2000/235/EC: Commission Decision of 10 November 1999 on the aid scheme which Italy intends implementing to assist small and medium-sized enterprises in Objective 1 regions (notified under document number C(1999) 3867) (Only the Italian text is authentic)
Date: 1999-11-10
Institutions: European Commission
Subjects: Italy, State aid, control of State aid, farming sector, fishing industry, small and medium-sized enterprises

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 10 November 1999

on the aid scheme which Italy intends implementing to assist small and medium-sized enterprises
in Objective 1 regions

(notified under document number C(1999) 3867)

(Only the Italian text is authentic)

(2000/235/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community, and in particular the first subparagraph of Article
88(2) thereof,

Having called on interested parties to submit their comments
in accordance with the abovementioned provisions (1) and
having regard to those comments,

Whereas:

I. Procedure

(1)

By letter of 10 April 1997, the Permanent Representa-
tion of Italy notified the Commission,
in accordance
with Article 88(3) of the Treaty, of a draft amendment
to the CIPE (Interministerial Committee for Economic
Planning) Decision on the rules for applying the Guar-
antee Fund for SMEs in Objective 1 regions provided for
in Article 2 of Law 341 of 8 August 1995.

(2)

Examination of the measures in question was divided up
as follows:

As regards Aid N 249/A/97, in the light of Articles 87
and 88 of the Treaty (Commission letter SG(97)D/7216
of 25 August 1997), the Commission examined and
authorised the amendments to the measure covered by
the CIPE Decision of 10 May 1995 applying to sectors
other than agriculture, fisheries and aquaculture.

The application in the agricultural, fisheries and aquacul-
ture sectors of the measures provided for in Article 2 of
Decree-Law 244 of 23 June 1995 laying down the
general principles governing the Fund, ratified in Law

341 of 8 August 1995 (hereinafter referred to as ‘Law
341/1995’), and in the CIPE Decision of 10 May 1995
laying down rules for the application of Law 341/95, as
amended by the provisions notified by the Italian
authorities in their letter of 10 April 1997, was exam-
ined by the Commission in connection with Aid
N 249/B/97.

(3)

Additional information was requested by telexes 52140
of 5 May 1997, 31756 of 5 August 1997 and 14/3786
of 19 September 1997. By telex 2326 of 12 January
1998, the Commission called on the Italian authorities
to reply to the telex of 19 September 1997.

Additional information was forwarded by letter of the
Permanent Representation of
Italy of 2 June 1997,
recorded as received on 5 June 1997, by fax of 21 July
1997, recorded as received on 22 July 1997, by letter of
27 November 1997,
received on 3
December 1997, and by letter of 18 February 1998,
recorded as received on 4 March 1998.

recorded as

By letter of 20 May 1998 (SG(98)D/4034), the Commis-
sion informed the Italian authorities of its decision to
initiate the procedure provided for in Article 88(2) of
the EC Treaty in respect of the application of those
measures in the agricultural, fisheries and aquaculture
sectors.

The Commission decision to initiate the procedure was
published in the Official Journal of the European Communi-
ties (2). The Commission invited interested parties to
submit their comments on the aid measure.

(4)

(5)

(1) OJ C 245, 5.8.1998, p. 3.

(2) See footnote 1.

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(6)

(7)

(8)

(9)

The Italian authorities submitted their observations to
the Commission by letters of 24 June and 26 November
1998 and 9 March and 11 May 1999. No comments
were received from other Parties. The Commission did,
however, receive a letter from a potential beneficiary
under the aid scheme, protesting at the delay in author-
ising it.

reference rate applying at the time the contract covering
the consolidation is concluded.

(10)

Consolidation must cover the smallest of the following
amounts:

This Decision relates solely to the applicability of the
measures concerned to the sectors referred to in Annex I
to the Treaty (i.e. agriculture, whether primary produc-
tion or the processing and marketing of agricultural
products, fisheries and aquaculture).

II. Description

Article 2 of Law 341/1995 and the relevant rules of
application laid down by the CIPE Decision of 10 May
1995 and subsequent amendments provide for a system
of guarantees for small and medium-sized enterprises
operating in Objective 1 areas in Italy. The scheme will
apply until 31 December 1999. It provides for guaran-
tees and interest rate subsidies on debt consolidation
operations, guarantees for equity loans, and guarantees
for contributions from banks and other public or private
institutions to the capital of SMEs. Beneficiaries may
receive aid in the form of debt consolidation and equity
investments in combination. The budget is ITL 3 500
billion (approximately EUR 1 750 million). The aim of
the measure is to permit one-off consolidation of short-
term debts by reducing the cost of loans available on the
market and to facilitate SMEs' access to new forms of
financing by promoting their capitalisation.

