the social impact of such an action
could not be ignored. The abrupt demise of the
GDR system threatened the collapse of existing
social structures. Only the gradual adaptation of
those structures to the new conditions would
permit a successful conversion process. In the
legislator’s view, that also applied to the question

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of who should participate in the restructuring of
the land. Therefore, an acquisition opportunity
needed to be created which would enable former
GDR citizens to take their place in new social
structures as part of their special link with the
region. For such reasons too the legislator was
justified in ensuring that newly settled farmers
also took part in the restructuring process,
in
respect of the land which had found its way into
GDR State ownership.

(cid:190) Germany also explained that were it not for the
reference date there would, in view of the price
differential both within and beyond Germany
(particularly for forest land), very likely have been
a rapid and uncoordinated sale of east German
woodland, probably without access for the east
Germans themselves.

III

Following publication of
the communication about
the Commission received
opening the procedure (1),
observations and comments from some hundreds of asso-
ciations, businesses and individuals affected. Some of
them were based in Member States (including France, the
United Kingdom, Germany and Belgium), others in
countries outside the Community (including the United
States, Canada, Argentina and Brasil).

Except for Germany’s observations (set out under Section
II), no further comments were received from Govern-
ments of other Member States.

The comments and observations were forwarded to
Germany on expiry of
the period stipulated when
opening the procedure (2).

They can essentially be summarised as follows.

Two distinct tendencies emerged from the observations
dealing directly with issues raised by the procedure.

that

took the view,

in so far as the
Some parties (3)
competition rules applied,
the measures under exam-
ination were to be regarded as compatible with the
common market. The other tendency (the remaining
parties) concurred with the doubts raised by the Commis-
sion, reinforcing them or commenting that the Commis-
that
sion had not gone far enough. To the extent

(1) OJ C 215, 10.7.1998, p. 7.
(2) Letter No VI/32143, 19.8.1998.
(3) Roughly 1 % of all the letters received.

elements of aid were involved, they regarded them as
incompatible with the common market.

1. Applicability of Articles 92, 93 and 94 of the EC

Treaty

Some parties to the procedure began by pointing out
that, in its letter of 25 January 1995 and its sub-
sequent comments on the entitlement to compensa-
tion for the legal successors of agricultural produc-
tion cooperatives and for newly settled farmers,
Germany had itself expressed the view that
the
EALG was a case in which aid should be monitored
under Articles 92, 93 and 94. According to their
comments, there could be no doubt as to the applic-
ability of these provisions.

Conversely, one party argued that land purchase was
to aid scrutiny under the EC Treaty
not subject
because of
integration
the historically unique
process.

None of the other parties questioned (and they hence
implicitly affirmed) the applicability of the relevant
Treaty provisions.

Several parties from both tendencies stated that the
land purchase scheme had not been incorporated
into the EALG until a later stage, contrary to the
legislator’s original intention. As could be seen from
the way in which the Act had come into being, the
aim had been to encourage widespread acquisition of
property by private individuals. In particular, it was
stated that the German Government could not argue
that ‘in the historically unique situation of German
unification, the measure was a general one designed
to create a system of property ownership appropriate
to the Federal Republic’s legal system'. It was alleged
that the purpose of this phrase was once again to
conceal the presence of State aid as defined in Article
92(1) of the EC Treaty, since the German Govern-
ment had made no provision whatsoever for a land
purchase scheme in its draft EALG of 31 March 1993
(Bundesratsdrucksache 244/1993 of 16 April 1993).
In their view, there had been no ‘mandate to the
German legislator from the Unification Treaty' to
achieve a social reconciliation of different interests in
agriculture and forestry with the aid of a land
the land
purchase scheme.
purchase scheme had been incorporated into the
draft not at the Federal Government’s instigation, but
by the parliamentary parties of the CDU/CSU and

they stated,

In fact,

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24. 4. 1999

FDP coalition only after the first reading of the Act
on 13 May 1993 (Bundestagsdrucksache 12/4887;
stenographic report of the 158th sitting of the 12th
parliament on 13 May 1993). However, this had not
been done in order to ‘achieve a social reconciliation
interests in agriculture and forestry'.
of different
first
Rather,
provided solely for a ‘land purchase scheme'
to
compensate victims of expropriation/those entitled
to indemnification.

this parliamentary initiative had at

Not until the Bundesrat had twice rejected the draft
and it had twice been discussed by the mediation
committee had the land purchase scheme, originally
envisaged as compensation for victims of expropria-
tion, been recast as primarily a settlement scheme for
persons not entitled to compensation (newly settled
farmers and successors to agricultural production
cooperatives).

None of the legislative texts drafted between 1991
and 1994 had contained anywhere the grounds now
advanced by Germany for the land purchase scheme.

2. Compensation for prejudice suffered

2.1. Resettled farmers without entitlement to restitution

the parties to the procedure gave good
None of
grounds for calling into question the need and eligi-
bility, under German law, of
resettled farmers
without entitlement to restitution (1) to be compen-
emphasised the
them further
sated. Some of
compensatory nature of the EALG with regard to this
group of recipients. This also applied to a significant
proportion of the parties which supported Germany’s
arguments. They admitted that ‘the EALG accords
only inadequate indemnification or compensation to
the expropriated'.

2.2. Resettled farmers with entitlement to restitution

The Commission’s attention was drawn to the fact
that, under German law,
‘mere wastage of assets' is
not regarded as a prejudice which entitled those
affected to preferential purchase of agricultural or
forestry land under Article 3 of the EALG, since
resettled farmers with entitlement to restitution (2)
had got back their former property. They were thus
excluded from the outset under law from preferential
purchase of agricultural or forestry land, with only
the third
one exception: under the first half of

(1) As defined in OJ C 215, 10.7.1998, p. 9. Resettled farmers
without entitlement to restitution are former owners of farms
expropriated between 1945 and 1949.

(2) As defined in OJ C 215, 10.7.1998, p. 9. Resettled farmers
to restitution were expropriated after 1949
the

with entitlement
and are entitled to have their
Property Act.

farm returned under

the EALG,

resettled
sentence of Article 3(2) of
farmers with entitlement to restitution were allowed
to purchase agricultural or forestry land on preferen-
tial terms only if they had been unable to enforce
their claim for the return of their property under the
Property Act (Verm(cid:148)gensgesetz) owing to exclusion
under Articles 4 and 5 of the Property Act. If that
was the case, however, then no property whatsoever
had been returned. The resettled farmers with entitle-
ment to restitution would then exceptionally be in
the same position as resettled farmers without enti-
tlement to restitution who had not had any property
returned to them. In those cases, there could not
have been notional asset wastage of property which
had not been returned at all.

However, if a resettled farmer with entitlement to
restitution had got back his former property, then
supposition of a (residual) asset
(owing to
wastage) was excluded under German law. That was
why resettled farmers with entitlement to restitution
were, on principle, not legally accorded preferential
treatment
arrangements
contained in Article 3 of the EALG.

disputed

under

loss

the

‘the substance of

This followed not only from the first half of the third
sentence of Article 3(2) of the EALG, but also from
Article 349(3) of the Equalisation of Burdens Act
(Lastenausgleichsgesetz (cid:190) LAG). Under the latter,
the legal supposition was that the loss incurred was
compensated in full when an expropriated economic
asset was returned, even if
the
returned property ... had deteriorated considerably'.
Consequently, under German law there was in that
case no longer any form of ‘residual loss' deserving
compensation. Accordingly, this category of persons
was excluded from preferential purchase of agricul-
tural or forestry land under Article 3 of the EALG.
Furthermore, the very nature of the matter was such
that
inventory could not
lawfully be compensated through preferential land
purchase. It was also argued that asset loss in the case
of resettled farmers with entitlement to restitution
had already been compensated several times over,
because since 1990 they had received large amounts
of annual adjustment aid. However this assertion was
not further substantiated.

the loss of agricultural

Certain resettled farmers (land-reform settlers) did
not qualify for inclusion among those entitled to
been
compensation,

never

since

they

had

24. 4. 1999

EN

Official Journal of the European Communities

L 107/29

outright owners (their land had been barred from
being sold, bequeathed or encumbered). That was
why the courts had rejected claims for restitution.

forestry in the new L(cid:132)nder' and not an indemnifica-
tion scheme.

2.3. Local resettled farmers

l of

Some parties to the procedure regarded Germany’s
assertion that local resettled farmers (1) needed to be
compensated for inventory losses as inadmissible,
since in their case it was out of the question that
‘inventory contributed to an agricultural production
cooperative had often not been replaced in full'. In
this respect, the legal position deriving from Article
the Agriculture Restructuring Act
44 point
(Landwirtschaftsanpassungsgesetz) was
significant
for assessing the aid elements contained in the
EALG. According to Article 44,
resettled
farmers would have been legally entitled to full
replacement of the value of inventory contributions.
A report in the Frankfurter Allgemeine Zeitung of 6
May 1998, page 19, states that the Federal Constitu-
tional Court had decided to that effect only recently,
namely in its ruling of 22 April 1998 (cid:190) 1 BvR
2146/94 and 2189/94.

local

However, if local resettled farmers were legally enti-
tled to full replacement of the value of inventory
contributions, the legal supposition would have to be
that full replacement of the inventory contributed to
the agricultural cooperative had taken place or would
have taken place. Such claims could also be enforced
in practice, since the successors to cooperatives, not
least because of considerable subsidy income from
since 1990, on the whole,
Community funds
possessed sufficient assets to meet
local resettled
farmers claims in respect of compensation for inven-
tory contributed. Under German law, the Commis-
sion could not
‘inventory
contributed to the cooperative had often not been
replaced in full' and could not deny that the prefer-
ential treatment of local resettled farmers involved
elements of aid.

therefore assume that

On the contrary, local resettled farmers were covered
by the Commission’s absolutely correct reference, in
the decision to open the procedure (2), to the Federal
Constitutional Court’s ruling of 21 May 1996 in
EuGRZ 1996, 332, et seq., according to which the
Federal Government had itself pleaded before the
Federal Constitutional Court that Article 3 of the
EALG constituted in that respect ‘an independent
support scheme for building up agriculture and

that

the property ownership of

One party to the procedure countered this with the
argument
former
individual farmers in the GDR had been reduced to
an empty shell by the cooperatives’
legally unre-
stricted right of use. Restrictions of this kind, under
which all GDR citizens had suffered, should be
compensated, at least in part, by preferential land
purchase for a category of persons who had worked
in agriculture.

2.4. Newly settled farmers

One party argued that it was grossly unfair to accord
less favourable treatment, under the EALG, to the
approximately 800 to 1 000 newly settled farmers (3),
to whom about one tenth of the land to be privatised
was allotted and who had, in the same way as the
other persons entitled to purchase, been prevented by
the economic and social structure of the communist
system from acquiring property and working inde-
entitled to
than the other persons
pendently,
purchase under
the EALG. These newly settled
farmers experienced disproportionately greater diffi-
culties in building up new farms compared with all
other groups, because (unlike other Community citi-
zens) they had not had the opportunity to accumu-
late capital over the past 40 years and (unlike the
other persons entitled to purchase) they did not have
at their disposal, as venture capital, parts of former
property which had been returned to them. Nor had
they received, from the cooperatives’ use of their
property following the redistribution of assets under
the Agriculture Restructuring Act,
any start-up
capital comparable with that of resettled farmers. It
was not acceptable to treat newly settled farmers
differently from the other persons entitled to
purchase.

By contrast, other parties took the view that there was
no reason to treat newly settled farmers any better
than other persons in the new L(cid:132)nder who had set
up a business since unification.

2.5. Legal entities

The general argument put forward was that, unlike
most citizens of the former GDR, legal entities had
not individually suffered any prejudice and could at
best be classified as ‘least affected'.

(1) As defined in OJ C 215, 10.7.1998, p. 9.
(2) OJ C 215, 10.7.1998, p. 14.

(3) As defined in OJ C 215, 10.7.1998, p. 10.

L 107/30

EN

Official Journal of the European Communities

24. 4. 1999

The Commission’s attention was specifically drawn
to the fact that, in particular, the comments made
regarding resettled farmers with entitlement to resti-
tution and regarding local resettled farmers were to
be taken into account, mutatis mutandis, as regards
the question of delimiting compensation/aid in the
case of legal entities whose partners included a reset-
tled farmer with entitlement to restitution or a local
resettled farmer.

Many parties criticised the Commission’s assertion
(in the decision on opening the procedure (1)) that
elements of aid under Article 92(1) of the EC Treaty
might possibly be denied in the case of legal entities
including resettled farmers. Such an arrangement was
open to abuse, since there was a risk that the aid
rules would be circumvented by legal entities
deciding later to include resettled farmers among
their partners and thus obtain preferential treatment
not owing to them because they were not entitled to
compensation. It was therefore suggested that a refer-
ence date should be fixed on which the legal entity’s
membership (and hence its inclusion of a resettled
farmer) had to be in place. An alternative proposal
was to set a minimum share that must be held by
resettled farmers, since the proportionality principle
would be breached if an entire legal entity of which
only a completely insignificant share was owned by a
resettled farmer were regarded as having incurred a
loss and hence accorded preferential treatment.

Yet others insisted that only the resettled farmer in
question (and not the legal entity as a whole) should
be entitled to purchase land and be entered in the
land register. That would prevent the partnership
from receiving aid, even indirectly.

3. Purchase entitlement of newly settled farmers
who were not yet of working age on the refer-
ence date

One party argued to the effect that virtually all those
entitled to purchase had been of age in 1990 and
were sufficiently experienced to run farms, since
preferential
land purchase was conditional on the
purchaser, provided that he had not been expro-
priated under Soviet occupation (a pre-GDR owner),
having taken out a long-term lease on farmland from
the BVVG (Land Utilisation and Management
Company) as at 1 October 1996. Under the leasing
guidelines which the Treuhandanstalt had issued
federal
following consultation with the relevant

(1) OJ C 215, 10.7.1998, p. 12.

farmland could be leased only by
departments,
persons who submitted a viable agricultural business
plan.

Since the tenant farmers had to run the farm them-
selves, only persons with sufficient farming experi-
ence and business knowledge could lease land and
hence ultimately purchase it under the EALG. It
could not be ruled out that very few persons (an
estimated 10 to 15 in all five new L(cid:132)nder) satisfied
the requirement to have been resident in the GDR
on 3 October 1990 without belonging to the target
groups of former owners or of persons who had
worked as farmers under GDR conditions.

The number of persons who were already perma-
nently resident on 3 October 1990 but were not
GDR citizens could be ignored for the purposes of
the main scrutiny procedure.

4. Distortion of competition and impairment of

Community trade

Only one party to the procedure criticised the
Commission’s comments on these issues. The party
in question argued that the preferential sale of land
did not enhance the competitive position of those
entitled to purchase it. Cheaper purchase of agricul-
tural and forestry land did not enable farms to build
up reserve capital on more favourable terms than
their competitors, since their reserve capital was not
increased if they had own capital which they trans-
ferred into land assets. However, since low profit-
ability in agriculture meant that most farms had to
take out loans in order to purchase land, the need to
service capital reduced the farms’ already limited
liquidity even further and weakened the competitive
position of recipients working in agriculture.

Also the banks hesitated to issue loans against the
land purchased, since a 20-year embargo on its sale
was entered in the land register. The land purchased
thus offered no additional collateral
in obtaining
capital.

The ‘Bohl Paper'
(adopted on 16 November 1992
under the aegis of the Federal Chancellery) had given
the land yield value as a basis for the preferential
the
purchase price. For reasons of simplification,
basis taken in the EALG had been three times the
standard value (cid:190) itself originally based (in 1935) on
the yield value.

24. 4. 1999

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Official Journal of the European Communities

L 107/31

It was inferred that preferential land purchase could
therefore not possibly reduce the cost of production
inputs or enable those entitled to purchase it to
market agricultural products at cheaper prices.

The agricultural land market was, in any case, not
determined by yield potential. Land prices
in
Germany and in almost all Member States bore no
relation to yield potential. Land purchase in agricul-
ture led, in almost all regions of the Community, to
an increase in production costs which was harmful to
competitiveness.

Agricultural production costs were determined by
land rental prices and not by land purchase prices. It
could not be denied that farms which, over decades
and often centuries, had been able, through the thrift
of those running them, to purchase land enjoyed
greater stability and security.

But this argument did not apply to farms being built
up in the new L(cid:132)nder, which were in any case
burdened with high loan costs, and particularly did
not apply as regards preferential land purchase.

Furthermore, land prices in the Community varied
markedly between different Member States and
regions and bore no relation to income potential.

Three times the standard value, at which those enti-
tled to purchase under the EALG could buy, was
higher than the average market value of land in
France, Spain, Wales and Scotland. Complaints from
landowner associations in their Member States were
thus to be refuted by the fact that land could be
bought more cheaply there. Moreover, rental prices,
which were determinant for agricultural competition,
in all Member States other than western Germany
were roughly similar to those in the new L(cid:132)nder.

Against this, another party argued that preferential
land purchases enhanced the competitive position of
those entitled to purchase. Land which could be
purchased preferentially was also available as reserve
capital, because in most cases the reconveyance entry
for the BVVG expired. Nor was there anything to
prevent secondary encumbrances.

Not a single party challenged the Commission’s view
that the exemption under Article 92(2)(c) of the EC
Treaty would not apply to the land purchase scheme.
One party took the position that Germany had not
been able to put forward convincing counter-argu-
ments, particularly in response to the Commission’s
assertion that the disputed arrangements had been
caused not by the division of Germany, but by its
termination. Nor could Germany refute this argu-
ment by saying that ‘the shortcomings of the State-
controlled economic system continued to have an
effect after the GDR ceased to exist', or even by
claiming that
the market
economy in eastern Germany' was a result of the
division of the country which justified the disputed
preferential treatment.

‘the introduction of

The ‘aberration' caused by the division of Germany
had been remedied since 1990. The argument was
therefore correct that the removal of the division was
the reason for according tenant farmers preferential
treatment so that from now on they could farm huge
areas of agricultural land on a private-enterprise basis
in order to build up their own assets. There was no
apparent reason, not even one based on the division
of Germany, for additionally transferring property to
them on preferential terms.

6. Exemption under Article 92(3)(a) of the EC

Treaty

It is worth noting that not a single comment was
made to the effect that the measure in question could
be regarded, within the meaning of Article 92(3)(a), as
aid to promote the economic development of an area
where the standard of living is abnormally low or
where there is serious underemployment.

7. Exemption under Article 92(3)(c) of the EC

Treaty

7.1. Development of specific economic sectors or economic

areas/common interest

5. Exemption under Article 92(2)(c) of the EC

Treaty

The point was made that Germany could not argue
that,
‘farms in the new L(cid:132)nder showed a structural
imbalance with regard to land ownership, as the vast
majority of them (91,1 %) operated on leased land',

L 107/32

EN

Official Journal of the European Communities

24. 4. 1999

since this situation had come about because those
farms, unlike other applicants, and particularly the
complainants, had received excessively large areas of
land under lease. Moreover, even long-term leases for
large areas of agricultural land could serve as a suffi-
cient safeguard for investment and jobs. The prefer-
lead to ‘a balance
ential purchase scheme might
between leased and owned land'
if successors to
former cooperatives were viewed in isolation. But if
the structure of agriculture in the new L(cid:132)nder were
taken as a whole, there was no way that ownership of
agricultural and forestry land could be regarded as
evenly distributed among the groups in question.

7.2. Aid intensity in the case of agricultural land not in

less favoured areas

that
land
agricultural
One party pointed out
terms was encumbered
purchased on preferential
with legal restrictions which had a significant nega-
tive influence on its market value compared with
agricultural land purchased on the free market.

sales

example,

contracts under

For
the Land
Purchase Order regularly contained provisions pro-
hibiting transfer or disposal, clauses governing the
transfer of excess proceeds, and cancellation rights
for as much as 20 years after conclusion of
the
contract.

that, as

legal attributes,

It was generally acknowledged by agricultural land
valuation experts
these
serious disposal restraints and encumbrances had a
lasting effect on the estimated land price. It was
therefore inadmissible to compare the purchase price
at three times the standard value in the case of pref-
erential purchase under the land purchase scheme
with purchase transactions in respect of unencum-
bered agricultural land on the open market.