In order to qualify for guarantees for debt consolidation
operations, the consolidation must extend over a period
of six years and repayment can be made up to one year
early. The Fund provides the banks concerned with a
guarantee covering 60 % of the consolidated capital at a
fee of 2 % of the latter. The guarantee cannot be called
upon if the undertaking is declared bankrupt within 18
months of the granting of the financing. Where bank-
ruptcy occurs after that period, the guarantee covers
60 % of the bank loan outstanding at the time the
undertaking becomes insolvent. The guarantee is paid
when debt recovery procedures are initiated. In the inter-
ests of the Fund, the banks are also responsible for
following the debt recovery procedures. The Fund may
also grant the undertakings an interest rate rebate of 4,5
percentage points on the annual rate for the consolida-
tion operation. The rebate may not exceed 40 % of the

(a) the short-term debt outstanding at 30 September

1994;

(b) outstanding short-term debt as set out in the latest

balance sheet;

(c) 10 times the undertaking's turnover as set out in the

latest balance sheet.

To qualify for the aid, the permanent financial resources
must not represent less than 0,75 % of the tangible and
intangible assets after consolidation. In no case may the
consolidated capital be more than 10 times the underta-
king's turnover. In accordance with Article 88(3) of the
EC Treaty, the Commission must be notified of any cases
where consolidation involving individual undertakings
exceeds ITL 40 billion (EUR 20 million).

(11)

The Fund may also provide guarantees of a maximum of
10 years' duration covering up to 60 % of equity loans
advanced by banks or other institutions at a flat-rate fee
of 1 % of the principal. Such guarantees cannot be called
upon if the undertaking is declared bankrupt within 30
months of the granting of the loan. The rate of interest
on the loan is agreed between the bank and the under-
taking. The Fund may also grant guarantees on public
and private equity investments in SMEs, with the excep-
tion of equity investments by institutions that are
completely controlled, either directly or indirectly, by
the State. The fee for the guarantee is 0,75 % of the
investment, which must be for a maximum of five years.

(12) As regards debt consolidation loans and guarantees as
referred to in recitals 8 and 9, in its decision to initiate
the procedure the Commission noted that, on the basis
of the information provided by the Italian authorities, it
was not possible to determine whether the debit-consoli-
dation measures were intended for undertakings that are
viable or whether they were intended for the rescue of
undertakings in difficulty. Where the debt consolidation
measures were intended for viable companies,
the
Commission noted that they would appear to constitute
operating aid, which is prohibited in the agricultural,
fisheries and aquaculture sectors. In so far as the debt
consolidation measures were intended for undertakings
in difficulty, the Commission noted that they did not
appear to meet the conditions laid down in the 1994
and 1997 Community guidelines on State aid for
rescuing and restructuring firms in difficulty (3). As
regards rescue aid, the Commission noted in particular
that
the loans and guarantees provided for were of
greater than six months' duration and were not granted
at market rates. As regards aid for restructuring, the
the beneficiaries were not
Commission noted that
required to present a restructuring plan and that the
measures could therefore prove not to be compatible
with the guidelines.

(3) OJ C 368, 23.12.1994, p. 12 and OJ C 283, 19.9.1997, p. 2.

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(13) As regards guarantees on equity loans granted by banks
and guarantees on public or private equity investments
in undertakings, the Commission noted that such meas-
ures would constitute aid in so far as they allowed the
beneficiaries to obtain access to equity capital at below
normal market rates. Furthermore, where guarantees
were granted to companies in difficulty,
the entire
amount guaranteed should be considered aid. Where
such aid was granted to viable companies in order to
finance specific investments by the beneficiary,
the
Commission noted that the aid could only be considered
compatible with the common market
the
specific conditions applicable to the sector concerned.
Aid that is granted to viable companies and is not linked
to specific investments is considered to constitute oper-
ating aid, which is prohibited in the agricultural, fisheries
and aquaculture sectors.

it met

if

(14)

In its decision to open the procedure, the Commission
also drew attention to point 20 of the CIPE Decision of
20 May 1995, as amended by the notification, which
contains a sentence to the following effect.

(15)

‘In its capacity as a public financial institution, in accordance
with Law 662/96 and solely in the agri-food sector, RIBS
SpA may take part in operations to increase capital; it shall
present an annual report on operations carried out and devel-
opments in them to the Ministry of Agricultural Resources,
which shall

inform the CIPE.’

The Commission pointed out that operations carried out
by RIBS SpA, a public financial institution for the agri-
food sector (hereinafter referred to as ‘RIBS’), were not
guaranteed by the Fund and took note of the Italian
authorities' declaration to the effect that such operations
were carried out in accordance with Article 2(132) of
Law 662/96 (1997 Budget Law), i.e. at market rates, and
did not constitute aid. The Commission observed,
however, that contrary to its Communication on the
provision of capital by public authorities (4),
it had
received no information from the Italian authorities
it had
about such operations, despite the fact
requested the Italian authorities to provide the relevant
information.

that

III. Remarks from Italy

(16)

The Italian authorities' written observations relate both
to questions of procedure and to matters of substance.

(18)

(19)

(20)

Treaty by letters of the Ministry of the Treasury, the
Budget and Economic Planning of 16 December 1994
and 17 and 26 January 1995. The system was approved
(aid N 40/95) by the Commission Decision of 1 March
1995, notified by letter SG(95)D/3693 of 24 March
1995.

By letter of 31 May 1995, the national authorities noti-
fied the Permanent Representation of the CIPE Decision
of 10 May 1995 on the criteria, rules of application and
operating procedures for the Guarantee Fund for SMEs
SG(95)D/11306 of 7
(aid N 662/95).
November 1995, the Commission stated that the above-
mentioned CIPE Decision fell within the scope —
approved by the Decision of 1 March 1995 — of the
Guarantee Fund and that it complied with the limits and
requirements laid down in that Decision.

In letter

the Ministry of

By letter of 28 March 1997,
the
Treasury, the Budget and Economic Planning notified the
Commission of a draft CIPE Decision amending the
detailed rules applicable to the Fund. By Communication
SG(97)D/7216 of 25 August 1997, the Commission
noted that the proposed amendments fell with the scope
of the Guarantee Fund — approved by the Decision of 1
March 1995 — and stated that a separate Commission
Decision would be adopted on the application of the
scheme to the agricultural,
fishing and aquaculture
sectors.

The Italian authorities emphasise that the draft scheme
was notified in accordance with Article 88(3) of the EC
Treaty and was approved by the abovementioned
Commission Decision of 1 March 1995 (see recital 17).
The detailed implementing rules set out in the CIPE
Decision of 10 May 1995 and notified by the above-
mentioned letter of 31 May 1995 fall, according to the
Commission, within the scope of the approved Guar-
antee Fund (letter SG(95)D/11306 of 7 November
1995). Furthermore, the Commission has decided that
the proposed amendments notified to it in the letter of
28 March 1997 fall within the scope of the approved
scheme and that
implementing rules are
unchanged (letter SG(97)D/7216 of 25 August 1997).

the other

Procedure

(17) As regards procedure, the Italian authorities first point
out that the general system of regional aid, including aid
awarded under the Guarantee Fund for SMEs operating
in Objective 1 areas, was notified to the European
Commission in accordance with Article 88(3) of the EC

(4) Bull. 9-1984.

(21)

therefore conclude that

The Italian authorities
the
scheme was notified in accordance with Article 88(3) of
the EC Treaty, that it was approved by the Commission,
and that the subsequent detailed implementing rules,
which were duly notified to the Commission, do not
comprise any aid components. Accordingly the Italian
the scheme is an ‘existing
authorities conclude that
the Commission's
scheme’ within the meaning of

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consolidated procedural rules for State aids. In the case
of existing schemes, pursuant to Article 88(1) of the EC
Treaty, ‘appropriate measures’ must be proposed before
the Article 88(2) procedure is initiated. The Italian
authorities note that no such measures have been put
forward in the case in point.

for in Article 87(3)(a) of the EC Treaty. In Molise and
Abruzzo (in the latter case until the end of 1996) this
scheme has brought
real benefits, has been widely
utilised and has provided satisfaction, so much so that
the funds set aside for the subsidised loans will by all
accounts be exhausted by the autumn of 1998, i.e. well
before the end of the period originally set, the end of
1999.

Substance

(27) Generally speaking, the SMEs that qualify for the subsi-

dised loans must be small firms that:

(22) As regards substance, the Italian authorities first point
out that their remarks refer exclusively to debt consoli-
dation operations and not to the acquisition of share-
holdings or equity loans, because the Fund has not been
used for that purpose.

(23)

(24)

(25)

They emphasise that the aid is intended for firms in
regions falling with the scope of Article 87(3)(a) and
should therefore qualify, by virtue of the Commission
Communication on the method for the application of
Article 92(3)(a) and (c) now 87(3)(a) and (c) to national
regional aid (5), for the exemption applicable to regions
covered by Article 87(3)(a).

The Italian authorities point out that the application of
the Community guidelines on State aid for rescuing and
restructuring firms in difficulty (6) to the aid concerned is
without prejudice to the application of aid schemes
authorised for purposes other than rescues or restruc-
turing, such as regional development or the develop-
ment of SMEs, provided that aid for rescues or restruc-
turing granted under such schemes fulfils the conditions
that
the Commission has approved for the schemes
(second paragraph of point 2.5 of the guidelines).