If the actual market value of this agricultural land
was determined taking into account
the disposal
restraints, the aid intensity was often likely to be
below 35 % (cid:190) even in the case of a preferential
purchase price of three times the standard value.

The party in question did, however, subsequently
concede that in some cases an intensity above 35 %
could be expected.

Other parties accused Germany of calculating the aid
intensities incorrectly. They refuted the attempt to
play down the preferential treatment so as to arrive at

an alleged aid intensity of just 29,2 % at the time of
purchase, bearing in mind that the Commission had
found an aid intensity of 35 % outside less favoured
areas to be justified. Long-term tenants who wished
to purchase property, particularly in order to secure
loans, would not be deterred by the temporary ban
on transfer, since they did not in any case intend or
need to sell. Some parties produced documentary
evidence of aid intensities as high as 70 % and more.

7.3. Reference date of 3 October 1990 (cid:190) Discrimination

One party to the procedure argued that
it was
apparent, from the manner in which the Act had
come into being and from the prior discussions led
by the Federal Chancellery, that the Federal Govern-
ment, supported by the parliament, had attempted to
confine preferential land purchase to persons resi-
dent in the GDR. Former citizens of the Federal
Republic of Germany who had not been expro-
priated under Soviet occupation or by the GDR or
had not owned land in the GDR would thus likewise
be excluded. They would be treated in the same way
as other Community citizens.

Newly settled farmers should not be ‘victimised' by
the Commission. Unlike other Community citizens,
over the past 40 years they had not had the oppor-
tunity to accumulate capital.

The other parties took a different view, however. A
lack of proportionality between the measure and the
prejudice suffered was often criticised and felt to be
discriminatory: losses had been suffered by pre-GDR
owners with or without entitlement to restitution (as
newly settled farmers or persons not
themselves
engaged in farming) and by local resettled farmers. It
was, admittedly, difficult to put an exact figure on the
prejudice suffered by each group (cid:190) particularly in
the case of resettled farmers with entitlement to resti-
tution and local
resettled farmers, whose asset
wastage or lack of development opportunities were
regarded as
if one wished to
compare the losses and establish a ranking order,
there should be no question that the greatest losses
in relative terms had been suffered by expropriated
persons without entitlement to restitution, while the
smallest losses in relative terms had been suffered by
local resettled farmers who had never been expro-
priated.

losses. However,

24. 4. 1999

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Official Journal of the European Communities

L 107/33

the EALG,

Assuming this point to be beyond doubt, it seemed
questionable in terms of State-aid law that
the
ranking order had been reversed in the case of those
receiving compensation. Under
local
resettled farmers, i.e. persons who had never been
expropriated and whose loss comprised only a lack of
development opportunities were granted right of first
refusal and the right to purchase 600 000 yield units.
By contrast, non-farming pre-GRD owners, some of
whom had not been able to take over the running of
their farms again because the locals ‘had got in first',
were granted only ‘right of last refusal' to purchase
300 000 yield units. Those who had suffered the
greatest loss and were therefore entitled to the most
compensation were, at least if they were simultan-
eously tenants, granted least compensation in relative
terms, while those who had suffered the smallest loss
in relative terms were granted most compensation.

It was incongruous for those with relatively minor
losses to receive more compensation than those who
had incurred greater losses.

Some parties accused the legislator of arbitrary
government in the case of the land-purchase scheme,
since it did not accord entitlement to preferential
purchase to former GDR citizens who had fled
because of the repression and confusion in 1989 and
had not returned to their home region until after 3
October 1990, although they may have previously
had to spend the whole of their lives in the GDR.
Entitlement was granted, however, to persons from
the territory of the old Federal Republic who had
moved to the territory of the former GDR ‘virtually
just in time' before 3 October 1990. In one case, this
meant that the complainant could not expand his
existing farm in a commercially viable manner, not
even at market value, because the neighbouring land
was all being sold at preferential prices under the
EALG.

it

The other parties described the measure in question
as discriminatory and asserted that
infringed
Articles 52, 6 and 40(3) of the EC Treaty. They
expressly concurred with the doubts the Commission
had voiced when opening the procedure. Some went
on to argue that Germany was vainly attempting to
objectively justify the undeniable unequal treatment
of other west Germans and Community citizens ‘by
the circumstances arising in the GDR'. In this
context, too, the fact was being overlooked that the
EALG had not entered into force until five years after
German unification, when there were neither legal
nor factual reasons for discriminating against other
west Germans and Community citizens compared
with successors to the cooperatives and newly settled
farmers.

Here, again, Germany was arguing, but without any
foundation, by mere reference to ‘achieving a recon-
ciliation of
interests in society' and to allegedly
‘compelling reasons for more extensive social contin-
uity' in agriculture and forestry. These parties coun-
tered with the view that the preferential treatment of
the successors to cooperatives was arbitrary, socially
unbalanced and profoundly unjust, such that Ger-
many’s reference to a supposed reconciliation of
interests within society must not be confused with
the likelihood that the preferential purchase scheme
had actually led to such a result.

That was evidenced by Germany’s reference to the
fact that, in reforming the GDR’s agricultural struc-
ture (which had been shaped by the agricultural
‘the social consequences should not
cooperatives),
have been overlooked'. What was described, in this
context, as ‘uncoordinated destruction of existing
social structures' was,
loss of
several hundred thousand rural jobs which could not
have been avoided in any case. In particular, this had
not been avoided by preferential treatment shown to
cooperative successors and newly settled farmers by
granting leases and enabling them to purchase prop-
erty.

the actual

in truth,

The preferential treatment objected to was thus in no
way connected with Germany’s claimed preservation
of ‘existing social structures'. On the contrary, the
massive departure of agricultural
labour from the
cooperatives had exposed this reference as a mere
pretext. These parties in the new L(cid:132)nder, who still
lived there today but who had not received compar-
able preferential treatment, must surely regard the
Federal Government’s following argument as down-
right hypocrisy: the government had sought to create
purchase opportunities ‘which enabled former GDR
citizens to integrate into new social structures within
the framework of their special ties with the region'.
the Federal Government had not
Here, again,
thought of
in the new L(cid:132)nder, and
hence also of these parties, but only of the approxi-
mately 3 000 successors to cooperatives. In reality,
the legislator had ‘for these reasons' not achieved a
reconciliation of society’s interests.

‘the people'

The Commission’s attention was also expressly
drawn to the fact that the vast majority of long-term
leases had in any case been concluded in 1996 with
east Germans. Because most west Germans and other
Community citizens consequently did not meet that
requirement, they would have been unable to take
part in the land purchase scheme even if the refer-
ence date of 3 October 1990 had not been set. The
reference date of 3 October 1990 thus proved to be
unnecessary.

L 107/34

EN

Official Journal of the European Communities

24. 4. 1999

IV

the course of that reestablishment, farming had been
extended to the land specified in Article 3(1) of the
EALG.

By letter of 22 October 1998 Germany responded to the
parties’ above comments as follows.

1. Resettled farmers with entitlement to restitu-

tion

Contrary to the complainants’ written pleadings and
other parties’ observations, resettled farmers with
entitlement to restitution and local resettled farmers
who once again have unrestricted use of the land
which they contributed to former cooperatives were
entitled to purchase land under the first sentence of
Article 3(2) of the EALG.

that resettled farmers with entitlement

Germany did not accept the argument that the first
half of the third sentence of Article 3(2) of the EALG
meant
to
restitution could purchase agricultural or forestry
land on preferential terms only if they had been
unable to enforce their existing claim for return
the Property Act because they had been
under
excluded from doing so under Articles 4 and 5 of the
Property Act. The phrase ‘resettled farmers within
the meaning of the first sentence are also. . .' in the
third sentence of Article 3(2) of the EALG already
proved that this rule did not conclusively define the
group of resettled farmers. It merely made clear that
the categories of persons specified there, in whose
case restitution of expropriated assets had not been
possible for various reasons, were still among the
resettled farmers with entitlement.

The legislator had intended resettled farmers within
the meaning of the first sentence of Article 3(2) of
the EALG specifically to include persons who had
received back their former property by means of
restitution and former members of cooperatives who
were farming on their own account again. Otherwise,
a large number of local resettled farmers who had
leased a substantial proportion of the BVVG’s land
would be excluded from purchasing land under the
scheme.

Nor was entitlement to purchase land under Article
3 of the EALG excluded, as had been alleged, by
other German laws (the Equalisation of Burdens Act
and the Agriculture Restructuring Act).

Only in terms of claiming back/settling burden
compensation did Article 349(3) of the Equalisation
of Burdens Act appear to provide full loss compensa-
tion to entitled persons, but they did not actually get
back viable farms. This fiction was significant only in
legal terms as a basis for entitlement to claim back.
Claiming back burden compensation was always
restricted to the actual value of the restitution prop-
erty.

The equalisation of burdens measure had been a
means of settling hardship cases and, no more than
the settlement of unresolved asset questions in the
Unification Treaty,
in no way represented full
compensation for the losses incurred (cid:190) within the
meaning, for example, of civil law or expropriation
compensation under Article 14(3) of the Basic Law.

The equalisation of burdens mechanism thus in no
way excluded settlements on other legal bases, in this
case settlement of property questions.

their

inventory contributions,

From the fact that former members of cooperatives
were legally entitled, under Article 44(1) of the Agri-
culture Restructuring Law, to full replacement of the
value of
the com-
plainants also inferred that it must be assumed ‘on
legal grounds'
inventory
contributed to cooperatives had indeed taken place.
In so doing, however, they were equating entitlement
to compensation with receiving it. It was generally
inventory
known, however,
contributed to cooperatives had not been fully
replaced.

full replacement of

in many cases

that

that

2. Compensation of asset losses

In order to be entitled to purchase as a resettled
farmer within the meaning of Article 3(2) read in
conjunction with Article 3(1) of the EALG, it was
sufficient if a farmer had resumed operations and, in

In the observations the view had repeatedly been
expressed that, since 1990, farms in the new L(cid:132)nder
had ‘[received] such substantial amounts of annual

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EN

Official Journal of the European Communities

L 107/35

restructuring aid that their asset losses had already
been compensated several times over'.

This supposition was based on false premises. While
it was correct that substantial funds had been made
available to farms in the new L(cid:132)nder since 1990,
those funds had not served to compensate asset losses
suffered by the holdings or their proprietors before
German unification. Rather,
the introduction of
economic, currency and social union, adoption of the
Community market organisations and adjustment to
the level of agricultural prices in the territory of the
former Federal Republic had resulted in producer
prices for agriculture in the new L(cid:132)nder (which in
the GDR era had been fixed by the State) falling
sharply. Although prices for farm inputs had also
fallen at the same time, this had come nowhere near
offsetting earnings losses and most farms had not
been in a position to discharge their payment obliga-
tions. Restructuring aid had therefore been paid in
order to compensate for these disadvantages. The
Commission had received notification of
these
restructuring aid schemes and had approved them
each time.

terms (e.g.

in forestry as a subsidiary
preferential
source of income). This would also deprive GDR
citizens, who had not enjoyed anything like the same
opportunity to acquire personal assets, of the chance
to build up new business (rather than private) assets.
The exclusion of capital-investment schemes had
been a guiding policy principle in devising the
proper reconciliation of interests within society.

The fact that only persons directly affected by the
division of Germany were entitled to purchase land
also showed that there was no contradiction between
the objective of creating new ownership structures
(thereby releasing economic and social potential) and
the disadvantages
the idea of compensation for
suffered in the GDR.

social

The land purchase scheme did not involve any arbi-
and
treatment of west Germans
trary unequal
Community citizens. In adopting the EALG,
the
legislator had been obliged to devise a reconciliation
of
interests and to stipulate the relevant
purchase eligibility requirements on the basis of
conditions prevailing in the acceding territory on 3
October 1990. In order to establish inner unity and
secure legal concord, it had been necessary to extend
the entitlement
land purchases to
farmers resident on that date. This also ensured that
participation in land purchases was open only to
persons who had been personally and directly
affected by the division of Germany.

to preferential

3. Discrimination

As to whether there had been substantial discrimina-
tion under Community law, Germany argued that
even if a former owner in a, hypothetical, isolated
case were to have actually been discriminated against
in the leasing and subsequent purchase of agricul-
tural land or in the sale of woodland compared with
another applicant entitled to purchase land, nation-
ality would have played no part in the matter. Such
competition took place only among former GDR
citizens. The reference-date rule (3 October 1990)
applying to land purchases was objectively justified.
Compared to GDR citizens, west German citizens
had enjoyed excellent opportunities for vocational
development
individual
wishes and talents; hence they had also enjoyed the
opportunity to acquire assets. If west Germans (or
citizens of other Member States) who had not per-
sonally been affected by the division of Germany
were now allowed to take part in the purchase of
land, they would have the opportunity to invest the
assets acquired in the west in the new L(cid:132)(cid:146)nder on

in accordance with their

V

In its decision opening the procedure the Commission
noted that the land-purchase scheme had not been noti-
fied as an aid under Article 93(3) of the EC Treaty, which
stipulated that aid had to be notified to the Commission
at the draft stage. Since Article 93(3) had been breached, if
the scheme was State aid it was also unlawful.

Germany however maintained that Article 93(3) and the
other Treaty provisions on State aid did not apply in this
case. The Commission pointed out that, when the GDR
acceded to the Federal Republic of Germany on 3
October 1990, the EC Treaty had also entered into force
in the territory of the former GDR. From that point
onwards EC competition rules applied equally to both
western and eastern Germany.

The section of the EALG containing the land-purchase
scheme had entered into force on 1 December 1994 (1),
i.e. after 3 October 1990 and at a time when the EC
Treaty already applied to the united Germany. Article
93(3) and the Community’s other State-aid provisions
consequently applied to the EALG.

The Commission also notes in passing that Germany had
declared itself, even before 3 October 1990, to be not just
politically but legally bound to adopt the measure in

(1) BGBl. I, p. 2624.

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24. 4. 1999

question. A number of parties to the procedure disputed
this, pointing out that the land-purchase scheme had not
originally formed part of the EALG bill and that the
legislative texts relating to the bill had not mentioned any
such legal obligation.

This point may be left open, as it is not crucial to the
issue at hand: even if at a given time prior to 3 October
1990 the Federal Government had indeed already
committed itself
just politically to
legally and not
adopting specific aid measures in the territory of the new
L(cid:132)nder at a later point in time (i.e. after the entry into
force of the EC Treaty in those new L(cid:132)nder), under
Article 93(3) it would have been obliged to notify the
Commission of its plans before making such an under-
taking because Germany had been bound by the Treaty
since 1958. However, it is not in dispute that such a
notification never took place.

To the extent that it contains elements of State aid, the
land-purchase scheme is therefore unlawful.

VI

The unlawful character of a State aid does not prejudge
the issue of its compatibility with the common market in
accordance with Article 92 of the EC Treaty, which, like
Articles 93 and 94, applies to agriculture on the basis of
Article 42 of the Treaty. This aspect will be looked at
more closely later. First the Commission needs to look at
to what extent the land purchase scheme contains meas-
ures that do not meet the conditions laid down in Article
92(1) of the EC Treaty and where no decision must there-
fore be taken on whether or not they are compatible with
the common market.

This may be the case for instance if the State simply
returned to an economic operator something that it had
previously expropriated (illegally). This may typically be
compensation for losses suffered by the operator as a
result of expropriation or similar action (compensation in
kind or monetary compensation). In opening the pro-
cedure, the Commission made it quite clear that, provided
that the advantage accorded did not exceed the losses
suffered by the operator as a result of such action, no
preferential treatment within the meaning of Article 92(1)

of the EC Treaty was present. Thus no State aid would be
involved in this case. The Commission also notes that
neither Germany nor any of the other parties to the
procedure have disputed this principle.

However, the Commission also specifically noted when
opening the procedure that State aid might be present
because of the way the preferential land purchase was
structured.

The Commission notes that none of
i.e.
Germany or the other parties to the procedure, had
reacted to this possibility.

the parties,

The Commission does not therefore see any reason to
alter its position on this aspect and continues to assume
that preferential treatment is involved, unless the measure
can be proven to compensate simply for prejudice
suffered as a result of expropriation or similar action.

The Commission uses national, in this case German, law
as a yardstick. The Commission must be satisfied beyond
all doubt that national law other than the EALG recog-
nises that the individual groups covered by the land-
purchase scheme are entitled to compensation and can
actually be compensated. There are basically five such
groups in all.

1. Resettled farmers without entitlement to resti-

tution

Resettled farmers without entitlement to restitution
are former owners of farms who were expropriated
between 1945 and 1949 (1). The farms were generally
at least 100 ha.

This group had not yet had their farms returned.
Their financial loss is at least equal to the value of
the assets of the expropriated farms.

In opening the procedure, the Commission noted
that the financial advantage involved was that such
farmers were ‘merely entitled. . . to buy back part of
their land at a favourable price'.

None of the parties, not Germany nor other inter-
ested parties, disputed this or contested the conclu-
sion that ‘the financial advantage is thus less than the
value of the expropriated property' (2).

In the absence of any comments to the contrary or
other evidence, the Commission has no reason to
alter its earlier opinion. It had made clear that this
compensation merely reflected the legal principles
common to all Member States regarding the protec-
tion of property rights.

(1) Including ‘former' owners.
(2) OJ C 215, 10.7.1998, p. 12, Section III.1.

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For the above reasons the Commission finds that the
land-purchase scheme did not contain elements of
State aid within the meaning of Article 92(1) of the
EC Treaty in the case of resettled farmers without
entitlement to restitution.

2. Resettled farmers with entitlement to restitu-

tion

Resettled farmers with entitlement to restitution are
persons whose farm was expropriated after 1949 and
who are thus entitled to have their farm returned
under the Property Act.

In this category the Act distinguishes between reset-
tled farmers with entitlement to restitution who are
able to enforce their claim and those who are unable
to enforce their claim for the return of their property.

Resettled farmers with entitlement to restitution but
unable to enforce their claim are to all intents and
in the same position as expropriated
purposes
farmers without entitlement to restitution. For the
purposes of
resettled
farmers who have been unable to enforce their enti-
tlement to restitution are regarded as equivalent to
resettled farmers without entitlement to restitution.

this examination,

therefore,

Hence the conclusions drawn under point
l also
apply to this specific subgroup of resettled farmers
with entitlement to restitution.

On the question of whether or not the other resettled
farmers with entitlement to restitution, i.e. those able
to enforce their claim, were entitled to purchase land,
the opinion of the German authorities differed from
that of most other parties to the procedure. Some
claimed that such farmers were indeed entitled to
purchase the land, while others contested that enti-
tlement. This disagreement centres on the interpreta-
tion of national law, but neither side has pointed to a
court judgment in support of their argument. It is
not the Commission’s place to decide how national
law should be interpreted in this matter.

However, since Germany assumes that these farmers
are entitled to purchase land under the scheme, it
cannot be ruled out that this group of people could
actually benefit from preferential land purchases in
practice.

Preferential treatment within the meaning of Article
92(1) cannot by any means be ruled out in this case.
For this specific sub-group of resettled farmers with

entitlement to restitution each individual case must
be examined on its own merits, as the Commission
does not have any grounds to conclude with certainty
that in each case the value of the advantage accorded
by the purchase of land at preferential rates sub-
sequent to (enforced) entitlement to restitution is
(always) arithmetically equal to or less than asset
losses as a result of expropriation (or
inventory
losses).