The Italian authorities have provided the following
comments on the way the scheme operates. The purpose
of the Guarantee Fund provided for in Article 2 of Law
341/95 is to rationalise the financial balance of SMEs
operating in Objective 1 areas by encouraging proper
access to loans and helping to overcome the structural
handicaps besetting small firms in those areas as a result
of undercapitalisation and the particularly high cost of
borrowing recorded in the first half of the 1990s. The
aim is accordingly to overcome the major financial
obstacles to the development of the productive fabric of
southern Italy by granting SMEs one-off benefits that are
designed to alleviate their additional financial costs but
do not constitute rescue aid or aid for restructuring.

(26)

This is accordingly fully in line with the aid scheme
authorised by the Commission in its letter of 24 March
1995 setting out detailed rules and operational criteria
that are clear, substantiated and limited to SMEs oper-
ating in areas that qualify under the exception provided

(5) OJ C 212, 12.8.1988, p. 9.
(6) OJ C 283, 19.9.1997, p. 2.

— are substantially sound and are able to produce a
profit, but suffer from a financial
imbalance as a
result of the interest they have to pay on short-term
borrowing,

— have debts towards banking institutions at a certain
date (30 September 1994). These must be banking
liabilities (there is no provision for consolidating
liabilities vis-a-vis suppliers or financial services and
factoring firms),

— are economically sound and are not the subject of

bankruptcy proceedings,

— have the potential to break even, on the basis of
adequate financial flows, and structural indices that
match predetermined criteria,

— do not already receive similar benefits and accord-
ingly qualify for aid granted on a one-off basis for a
given period that cannot, therefore, be regarded as
operating or rescue aid for economically unsound
production sectors, or as aid for the restructuring of
firms experiencing difficulties,

— throughout

the period after qualifying for

the
benefit, can provide evidence that they are not the
subject of an enforcement procedure,

— can also prove, in respect of the interest rate subsidy
for the consolidation operation authorised, that they
are not involved in any illegal or money laundering
operations.

(28) As well as being located in Objective 1 areas, SMEs that
operate in agriculture, the processing/marketing of agri-
cultural products, fishing and aquaculture sectors must,
in addition to meeting the above requirements, over-
whelmingly operate in southern Italian regions specia-
lising in farming (Apulia and Campania).

(29)

There are a total of 41 SMEs operating in the agricul-
tural and fisheries sectors who are potential beneficiaries
of the aid, accounting for not more than 1 % of the
3 800 applications for aid submitted to the Guarantee
Fund up to 31 May. Aid applications submitted by SMEs

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operating in sectors that have been ‘suspended’ since
November 1997 concern the consolidation of liabilities
only, i.e. excluding aid for the acquisition of sharehold-
ings and equity loans, operations for which no subsidies
have been granted even for authorised sectors. Aid
applications for sectors that have been ‘suspended’ since
November 1997 represent a total of ITL 44,686 billion
with an interest-rate subsidy of ITL 5,4 billion, while
possible guarantees total ITL 24 billion. None of the
41 SMEs
received, even
temporarily, a subsidy or other form of aid from the
Guarantee Fund, and even if the suspension were to be
lifted, the aid which might be granted would be limited.

in suspended sectors has

The essential soundness of the 41 SMEs concerned by
the benefits provided for in Article 2 of Law 341/95 has
already been established by the banks, which paid close
attention to the assessment of the applicant firms when
they carried out the liability consolidation operation.
Moreover, the applications received are for non-auto-
matic aid and take into account the fact that 40 % of the
risk is to be borne by the bank and that the Fund
guarantee cannot be called on in the first 18 months
after payment of the aid.

The Italian authorities emphasise that the SMEs oper-
ating in sectors that are still suspended have already
concluded costly financing contracts (mostly before
November 1997) by taking out mortgages that are
already applicable, without receiving any benefits in
terms of subsidies and with the prospect, should the
suspensions be lifted, of obtaining variable assistance in
respect of loans contracted at variable rates, based on
reference rates that will undoubtedly be lower than
those notified to the
European Commission in
November 1997.

In the light of the above, the Italian authorities stress the
need to authorise and grant assistance, particularly to
smaller firms, in order to put them in a better position,
thanks to aid paid on a one-off basis, to cope with their
financial imbalances, which have represented a particu-
larly high cost in recent years. Recognising and author-
in particular in agriculture, the processing/
ising aid,
marketing of agricultural products,
the fisheries and
aquaculture sectors, will help eliminate the structural
factors that are external to firms in southern Italy and
that,
jeopardise and destroy their
attempts to compete freely on the market and distort
fair competition between businesses.

in so many cases,

(30)

(31)

(32)

(33)

In conclusion, the Italian authorities emphasise that this
regional aid scheme was approved by the Commission
and it only comprises aid granted from the Guarantee
Fund which meets the requirements set out
in the
Commission Decision approving the scheme. They

consider that the characteristics of the scheme are specif-
ically linked to the attainment of
the objective —
provided for in the Pagliarini-Van Miert Agreement and
referred to in point 1 of the CIPE Decision — of ration-
alising the financial balance of the SMEs (which have
suffered as a result of the discontinuation of the Cassa
per il Mezzogiorno and the general economic crisis) and of
encouraging proper access to loans by facilitating rela-
tions between banks and firms.