This conclusion is not altered by the adjustment aid
which some parties to the procedure maintain has
been granted ‘extensively' to agricultural holdings in
the new L(cid:132)nder since 1990. That aid is not intended
to compensate for asset losses suffered by the benefi-
ciaries prior to unification and is not therefore to be
taken into account
in this examination. Where
elements of aid within the meaning of Article 92(1)
of the EC Treaty are subsequently found to exist, this
does not prejudge the issue of compatibility with the
common market. This question will be examined in
the following sections.

3. Newly settled farmers

Local newly settled farmers are persons who, prior to
unification, worked in agricultural production co-
operatives (LPG) or people’s estates (VEG), did not
formerly own a farm, but have now set up a new
farm.

Newly settled farmers were never expropriated. In
the GDR they were merely prevented from acquiring
agricultural and forestry property: in this context, the
German authorities have referred to ‘denied opportu-
nities' (1).

Under German law these persons are not therefore
entitled to financial compensation (2).

This finding has not been contested.

When it opened the procedure the Commission
noted that:

‘In this connection, the Commission first notes that
probably almost all GDR citizens, quite irrespective
of the sector in which they worked, may have been
denied opportunities for as long as the GDR applied
a communist planned-economy system.

[. . .]

That being so, taking into account the concept of
damage as defined in the Court of Justice’s above-
the Commission certainly
mentioned case-law,
cannot rule out the existence of State aid within the
meaning of Article 92(1) of the EC Treaty'.

Having examined the remarks and comments made
by all the parties, the Commission has found no
reason to change its earlier position. None of the
parties were able to prove any legal obligation under
German law to pay compensation for such ‘losses'.
The restoration of private ownership and balanced
property structures might be viewed in a broad sense

(1) OJ C 215, 10.7.1998, p. 13, Section III. 5.
(2) OJ C 215, 10.7.1998, p. 10, Section II. 2.

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24. 4. 1999

as an action to remedy losses. But German law does
not necessarily require public funds for this purpose.
This would also appear to be impossible in practical
terms. Otherwise all economic operators, including
in other sectors of the economy, would have to be
‘compensated' for the loss of opportunity to pursue
free economic activity over 40 years.

its

For these reasons the Commission cannot uphold
the view that
remarks on compensating for
economic loss were too limited or did not do suffi-
cient justice to the special requirements of trans-
forming and integrating part of a country with a
planned-economy structure into a market economy
framework.

The Commission therefore maintains its view that
the preferential sale of agricultural or forestry land to
newly settled farmers, which involves a particular
sector of the economy, represents a specific measure
involving preferential treatment within the meaning
of Article 92(1) of the EC Treaty. The compatibility
of this measure with the common market will be
examined in subsequent sections.

The above considerations apply all the more to the
two distinct subcategories of newly settled farmers,
namely new farmers who moved from the western
part of Germany to the GDR shortly before 3
October 1990 (and who had never been prevented
from acquiring agricultural and forestry property) and
those who, on the reference date, were not yet old
enough to be gainfully active (e.g. school-age chil-
dren).

4. Local resettled farmers

farm. Germany argues

Local resettled farmers are owners of farmland who
have claimed back their land from an agricultural
production cooperative (LPG) and have re-established
their
the prejudice
suffered by these persons again comprised the
returned property’s, in most cases considerable, loss
of intrinsic value, for which no financial compensa-
tion was paid. In addition, the inventory originally
contributed to the agricultural cooperative had often
not been replaced to its full value.

that

claim could not be equated with its actual fulfilment.
The Commission shares its opinion.

Germany did not however submit any facts indi-
cating that such claims were not normally met. In a
State based on the rule of law, such as Germany, the
Commission feels it can in fact be assumed that the
authorities strictly uphold the law.

In the absence of grounds to the contrary,
the
Commission therefore has to assume that parties are
normally compensated for inventory loss. It admits
however that circumstances might differ from case to
case, in that insufficient compensation might have
been provided, or none at all. The Commission
in normal cases involving
therefore assumes that,
inventory loss, parties have been compensated under
the Agricultural Adjustment Act and that the amount
in question was not below the damage suffered
through loss or destruction of
the inventory, but
exceeded the loss threshold. Assuming this to be the
case, as always based on the normal case, it would
have to assume the existence of preferential treat-
ment in accordance with Article 92(1) of the EC
Treaty. However, each individual case has to be taken
into account, particularly since there may have been
some loss of
intrinsic value. Precise calculations
therefore have to be carried out on a case-by-case
basis. Since losses (inventory damage/loss of intrinsic
value) might be cumulative or mutually exclusive and
the compensation (under the Agricultural Adjust-
ment Act or EALG) might conceivably be cumulated,
case-by-case calculations will show whether or not
the overall advantage accorded is below the total
result,
amount
compensation or preferential
treatment might be
found to exist within the meaning of Article 92(1) of
the EC Treaty. The question of compatibility of any
such preferential treatment with the common market
is to be examined separately.

losses. Depending

on the

of

5. Legal entities

terms. However,

Legal entitles are also eligible to acquire land on
preferential
this has been made
conditional on certain requirements: 75 % of the
capital must be in the hands of persons who were
already resident on 3 October 1990.

Some of the parties to the procedure challenged this:
they
referring to German constitutional case-law,
argued that German law already provided an entitle-
ment to compensation for inventory loss. Germany
did not deny this, but said that an entitlement to a

Some of the parties to the procedure have argued
that, in contrast to most citizens in the former GDR,
legal entities had not incurred losses on a personal
basis. Germany has not denied this.

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L 107/39

Where the legal entities in question have not been
victims of expropriation or similar action, in accord-
ance with the above hypothesis elements of aid
within the meaning of Article 92(1) of the EC Treaty
cannot be ruled out. The Commission made this
clear for this category of beneficiary in its decision
opening the procedure (1).

Subject to those conditions being met, the Commis-
sion feels that the establishment of a qualifying date
by which the company must have been formed or
the resident farmer must have become a member of
the legal entity, as called for by the parties to the
procedure, is not imperative. It will however have to
obtain a yearly report from Germany on compliance
with the above conditions.

Nevertheless, despite concerns about possible abuse,
the Commission is of the opinion that, under certain
clearly defined conditions,
the scheme does not
contain possible elements of State aid in this case
even though legal entities who had not suffered
losses acquired the land on preferential terms. This
might for instance be the case where a resettled
farmer without entitlement
to restitution or an
(i.e. a resettled
resettled farmer
local
equivalent
farmer with entitlement to restitution but unable to
enforce that claim) decides that the legal entity in
which he holds shares should purchase on his behalf
and at preferential rates the land to which he is
entitled.

In Community law it can make no difference
whether a resettled farmer without entitlement to
restitution or an equivalent local resident in his place
enters the legal entity in the land register (proxy
purchase).

The Commission has carefully considered the argu-
ment by various parties that such a rule might invite
abuse or circumvention of State-aid rules. It must
however reiterate that at this point it is concerned
only with the definition of compensation/preferential
treatment within the meaning of Article 92(1) and
not with a finding of compatibility with the common
market.

In response to concerns that such a rule might be
open to abuse, the Commission notes that preferen-
tial treatment did not exist only where there was no
risk of duplicate purchase by a member of the legal
entity. Duplicate purchase in this sense means that
land could be purchased by both the member of a
legal entity and the legal entity. If this were the case,
the Commission would not at all be able to rule out
the existence of preferential treatment in the case of
legal entities. Where the risk of duplicate purchase
could be ruled out, however, the legal entity would
not be entitled to purchase a larger maximum area
(average of 140 ha maximum) than its member (if he
had been able to purchase the land).

(1) OJ C 215, 10.7.1998, p. 12.

Subject to the aforesaid conditions being met, the
Commission does not consider that there are any
grounds for the objections by some parties that,
because persons not meeting the normal prejudice
criteria might hold a very small share in a legal
entity,
the principle of proportionality had been
breached as the legal entity as a whole had been
viewed as an injured party and therefore given prefer-
ential treatment.

As already set out above, the Commission does not
automatically assume that a legal entity has suffered
loss (such as expropriation or similar action). Nor can
a legal entity purchase more land than the resettled
farmers without entitlement to restitution (or their
equivalent) who hold shares in that legal entity. The
Commission also notes the 75 % rule laid down by
law.

treatment

it should be noted that under the above
Finally,
model
for
the existence of preferential
legal entities within the meaning of Article 92(1) of
the EC Treaty can only be ruled out with sufficient
certainty where the requisite number of shares are
held by at least one resettled farmer without restitu-
tion (or a resettled farmer with entitlement to restitu-
tion but unable to enforce that claim).

With respect
to the other categories of partner
described under points 2, 3 and 4, for the reasons
given therein the Commission cannot rule out the
existence of preferential treatment enjoyed by the
legal entity, or rather must presume that elements of
State aid are involved. In all these cases the question
whether the measure is compatible with the common
market is a separate issue.

In conclusion on the aspects addressed in this
section, the Commission can rule out the existence
of any preferential treatment within the meaning of
Article 92(1) of the EC Treaty only in the case of
resettled farmers without entitlement to restitution,
equivalent resettled farmers with entitlement to resti-
tution but unable to enforce their claim, and legal
entities with at least one of the above as a member. It
cannot do that in the case of any of the other benefi-
ciaries.

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Where preferential treatment cannot be ruled out,
the competition rules (Articles 92, 93 and 94) apply.

(cid:190) but the scheme did in fact arouse a great deal of
interest.

Under Article 92(1) of the EC Treaty any aid granted
by a Member State or from State resources in any
form whatsoever, which distorts or
to
distort competition by favouring certain undertakings
or the production of certain goods, is prohibited in
so far as it affects trade between Member States.

threatens

The existence of an aid scheme is defined, as noted
in the decision to open the procedure (1), in terms of
its preferential treatment of the recipient and not in
terms of Member States’ objectives and economic
policy considerations. Germany denies that any pref-
erential treatment is contained in the land purchase
scheme.

In accordance with its Communication on State aid
in sales of land and buildings by public author-
ities (2), the Commission assumes that elements of
State aid are contained in sales of land where they:

The Federal Government admits that the purchased land
might be used as collateral. It might also facilitate access
to more outside capital.

This confirms the Commission’s view, expressed in the
decision to open the procedure (3), that the opportunity
to purchase agricultural and forestry land at a reduced
price enables beneficiaries to build up business assets and
hence also a reserve of capital. The Commission main-
tains this opinion.

Even the reference to the encumbrances on the land
purchased (specifically the 20-year
restraint on sale)
cannot alter the conclusion that preferential treatment
exists in principle.

Such clauses are not unknown to the Commission in the
land
case of
purchases in other contexts.

subsidies or preferential

investment

(a) do not follow an open and unconditional bidding
procedure accepting the best or only bid,

or

(b) are effected without an unconditional bidding
procedure and without attaining the minimum
market value established by an independent
expert.

In this particular case the Commission assumes that the
land purchase scheme does indeed contain elements of
State aid.

Although, as a tenant, the beneficiary is already in occu-
pation of the land in question, he is subsequently also
given ownership of the property. The right of tenure is to
be set against the dominant right of ownership acquired
by the tenant.

An owner not only has more rights than an occupier, but
is also better off financially. If no preferential treatment
had been connected with the land purchase scheme, it
would not have attracted any interested parties or buyers

The purpose of this type of anti-speculation clause is to
prevent purchasers
from cashing in the advantage
acquired straight away. The farmer or forester is supposed
to work the land purchased at preferential rates and earn a
livelihood by that means rather than make a profit as a
result of speculation. The existence of an anti-speculation
clause would therefore seem to suggest precisely that the
land purchase scheme involves commercial advantage.
The extent (intensity) of this advantage will be discussed
later.

One party has maintained that
land
purchased does not provide any extra security in terms of
capital procurement as banks are ‘hesitant' to award loans
against the land purchased.

the additional

The Commission cannot uphold this argument, either.
The registered restraint on sale is undoubtedly an encum-
brance, but is limited in duration. Moreover, unencum-
just
bered property may subsequently be encumbered,
like any other property. Furthermore, another party to the
procedure quite rightly notes that even during the 20-year
restraint on sale (and despite the notice of reconveyance
to the BVVG, which is generally without force or set to
lapse) there is nothing to prevent subsequent encum-
brances. Germany has not denied this either.

(1) OJ C 215, 10.7.1998, p. 17.
(2) OJ C 209, 10.7.1997, p. 3.

(3) OJ C 215, 10.7.1998, p. 13.

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Where aid is found to exist on the analysis thus far, it
distorts or threatens to distort competition by favouring
certain undertakings. Under Article 92(1) of the EC Treaty
even the potential to distort competition is sufficient.

The distortion of competition or the potential to do so
arises from the fact that the parties purchasing land at
preferential rates are placed in a better financial position
than their competitors who have not received any such
support.

On this point, Germany objects that in the hypothetical
case of purchase with borrowed capital, a comparison of
the interest charges with current rent levels would show
that the land purchase would be ‘roughly neutral in terms
of profit margin' and thus neither the cost nor the
production structure would change.

than the average market value of land paid in France,
Spain, Wales and Scotland, is not relevant.

The aid monitoring aid rules must be based on the real
economic situation in the individual Member States and
regions in the Community. The purpose of competition
law cannot be to level out the objective differences in
conditions of competition (1) and to aim to generate
absolute equality.

forward the view that distortion of

In its decision to open the procedure the Commission
put
the common
market was to be suspected where the recipient of the aid
was in competition with undertakings in other Member
States. The statutorily accorded preferential purchase of
land particularly affected other Member States on account
of the large surface area held by the agricultural coopera-
tives’ successors. Foreign undertakings did not receive
comparable favourable treatment and were thus placed at
a disadvantage.

This argument is unconvincing as it covers only one of
several purchase hypotheses. A number of parties pointed
out that the beneficiaries (in particular the successors to
former agricultural production cooperatives) might quite
possibly be in a position to pay the purchase price out of
their own financial resources and so it was not always
essential to borrow the money.

It must be emphasised that a relatively low rate of aid
does not necessarily rule out distortion of trade between
the Member States.

The observations submitted to date do not give the
Commission any reason to alter its position.

It must also be pointed out the claim of being ‘profit-
neutral' has not been made, or indeed substantiated, in
each individual case. An influence on the farm’s cost
structure cannot by any means be ruled out therefore.

In the absence of further explanations, the Commission
cannot accept the claim that the price level and margin
will remain unchanged. The same applies to the assertion
that preferential
land purchases would facilitate lower
expenditure on production inputs and thus enable
produce to be marketed at a more attractive price.

One party claimed, without backing up this statement,
that in almost all regions of the Community, the purchase
of agricultural land pushes up production costs and thus
impairs competitiveness. If that party is seriously claiming
that the preferential
land purchase scheme in eastern
Germany, which is the only point under consideration
here, weakened the competitive position of the holdings
concerned one can only wonder why the holdings in
question actually participated in the land purchase
scheme at all.

Another argument, that the notional value based on three
times the standard value in 1935 at which EALG benefi-
ciaries were entitled to purchase land was much higher

Accordingly, the land purchase scheme meets the criteria
under Article 92(l) of the EC Treaty, with the exception of
the measures in favour of resettled farmers without enti-
tlement to restitution, equivalent resettled farmers with
entitlement
to restitution but unable to enforce their
claim, and legal entities in which such persons are
members.

VII

However, certain exceptions to or exemptions from the
principle of incompatibility with the common market as
contained in Article 92(1) of the EC Treaty are possible.

1. Exemption under Article 92(2)(c) of the EC

Treaty

Under Article 92(2)(c) of the EC Treaty, aid granted
to businesses in certain areas of the Federal Republic
of Germany affected by the division of Germany is
compatible with the common market in so far as
such aid is required in order to compensate for the
economic disadvantages caused by that division.

(1) Joined cases 6 and 11/69 Commission v. France (Bangue de

France)

[1969] ECR 523 et seq.

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24. 4. 1999

the Commission argued that

In this connection, in its communication opening
the procedure,
the
wording and intention of Article 92(2)(c) of the EC
Treaty would appear to refer only to the direct conse-
quences of the geographical division of Germany,
and not to compensation for the poor economic
situation in the new L(cid:132)nder. Moreover, the requisite
causal link between the geographical division and the
economic disadvantages was lacking, since undertak-
ings in the former GDR had not been affected by the
division of Germany but by the ending of that divi-
sion. The communist planned economy of
the
former GDR had caused economic deficits, not the
division of Germany itself.

The lack of assets and capital mass was ultimately a
result of
the socialist ownership structure in the
GDR and not the division of Germany.

Germany takes the view that the isolation of the
former GDR and the creation of a centralised State
economy were inextricably interlinked and must be
seen as one and the same process. There could
however be no dispute about the fact that the inad-
equacies of
the State-controlled economic system
continued to prevail after the GDR had ceased to
exist. The economic disadvantages continued to be a
result of the division of Germany, and these were
inherent in all the disadvantages covered by the land-
purchase scheme.

In the first place, this is contradicted by the argu-
ment that the relevant provision must be interpreted
narrowly. It contains merely an exception to the
general principle of the ban on aid laid down in
Article 92(1).

Prior to the unification of Germany, the scope of this
provision was restricted to the parts of the former
Federal Republic placed at a disadvantage by the
division of Germany near the border between east
and west Germany (areas bordering the east zone
plus west Berlin). If at all, after the unification of
Germany, the continuation of this provision would

justify the inclusion of only those areas of the former
GDR close to this border.

There would be no justification for extending this
provision to all the territory of the former GDR.
However,
the land purchase
scheme was precisely the State-subsidised sale of land
on the entire territory of the former GDR.

the very purpose of

in particular in terms of

The Commission would also point out that there is
no evidence of a causal link between the division of
Germany and the disadvantages on all the territory of
the former GDR. Without doubt the division led to
problems,
infrastructure
(interruption) and markets (isolation). These can now
be considered to have been overcome. The economic
problems still in existence in the former GDR are
the direct consequences of the former political and
the division of
economic regime (and not of
the
the most, consequences of
Germany) or, at
ending of
that division, because in reality those
economic problems are due to other causes which
occurred subsequently.

these reasons the Commission holds by its
For
standard practice, according to which Article 92(2)(c)
cannot apply to the entire former GDR (1).

2. Exemption under Article 92(3)(a) of the EC

Treaty

Under Article 92(3)(a) of the EC Treaty, aid may be
approved to promote the economic development of
areas where the standard of living is abnormally low
compared with the Community as a whole. As
already explained in the notice opening the pro-
cedure (2), that provision only regulates regional aid
in favour of particularly less-favoured areas of the
Community. Aid measures must be applied as part of
comprehensive, targeted regional policy programmes
and normally aim to promote cross-sector job crea-
tion and encourage new investment.

In this respect, the Commission holds to its view that
there is no evidence of such a regional assistance
element. At present, the land-purchase scheme only
governs the future ownership of land formerly ‘State-
owned' (volkseigen) by the former GDR. There is no
evidence of any effects on the economic develop-
ment of certain regions.

There is still no link between the land-purchase
scheme and the above economic framework for
eligible undertakings.

The question as to what extent the sale of land at low
prices to newly settled farmers and the successors to
can
former

agricultural production cooperatives

(1) SG(94) D/5981, p. 2 (transport TettauBavaria); decision of 14
April 1992 (Potsdamer Platz)
(OJ L 263, 9.9.1992, p. 15);
Opel-Eisenach (OJ C 43, 16.2.1993, p. 14); Carl-Zeiss-Jena
(OJ C 97, 6.4.1993, p. 7); Rhone-Poulenc Rhotex (OJ C 210,
4.8.1993, p. 11); SST-GarnG (OJ L 114, 5.5.1994, p. 21);
Volkswagen I (OJ L 385, 31.12.1995, p. 1) and Deggendorf
(OJ L 386, 31.12.1994, p. 13).

(2) OJ C 215, 10.7.1998,

.