(34) As regards RIBS' involvement in the scheme (recitals 14
and 15), the Italian authorities stated in their letter of 11
May 1999 that, on the basis on the Decision at issue
(which is not yet operational), RIBS has never carried
out operations within the scope of the Guarantee Fund
provided for in Article 2 of Law 341/95. Moreover, all
the operations carried out by RIBS ‘at market rates’ (in
accordance with Law 662/96) have been notified to the
Commission, which has approved one only to date and
is currently considering the others. Those operations
meet the conditions laid down by the Commission for
contributions granted by RIBS under Law 662/96 not to
be deemed State aid.

IV. Evaluation

Procedure

(35)

The Italian authorities maintain that the Commission has
committed an error of procedure in initiating the proce-
dure in respect of the application of the scheme in the
agricultural and fisheries sectors. They claim that the
measures notified (aid N 249/97) concern only one-off
amendments to an aid scheme previously authorised by
the Commission (aid N 40/95 and N 662/95). As stated
in recital 21, since the issues raised by the Commission
in its decision to initiate the procedure concern the
implementation of an aid scheme already authorised, the
that before opening the
Italian authorities consider
Article 88(2) procedure, the Commission should have
proposed ‘appropriate measures’ to the Italian authorities
in accordance with the procedure laid down in Article
88(1) of the Treaty.

(36) Although they do make no explicit reference to it, the
Italian authorities appear to have in mind the judgment
of the Court of Justice in the Italgrani Case (7). In that
case the Court ruled that when the Commission has
before it a specific grant of an aid claimed to be made in
pursuance of a previously authorised scheme, it cannot
at the outset examine it directly in relation to the Treaty.
Prior to initiating any procedure, it must first determine
whether the aid falls within the scope of the general
scheme and satisfies the conditions laid down in the
decision approving it. If it did not do so, when it consid-
ered an individual aid the Commission could go back on
its decision approving the aid scheme, which decision
presupposed that it had conducted an examination in
the light of Article 87(1) of the Treaty. This would
jeopardise the principles underlying the protection of

(7) Judgment of 5 October 1994 in Case C-47/91,

Italian Republic v

Commission [1994] ECR I-4635.

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legitimate expectations and legal certainty from the
point of view of both the Member States and the opera-
tors, since individual aid in strict compliance with the
decision approving the aid scheme could at any time be
called in question by the Commission. If, following an
examination thus restricted, the Commission finds that
the individual aid is in compliance with its decision
approving the relevant scheme, the aid in question must
be regarded as authorised, and thus as existing aid. In
such cases the Commission is required to propose
‘appropriate measures’ to the Member State concerned
under Article 88(1) of the Treaty prior to any decision to
open the Article 88(2) procedure. Conversely, where the
Commission finds that the individual aid is not covered
by its decision approving the scheme, the aid must be
regarded as new aid, and the Commission is entitled to
initiate the Article 88(2) procedure.

(37) As Italy has pointed out in its written observations (see
recitals 17 and 18 above), the general system of regional
aid, including aid granted in connection with the Guar-
antee Fund for SMEs operating in Objective 1 areas, was
approved by letter SG(95)D/3693 of 24 March 1995
(aid N 40/95). The criteria, detailed rules and operating
procedures for the Guarantee Fund for SMEs were
approved by letter SG(95)D/11306 of 7 November
1995 (aid N 662/95).

(38) However, the two Commission Decisions authorising the
Guarantee Fund for SMEs operating in Objective 1 areas
in Italy were not unconditional. Both the Commission
letter of 24 March 1995 (SG(95)D/3693) authorising
State aid N 40/95 and the letter of 7 November 1995
(SG(95)D/11306)
aid N 662/95
authorising
contain a final paragraph to the following effect.

State

‘Lastly, the Commission draws the Italian authorities' attention
to the fact that the scheme in question is to apply to the
Community rules and provisions on the receipt in combination
of aid for various purposes and the rules and provisions on
certain sectors of industry, including those covered by the ECSC
Treaty, transport, agricultural and fisheries.’

(39)

It follows that so far as the application of the scheme in
the agricultural and fisheries
is concerned,
Commission approval was conditional on the fact that
assistance from the Guarantee Fund for SMEs was to be
granted in accordance with the various Community rules
and provisions on these sectors.

sectors

(40) After receiving the Italian authorities' letter of 10 April
1997 notifying the amendments to the implementing
rules for
the
Commission realised that the scheme might in fact be
applied in the agricultural and fisheries sectors in a

the scheme introduced by the CIPE,

manner which was not in accordance with the various
Community provisions and rules on those sectors. In
particular, the explicit reference, for the first time, to
RIBS' role in the capitalisation operations for SMEs in
Objective 1 areas raised doubts that aid might be
granted in favour of those sectors in a manner which
was not in accordance with the relevant rules. Those
doubts were confirmed by the Italian authorities' replies
to the Commission's four telexes requesting additional
information on the application of the scheme.

(41) Under the circumstances, the Commission cannot accept
the Italian authorities' argument that the scheme is an
‘existing scheme’ within the meaning of the Commis-
sion's consolidated rules of procedure for State aids. The
Commission regards aid granted in contravention of a
condition laid down in the Decision authorising it as
misuse of aid, and this entitles it to open the Article
88(2) procedure directly, without first proposing appro-
priate measures pursuant to Article 88(1) of the Treaty.

Substance

(42)

(43)

In accordance with Article 87(1) of the Treaty, any aid
granted by a Member State or using State resources in
any form whatsoever which distorts or threatens to
distort competition by favouring certain undertakings or
the production of certain goods is, in so far as it affects
trade between Member States,
incompatible with the
common market. In the case in point the Commission
considers that all the conditions for the application of
Article 87(1) are fulfilled. Furthermore, the Commission
notes that this is not disputed by the Italian authorities.

The description of the aid scheme and the comments
from the Italian authorities set out above show that the
objective of the scheme is to provide SMEs located in
the Objective 1 areas of Italy with access to finance on
more favourable terms than those currently provided by
the capital markets. The aid measures provided for
consist of guarantees and subsidised loans.

regards guarantees,

the Commission's consistent
As
policy, in accordance with its letter to the Member States
of 5 April 1989 (SG(89)D/4328), is to regard all guaran-
tees granted by the State directly or through financial
institutions entrusted with that task as falling within the
scope of Article 87(1) of the Treaty. In its decision to
initiate the procedure, on the basis of the information
provided by the Italian authorities in their letter of 27
November 1997, the Commission calculated the current
value of the guarantees on loans for debt consolidation
as equal to 0,2 % (8).

(8) The calculation was worked out as follows: the reference rate was
8,2 %; the interest paid by the State on loans of a similar duration
(6 %) and the fee payable for the guarantee (2 % for debt consolida-
tion loans) were deducted from that amount.

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As regards the subsidised loans, the Fund may grant
undertakings an interest rate rebate reducing the annual
rate for the consolidation operation by 4,5 percentage
points. However, the amount of the subsidy may not
exceed 40 % of the national reference rate applying at
the time the contract is concluded. In its decision to
open the procedure, using the same information the
Commission calculated the grant equivalent of the sub-
sidised loans to be 12,9 %.

(45)

The Commission therefore concluded that the cumula-
tive rate of aid was 13,1 % and that it could rise to
100 % in the case of companies in difficulty (9).

ITL 28,734 billion, while Italian consignments to the
other Member
ITL 17,821
billion (10).

amounted

States

to

The prohibition on State aid in Article 87(1) of the
Treaty is not unconditional. However, the exceptions
provided for in Article 87(2) are manifestly inapplicable,
and they have not, moreover, been invoked by the
Italian authorities. Similarly, the aid is not intended to
promote the execution of an important project of
common European interest or to remedy a serious
disturbance of the economy of a Member State within
the meaning of Article 87(3)(c), nor is it intended to
promote culture or heritage conservation within the
meaning of Article 87(3)(d). Consideration must there-
fore be given to whether the application of the measures
provided for can qualify as an exception under Article
87(3)(a) or (c) of the Treaty.

In their written observations, the Italian authorities note
that since the national reference rate has subsequently
fallen, the actual rate of aid at the time the loans and
guarantees are granted could be below that calculated by
the Commission.

(46) As regards debt consolidation operations involving the
Guarantee Fund, the Commission notes first of all that
in accordance with the relevant guidelines on State aid
in the agricultural (11) and fisheries (12) sectors, these aid
measures are not intended to finance new investments.

(47)

It is therefore not possible to calculate the amount of aid
precisely, because this will depend upon the relevant
interest rates applying at the time the loan is granted
and the conditions attaching thereto. The Commission
therefore concludes that granting the subsidised loans
and guarantees constitutes State aid within the meaning
of Article 87(1). Furthermore,
this has not been
contested by Italy.