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Official Journal of the European Communities

L 107/43

contribute to improving the standard of living or the
labour-market situation in the new L(cid:132)nder remains
unanswered. Such a contribution is, however, a
required justification to qualify under Article 92(3)(a)
of the EC Treaty.

The derogation in question does not apply for these
reasons. Neither the German authorities nor the
other parties involved in the case refer to this deroga-
tion in justification.

3. Exemption under Article 92(3)(c) of the EC

Treaty

Under Article 92(3)(c) of the EC Treaty, State aid may
be approved to facilitate the development of certain
economic activities or of certain economic areas
where such aid does not adversely affect
trading
conditions to an extent contrary to the common
interest.

Commission also wishes to warn that this policy may
be changed in the near future.

In the case in point the sale of forest land at a
reduced rate must be viewed as a ‘condition of
granting aid differing from those laid down in this
Regulation'.

However, State aid, no matter what kind,
is not
covered by an exemption under Article 92(3) of the
EC Treaty, where and in so far as it is discriminatory
and contravenes the Treaty.

Therefore, ahead of the question as to whether the
abovementioned specific Commission rules on aid
for the purchase of agricultural and forest land at low
prices have been met,
the Commission must
examine the priority issue of whether it is discrim-
inatory within the meaning of the relevant provisions
of the EC Treaty.

Article 92(3)(c) therefore applies in particular when
the aid in question can help combat structural weak-
nesses in specific industries or areas.

3.1. Discrimination

As the law stood when the EALG entered into force,
under Articles 35(1) and 12(5) (1) of Council Regula-
tion (EEC) No 2328/91 of 15 July 1991 on
improving the efficiency of agricultural structures (2),
it was in principle possible for the Commission to
view aid for agricultural land purchase in the form of
investment aid (3) as compatible with the common
market and approve such aid if the rate did not
exceed 35 % (or 75 % in less-favoured areas (4)).

Regarding forestry measures in general, under Article
8(2) of Council Regulation (EEC) No 2080/92 of 30
June 1992 instituting a Community aid scheme for
forestry measures in agriculture, Member States may
grant aid for which the conditions of award differ
from those laid down therein or the amount of which
exceed the limits stipulated therein, provided that the
said measures comply with Articles 92, 93 and 94 of
the EC Treaty. It is the Commission’s standard prac-
tice not to raise objections in certain cases to invest-
ment aid representing up to 100 % of the eligible
in this sector. However, the
costs of measures (5)

(1) Now Article 12(2)(a) of Regulation (EC) No 950/97.
(2) See State aid schemes N 682/97, N 156/97, N 797/96 and N

940/96.

(3) See criteria in Commission communication of 1979, point

18(i) of the Annex (OJ C 31, 3.2.1979).

(4) In the new Lander only around half of all areas are classified
as less-favoured; see Articles 2 and 3 of Directive 75/268/EEC
(now Subtitle III in Regulation (EC) No 950/97).

(5) State aid schemes N 567/97, N 752/96, N 750/96, N 646/96

and N 153/96.

When it opened the procedure,
the Commission
expressed doubts as to whether the requirement that
newly settled farmers should already have been resi-
dent on 3 October 1990 or 75 % of the shares should
be held by persons who were already resident on 3
October 1990 was compatible with certain Articles of
the EC Treaty (inter alia, Articles 52 and 6). It
pointed out that Articles 52 to 58 provided for the
abolition of restrictions on freedom of establishment,
setting up or establishing undertakings,
whether
principal places of business or secondary establish-
ments or branches. In accordance with the case-law
of the Court of Justice of the European Communi-
ties (6), the concept of freedom of establishment may
also include the purchase of property for
an
economic purpose (7). By prohibiting ‘restrictions on
freedom of establishment by nationals of Member
States in another Member State', this provision makes
a clear link with the concept of nationality (8) and
prohibits any discrimination on these grounds. The
ban on discrimination does not only imply overt
discrimination by reason of nationality, but also all
covert forms of discrimination. Covert discrimination
by reason of nationality exists if ‘the application of

(6) Case 305/87 Commission v. Greece [1989] ECR 1461.
(7) See 1962 General Programme for the abolition of restrictions
on freedom of establishment (OJ 2, 15.1.1962, p. 36/62).

(8) In the case of

legal persons, under Article 58 of

the EC
Treaty, the nationality of a company or firm formed in ac-
cordance with the law of a Member State is to be determined
having regard to its registered office, central administration or
principal place of business.

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Official Journal of the European Communities

24. 4. 1999

other distinguishing criteria leads to the same result
as discrimination by reason of nationality' (1),
i.e.
discrimination is carried out not directly as a result of
the nationality but based on criteria that only
(e.g.
nationals or
requirements relating to place of origin or of resi-
dence).

foreigners may typically meet

that

the Commission is to satisfy itself

Article 54(3)(h) of the EC Treaty further lays down
that
the
conditions of establishment are not distorted by aid
granted by Member States. Under this provision and
through its 1962 General Programme for the aboli-
tion of restrictions on freedom of establishment (2),
the Council laid down that the provisions and prac-
foreign nationals only,
tices which,
exclude, limit or impose conditions on the power to
exercise rights normally attaching to an activity as a
self-employed person are to be eliminated. These
provisions and practices include direct or indirect
State aid, such as subsidising the purchase of land.

in respect of

By prohibiting restrictions on freedom of establish-
ment, Articles 52 to 58 aim among other things to
ensure that the undertakings concerned are treated in
the same way as undertakings with their registered
offices in the host country. Under this provision,
however, only those resident under Article 3(2) of the
EALG may benefit from the measure. In order to
qualify under that provision, undertakings that do
not have their registered office in the new L(cid:132)nder
would have had to relocate, or natural persons would
have had to move their principal place of residence,
to the regions in question. However, as a result of the
political and economic circumstances, on the quali-
fying date of 3 October 1990 this was practically
impossible to do from other Member States. Thus
this law gives natural and legal persons in the new
L(cid:132)nder an advantage over persons without a regis-
tered office or residence in Germany and is therefore
liable to contravene the ban on discrimination under
Articles 52 to 58 of the EC Treaty (3), as the Court of
Justice held in its judgment
in Case C-107/94
(Asscher).

Community citizens may perhaps have been able, de
jure,
they provide
evidence of a (principal) place of residence in the

the requirement

to meet

that

(1) Case C-419/92 Scholz v. Opera Universitaria [1994] ECR-I
505, point 7; Case C-237/94 O’Flynn [1996] ECR-I 2617,
point 17.

(2) OJ 2, 15.1.1962, p. 36/62.
(3) Case C-107/94 Asscher [1996] ECR-I 3089, points 36, et seq.

acceding territory on the qualifying date of 3 October
1990. However, de facto it was almost exclusively
German nationals that met this condition (cid:190) particu-
larly those previously resident in the new L(cid:132)nder.

This condition therefore had the effect of excluding
those persons not meeting the criterion that their
(principal) place of residence be in the acceding terri-
tory.

the Court of Justice (4),

Nevertheless, with reference to the relevant case-law
of
the Commission has
admitted that the effect in practice of distinguishing
criteria such as place of residence does not, however,
inadmissible indirect discrimination by
represent
reason of nationality if the distinguishing criteria
(and therefore difference in treatment) are objectively
justified.

The distinguishing criterion ‘residence on 3 October
1990' can only be justified where it is both necessary
and appropriate to serve the purpose pursued by the
legislator. Such a measure is not necessary where the
objective pursued by the legislator can also be
achieved by a milder,
less stringent, measure
i.e.
which is as appropriate.

intention to

According to the Federal Government, ‘by stipulating
the qualifying date of 3 October 1990, it was the
that potential
legislator’s
purchasers who or whose families had lived in the
GDR for several decades could benefit
from the
reconciliation of social
interests to be established
between them and the previous owners'.

ensure

The purpose was
therefore to include potential
purchasers who or whose families had lived and
worked in the GDR for several decades.

inclusion for

Germany justified this
‘compelling
reasons ensuring broad social continuity'. It claimed
that a ‘reconciliation of interests within society' had
to be found and that special account had to be taken
of ‘purchasers who had already been settled in the
region for a long time'. The legislator was ‘justified in
ensuring that newly settled farmers were also
involved in the restructuring of
land which had
become State property of the GDR'.

(4) Case C-237/94 O’Flynn [1996] ECR-I 2617, points 20, 21;
Case C-278/94 Commission v. Belgium [1996] ECR-I 4307,
point 20.

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The Commission fully supports the objectives of
these measures. The adjustment of east German
ownership structures to the new economic system is
a totally legitimate objective of the German legislator.
In fact most Member States have carried out land
reforms enabling farmers to purchase the land they
farm. Acknowledging such ties with the land in this
way has the Commission’s approval.

However, to achieve this objective, there was no need
at all for a qualifying date for residence on 3 October
1990 since, in accordance with Article 3(1) of the
EALG, these newly settled farmers or legal entities
were allowed to participate in the land purchase
scheme if on 1 October 1996 they had held a long-
term lease on previously State-owned land to be
privatised by the Treuhandanstalt (1).

In the course of its main examination, the Commis-
sion was expressly informed by parties to the pro-
cedure that by far the majority of long-term lease
agreements had been concluded with east Germans.
Germany gave a detailed and robust response to all
questions raised regarding discrimination but it did
not challenge these claims, let alone provide substan-
tiated evidence to refute them.

Thus it is clear that, although the legitimacy of the
objective pursued by the legislator (i.e. participation
is
of east Germans in the land-purchase scheme)
recognised, the object would not, in practical terms,
have been defeated if there had been no qualifying
date of 3 October 1990.

Thus in so far as the purchase of agricultural and
forest land is tied to the qualifying date of 3 October
1990, in the Commission’s view this provision is not
necessary and therefore not justified.

(1) Except

the purchase of
farmers under Article 3(8)(b) of the EALG.

forest

for

land by newly settled

In so far as the residence rule is not linked to a
requirement of a long-term lease (2), the following
applies.