(44)

In addition, the scheme distorts competition and affects
trade between Member States. According to the informa-
tion provided by the Italian authorities, 41 SMEs in the
agricultural and fisheries sectors could qualify for aid.
Although payments are currently suspended pending the
Commission's final decision on the application of the
scheme in those sectors, if approval were granted the aid
would represent interest rate subsidies amounting to
ITL 5,4 billion on consolidation operations, with
possible guarantees covering a total of ITL 24 billion.
Given the lack of information to the contrary from the
Italian authorities, the Commission considers that it is
entitled to assume that at least some of these companies
are active in sectors where substantial intra-Community
trade takes place. In 1996, agri-food products consigned
totalled
to Italy from the other Member States

(9) Commission communication to the Member States — Application
of Articles 92 and 93 of the Treaty and of Article 5 of Commis-
sion Directive 80/723/EEC to public undertakings in the manufac-
turing sector (OJ C 307, 13.11.1993, p. 3).

In this connection,

the sums loaned and that

Furthermore, the Italian authorities have insisted that the
beneficiary SMEs cannot be considered enterprises in
difficulty.
the Italian authorities
emphasise that the guarantees granted under the scheme
cover only 60 % of
they
cannot be called upon if the undertaking is declared
bankrupt within 18 months of the granting of the loan.
According to the Italian authorities,
the beneficiary
undertakings are substantially sound and are able to
produce a profit, but they suffer from a financial imbal-
ance as a result of the interest they have to pay on
short-term borrowing. In the light of these explanations,
the Commission accepts that the Community guidelines
on State aid for rescuing and restructuring firms in
difficulty (13) should not apply to the measures in ques-
tion. The inapplicability of those guidelines is confirmed
by the fact that the beneficiary is not required to present
a restructuring plan in order to qualify for the aid.

(48)

In its decision to initiate the procedure, the Commission
observed that in so far as the aid measures were not
linked to investments and were not intended for the
rescue or restructuring of enterprises in difficulty, doubts
remained as to whether the measures applied by the
Italian authorities could be considered compatible with
Article 87 of the Treaty. The measures concerned appear
to constitute operating aid, which cannot be approved
by the Commission under Article 87(3)(c) of the Treaty.
The Italian authorities' observations confirm that the

(10) Source: Ministry of Agricultural Policies.
(11) Guidelines for State aid in connection with investments in the
(OJ C 29,

processing and marketing of agricultural products
2.2.1996, p. 4).

(12) Guidelines for the examination of State aid to fisheries and aqua-

culture (OJ C 100, 27.3.1997, p. 12).

(13) See footnote 6.

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objective of the measure is to ease the costs borne by
the beneficiaries and that
there is no corresponding
benefit contributed by the beneficiaries that might be
seen as furthering the development of certain economic
activities or certain regions. Having regard to the princi-
ples laid down in the decisions of the Court (14), the
Commission is therefore bound to conclude that the
measure in question cannot qualify as an exception
under Article 87(3)(c) of the Treaty.

precedence over the competition rules laid down in the
Treaty (19). This policy has been confirmed many
times (20).
In particular, the Commission has adopted
several final negative decisions in respect of aid meas-
ures notified by Italy, in which it has expressly stated
that operating aid in the agricultural sector cannot
qualify under the exception laid down in Article 87(3)(a)
of the Treaty (21).

In their observations, the Italian authorities emphasise
that the aid is intended for firms located in regions
falling within the scope of Article 87(3)(a), which should
therefore qualify for exemption under those provisions
in accordance with the Commission's regional aid guide-
lines (15).

(52)

(49)

(50)

In accordance with point 6.1 of the 1998 guidelines on
national regional aid (16), aid proposals notified to the
Commission before the guidelines were communicated
to Member States were to be assessed on the basis of the
criteria in force at the time of notification. Point I.6 of
the 1988 Commission Communication (17) on the
method for the application of Article 92 (18) (3)(a) and
(c) to regional aid provides that in recognition of their
special difficulties, the Commission may, by way of a
derogation, authorise certain operating aid measures in
those regions under specific conditions, which are set
out thereinafter. The second indent of point I.6 specifies
that the aid should ‘be designed to promote a durable
and balanced development of economic activity and not
give rise to a sectoral overcapacity at the Community
resulting Community sectoral
level
the
problem produced is more serious that
the original
regional problem; in this context a sectoral approach is
required and in particular the Community rules, direct-
ives and guidelines applicable to certain industrial (steel,
shipbuilding, synthetic fibres, textiles and clothing) and
agricultural sectors, and those concerning certain indus-
trial enterprises involving the transformation of agricul-
tural products are to be observed’.

such that

(51)

In the agricultural and fisheries sectors, which cover the
production, processing and marketing of Annex I prod-
ucts, it has been the Commission's consistent policy for
many years to prohibit the payment of operating aid in
all regions, including regions which fall within the scope
of Article 87(3)(a) of the Treaty. By its very nature, such
aid is likely to interfere with the mechanisms of the
the markets, which take
common organisation of

(14) See in particular the judgment of the Court of First Instance in
Case T-459/93, Siemens v Commission, [1995] ECR II-1675 and the
decisions cited therein.

(15) See footnote 5.
(16) OJ C 74, 10.3.1998, p. 9.
(17) See footnote 5.
(18) Now Article 87.

Furthermore, in accordance with the Commission guide-
lines on State aid in connection with investments in the
processing and marketing of agricultural products, no
aid may be granted in respect of investments which
contravene the sectoral limitations set out in Commis-
sion Decision 94/173/EC (22). Those sectoral limitations
preclude investments in processing and marketing activi-
ties in agricultural sectors where there is overcapacity
within the Community and,
in accordance with the
conditions set out in Decision 94/173/EC, they apply
throughout the Community, including in regions falling
within the scope of Article 87(3)(a). It would clearly be
inconsistent for the Commission to prohibit aids for
investments in favour of certain activities in the agricul-
tural sector while at the same time allowing operating
aid in favour of the same activities, particularly as there
is no guarantee that funds intended for debt alleviation
purposes might not be used to finance investments
incompatible with the common market.

(53)

In the light of the above, it must be concluded that the
manner in which Italy intends granting interest rate
subsidies for debt consolidation operations and guaran-
tees to undertakings operating in the agricultural and
fisheries sectors pursuant to Article 2 of Law 341/1995
and the relevant rules of application laid down by the
CIPE Decision of 10 May 1995, as
subsequently
amended, constitutes State aid within the meaning of
Article 87(1) that does not qualify under any of the
exceptions provided for in Article 87(2) or (3).

(19) Judgment of the Court of Justice in Case 177/78, Pigs and Bacon,

Commission v McCarren [1979], ECR 2161.

(20) 20th Report on Competition Policy, 1990, paragraphs 337 and
347; 21st Report on Competition Policy, 1991, paragraphs 316
and 317; 22nd Report on Competition Policy, 1992, paragraphs
503 and 504; 23rd Report on Competition Policy, 1993, para-
graphs 547 and 548; 25th Report on Competition Policy, 1995, p.
238 to 240; 26th Report on Competition Policy, 1996, p. 251 to
255.

(21) Commission Decision 95/366/EC of 14 March 1995 on aid
granted by Italy (Sardinia)
in the agricultural sector (OJ L 218,
14.9.1995, p. 20); Commission Decision 97/106/EC on aid
measures provided for in Sicilian regional Law 25/93 (OJ L 37,
7.2.1997, p. 11); Commission Decision of 16 April 1997 on aid
granted by the Region of Sardinia, Italy,
in the agricultural sector
(OJ L 248, 11.9.1997, p. 27).

(22) Commission Decision of 22 March 1994 on the selection criteria
to be adopted for investments for improving the processing and
marketing conditions for agricultural and forestry products and
repealing Decision 90/342/EEC (OJ L 79, 23.3.1994).

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(54)

(55)

(56)

In view of the Italian authorities' explanations to the
effect that the Fund has not been used to guarantee
equity loans or equity investments, there is no need to
consider this aspect further in this Decision.

that

Furthermore, in view of the Italian authorities' statement
to the effect
the CIPE Decision concerning the
participation of RIBS in capitalisation operations does
not provide for any grants of aid going beyond the
provisions of Law 662/96 (see recital 15) and that all
capitalisation operations undertaken by RIBS under that
Law are notified individually to the Commission, there is
no need to consider this aspect further in this Decision.

V. Conclusions

The Commission finds that by failing to take account of
the specific rules applicable in the agricultural and fish-
eries sectors, Italy has unlawfully adopted the aid meas-
ures provided for in Article 2 of Law 341/1995 and the
relevant rules of application laid down in the CIPE
Decision of 10 May 1995, as subsequently amended,
and in breach of
the conditions laid down in the
Commission's Decision of 10 March 1995, notified by
letter of 24 March 1995.

(57) However,

in view of the Italian authorities' statement
that all procedures for the payment of the aid were
suspended following the intervention of the Commission
and that no aid was paid previously, there is no need to
take any steps to recover the aid,

HAS ADOPTED THIS DECISION:

Article 1

The State aid which Italy intends granting to undertakings
operating in the agricultural and fisheries sectors for debt
consolidation operations in accordance with Article 2 of
Decree-Law 244 of 23 June 1995, ratified in Law 341 of 8
August 1995,
is hereby deemed incompatible with the
common market and the EEA Agreement. That aid shall
accordingly not be implemented.

Article 2

Within two months of notification of this Decision, Italy shall
inform the Commission of the steps it has taken to comply
therewith.

Article 3

This Decision is addressed to the Italian Republic.

Done at Brussels, 10 November 1999.

For the Commission

Franz FISCHLER

Member of the Commission