The Court of Justice has consistently held that
discrimination prohibited under the Treaty exists
where similar
are treated differently or
different things are treated in the same way (3).

things

The same or different treatment must be justified by
compelling objective reasons pertinent to the par-
ticular case.

The Commission has already pointed out that in its
opinion the adaptation of ownership structures to the
new economic system is a totally legitimate goal.

The adaptation of ownership structures by granting
those persons already farming the land to be priva-
tised a preferential purchase option could, essentially,
be justifiable as a result of the close material link
(tenant-future owner).

However, the date of 3 October 1990 is not tied to a
(long-term) tenancy.

In the light of these considerations, the exclusion, de
facto and a priori, of other Community citizens
cannot be justified.

It
is clear from the comments on newly settled
farmers (4) that there is just as little justification for
different treatment on the basis of loss: as rightly
argued by other parties to the procedure, the newly
settled farmers have never been expropriated,
just
like their competitors in the other Member States.
The Commission already pointed this out when it
opened the procedure (5).

that

aim was

For these reasons, the Commission cannot follow the
reasoning behind the claim made by one party to the
to
the Commission’s
procedure
‘exclude' the newly settled farmers. In line with its
remit, the Commission is only attempting to ensure
that the EC Treaty is applied. Thus the Commission
takes the view that as a result of the unjustified
different treatment of what are, in principle, identical
categories of interested parties in allowing access to
land to be purchased at a low price (potential
purchasers from (east) Germany/the other Member
States), there has been discrimination in breach of
Articles 52 to 58 of the EC Treaty.

(2) Article 3(8)(b) of the EALG.
(3) For example, for the first category: Cases 8/55 and 9/55 Fede-
ration Charbonniere de la Belgique v. Haute Autorite de jure
[1955/56] ECR 297 and 331; Case 14/59 Soci(cid:130)t(cid:130) des Fonderies
de Pont (cid:133) Mousson [1958/59] ECR 465; Case 79/77 K(cid:129)hlhaus-
Zentrum [1978] ECR 611; and for the second category: Case
13/63 Italy Commission [1963] ECR 357; Case 8/78 Milac
[1978] ECR 1721; Case 230/78 Eridania [1979] ECR 2749;
Case 8/82 Wagner [1983] ECR 371.

(4) See Section VI; legal entities may not purchase under Article

3(8)(b)) of the EALG.
OJ C 215, 10.7.1998, p. 18. See section iV(5)
paragraph).

(5) OJ C 215, 10.7.1998, p. 17 passim.

(penultimate

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24. 4. 1999

As set out in detail
procedure,
breach of Article 6 of the EC Treaty (1).

in the decision opening the
this indirect discrimination is also in

Articles 6 and 52 to 58 of the EC Treaty and are thus
incompatible with the common market within the
meaning of Articles 92, 93 and 94.

In that decision, the Commission did not rule out in
principle the possibility of there being a breach of
Article 40(3) of the EC Treaty(17).

the Commission notes

Finally, as regards the qualifying date of 1 October
1996,
the German
authorities have not commented since it was not the
subject of complaints by parties involved in the
procedure.

that

Germany properly countered that although the
provisions were also directed at the Member States,
this was only in so far as they took action under a
common market organisation.

3.2. Rate of aid (intensity)

It is indeed correct that the land-purchase scheme is
a national measure. It is not a measure implementing
a common market organisation (2). For that reason
the scheme does not fall within the scope of Article
40(3) of
the EC Treaty. No further substantiated
comments on this issue have been made.

First of all, the Commission has not been able to
establish with sufficient certainty whether the aid
scheme complies in every case with the rates of aid
the Commission has laid down.

For those reasons it is not necessary to go any further
into the large number of comments by parties to the
procedure claiming that the beneficiaries of the land-
purchase scheme were primarily the successors to the
agricultural production cooperatives, which they see
as an ‘arbitrary, socially one-sided and wholly unjust'
result. The Commission therefore also refrains from
commenting on the complaint that treatment among
those eligible for the scheme was totally dispropor-
tionate, because those who were relatively least disad-
said to have obtained greater
vantaged were
compensation under the land-purchase scheme than
those who suffered a greater loss as a result of expro-
priation. For
the
Commission will not go into the criticisms made of
the Federal Government, which the latter has not not
contested, according to which the disputed rules are
not appropriate for preserving ‘existing social struc-
tures' and it did not consider ‘the people' in the new
L(cid:132)nder at all but only the approximately 3 000
agricultural production co-
successors
operatives.

abovementioned reasons,

the

the

to

The calculation method which Germany itself has
put forward (Section II.9) yields an aid rate of 29,2 %
for east Germany. Nevertheless, even if the Commis-
sion fully accepts this method of calculation, these
are only average figures.

However, the Federal Statistics Office data forwarded
to the Commission by Germany in its letter dated 25
July 1997 clearly show that
these figures vary
depending on the Land both upwards (on average
+8,7 % for the Land Brandenburg) and downwards
(-7,8 % for the Land Mecklenburg-Western Pomer-
ania). With such a range of average figures for the
calculation
individual L(cid:132)nder,
even using the
method later submitted by Germany,
is to be
it
feared that in some L(cid:132)nder there could have been an
overrun of the 35 % ceiling for areas other than
less-favoured areas. Since these figures as well are
only average figures, i.e. for individual L(cid:132)nder; and
even if
recent method of calculation
submitted later on is used, there could in some cases
still be a considerable overrun of the 35 % limit.

the most

In conclusion, the Commission takes the view that
the parts of the aid tied to residence on 3 October
1990 (newly settled farmers and legal entities) breach

(1) OJ C 215, 10.7.1998, p. 17.
(2) Case C-351/92 Graff [1994] ECR-I 3361, 3379; Cases 201/85
and 202/85 Klensch and Others v. Luxemburg [1986] ECR
3477.

In addition,
there are considerable doubts as to
whether the calculation methods submitted late by
Germany are correct. The Commission fully recog-
nises that the encumbrances on this farmland (ban
on re-sale for 20 years and right of withdrawal in the
event of conversion to building land) are liable to
bring down the market value of this land to some
the calculation
the drawback of
extent. However,

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L 107/47

methods later submitted by Germany is that they
assume that the purchase of the land at a low price
will not have any ‘added value' for the farmer during
the 20-year ban on re-sale. As has been rightly
pointed out however by parties to the procedure, as a
rule long-term tenants will not be ‘troubled' by the
ban on sale for the specified period, since, because of
the long-term tenancy, they will not usually want or
need to sell during that period in any case.

Therefore, in the Commission’s opinion it would be
more correct to take the subsidy equivalent of an
average of 55,5 % specified by Germany in the
abovementioned letter, possibly reduced by applying
an average sales or withdrawal coefficient. Germany
has not forwarded any sales or withdrawal coefficient
(i.e. the average number of sales of farmland over 20
years or conversions to building land).

The Commission thus has no basis on which to
judge whether the subsidy equivalents for the indi-
vidual L(cid:132)nder (Brandenburg 64,2 %; Saxony 61,9 %;
59,4 % and
61,3 %, Thuringia
Saxony-Anhalt
Mecklenburg-Western Pomerania 47,7 %) specified
by Germany comply with the Commission’s 35 %
limit. This is a further reason why in this respect the
considered
land-purchase
compatible with the Commission’s policy on the
maximum intensity rate as described above.

cannot be

scheme (1)

For these reasons the Commission cannot grant an
exemption under Article 92(3)(c) of the EC Treaty.

Since the aid scheme in question does not pursue
any of the other objectives referred to in Article
92(2) (2) and (3) of the EC Treaty either, the Commis-
sion must conclude that
this measure cannot be
considered compatible with the common market.

Consequently, Germany must recover aid granted under
the land-purchase scheme which was tied to the require-
ment of residence on 3 October 1990 or which exceeds
the maximum rate of 35 % for farmland in areas other
than less-favoured areas as defined in Regulation (EC) No
950/97. Germany must inform the Commission, within
two months of the date of notification of this Decision, of
the measures it has taken to comply therewith,

HAS ADOPTED THIS DECISION:

Article 1

The land-purchase scheme provided for in Article 3 of
the German Indemnification and Compensation Act
(EALG) does not constitute aid in so far as the measures
represent only compensation for expropriation or inter-
vention of equivalent effect by the State authorities, and
the benefits awarded are equal to, or less than the finan-
cial loss caused by such State intervention.

Article 2

The aid given is compatible with the common market
where it is not tied to residence on 3 October 1990 and
where it complies with the maximum intensity rate of
than less-
35 % for agricultural
favoured areas in accordance with Regulation (EC) No
950/97.

land in areas other

Aid tied to residence on 3 October 1990 and aid
exceeding the maximum rate of 35 % for agricultural
land in areas other than less-favoured areas in accordance
with Regulation (EC) No 950/97 is not compatible with
the common market.

VIII

Germany must cancel the aid referred to in the second
paragraph and may no longer grant such aid.

the Commission takes the view that
In conclusion,
Germany has implemented the aid scheme in breach of
Article 93(3) of the EC Treaty.

All aid granted unlawfully must be reclaimed from the
recipients in order to reinstate the economic situation
that would have obtained if the aid had not been granted.
Repayment must be made in accordance with the provi-
sions and procedures of German law,
together with
interest from the date on which the aid was granted at the
reference interest rate used in evaluating regional aid
schemes.

(1) The maximum rates for less-favoured areas (75 %) and for aid
for the purchase of forest land (100 %) have clearly been met.

(2) Including the exemption provided for in point (b) for other

exceptional occurrences.

Article 3

Germany shall within two months recover all aid granted
as referred to in the second paragraph of Article 2. Repay-
ment shall be made in accordance with the procedures
and provisions of German law, together with interest from
the date on which the aid was granted using the reference
interest
aid
schemes.

applied when evaluating regional

rate

Article 4

Germany shall
inform the Commission, within two
months of the date of notification of this Decision, of the
measures it has taken to comply therewith.

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This Decision is addressed to the Federal Republic of Germany.

Article 5

Done at Brussels, 20 January 1999.

For the Commission

Franz FISCHLER

Member of the Commission