2003/469/EC: Commission Decision of 27 November 2002 on the aid scheme implemented by Germany: "Thuringia working capital programme" (Text with EEA relevance) (notified under document number C(2003) 4359)
Date: 2002-11-27
Institutions: European Commission
Subjects: State aid, Thuringia, aid system, national implementing measure, small and medium-sized enterprises, working capital

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 27 November 2002

on the aid scheme implemented by Germany: ‘Thuringia working capital programme’

(notified under document number C(2003) 4359)

(Text with EEA relevance)

(Only the German text is authentic)

(2003/469/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

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

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments
pursuant to Article 88(2) of the EC Treaty,

Whereas:

common market. By letter dated 31 May 1994, Germany
the Thuringia
following information:
provided the
working capital programme of 20 July 1993 applied to
small and medium-sized enterprises (as defined in the
Community's 1992 SME Guidelines)
sound
economic position which, because of their small size,
lack of bank security and the general situation on the
capital market, would have had difficulty in obtaining
outside resources. Aid for firms in difficulty was not
possible, but such firms could apply for aid under other
rules were moreover
approved programmes. The
designed as a de minimis programme in line with the de
minimis provisions of
the Community's 1992 SME
Guidelines.

in a

1. PROCEDURE

(1)

(2)

The Land of Thuringia's rules governing its working
capital programme (hereinafter referred to as ‘the rules’),
adopted on 20 July 1993, entered into force in 1993 (1).
The Thuringian Land authorities took the view that the
rules complied with the de minimis provisions introduced
in the Community's 1992 Guidelines on State aid for
small
(hereinafter
referred to as ‘the SME Guidelines’) and so did not notify
them under Article 88(3) of the EC Treaty.

and medium-sized enterprises (2)

Following a press article on the loan programme, under
which firms without sufficient bank security apparently
obtained loans on favourable conditions in order to
finance inventories, the Commission asked Germany, by
letter DG IV/D3761 of 2 May 1994, for information to
enable it to assess the compatibility of the rules with the

(1) Thüringer Staatsanzeiger No 33/1993, p. 1415.
(2) OJ C 213, 19.8.1992, p. 2.

(3)

(4)

(5)

Germany agreed with the assessment by the Thuringian
authorities that the rules were not subject to the notifica-
tion requirement under Article 88(3).

In response to a request for information dated 29 May
1995, Germany sent the Commission, by letter of 27
June 1995, a copy of the rules governing the working
capital programme.

In the course of the proceedings in case C 85/98 (ex NN
106/98 — Incorrect application of the de minimis rules
under the Thuringia consolidation programme of 20 July
1993), Germany confirmed by letter dated 8 June 1998
that the rules at issue in these proceedings had expired

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on 16 January 1996. By letter dated 7 December 1998,
Germany provided information on the implementation
of the rules and on the recipient firms from which the
Commission concluded that firms in sensitive sectors
(products in Annex I to the EC Treaty) had received aid.
firms in difficulty
The information also showed that
which had that same year or the previous year been
assisted under approved programmes for firms in diffi-
culty had received loans under the rules. This supposi-
tion was confirmed by a letter sent by Germany on 29
January 1999 from which it was also apparent that some
of the beneficiaries under the rules had also received aid
under the consolidation programme of 20 July 1993,
whose incorrect application was the subject of proceed-
ings in case C 85/98.

(6)

(7)

By letter dated 18 May 1999 (ref. SG(99) D/3539), the
Commission informed Germany that it had decided to
initiate the procedure laid down in Article 88(2) of the
EC Treaty in respect of the aid scheme.

The Commission decision to initiate the procedure was
published in the Official Journal of the European Commu-
nities (3). The Commission called on interested parties to
submit
their comments on the scheme but did not
receive any comments from interested parties.

Germany's comments were sent by letters dated 24 June
and 19 August 1999.

(8)

Germany submitted its final comments by letter on 26
November 2001.

2. DESCRIPTION OF THE MEASURE

2.1. Title and legal basis

(9)

The aid is granted by the public-sector Thüringer
Aufbaubank (Thuringia Reconstruction Bank), acting on
behalf of the Thuringia Ministry for Economic Affairs
and Transport on the basis of Sections 23, 44 and 44a
of the Land Budget Order, in accordance with the rules
on the Thuringia working capital programme.

2.2. Recipients

(10)

The rules are directed at small and medium-sized enter-
prises (SMEs) defined according to the ‘turnover’ and
‘employees’ criteria, but not the ‘independence’ criterion,
set out in the SME Guidelines, as well as at start-ups,
management buy-outs, management buy-ins and privati-
sations, with priority given to consolidation projects.
The eligibility of the foodstuffs industry, which can cover
both the activities specified in Annex I to the EC Treaty

(3) OJ C 203, 17.7.1999, p. 3.

and other activities, is explicitly mentioned in point 3
(‘Aid recipients’) of the rules. The other sensitive sectors
(steel, shipbuilding, synthetic fibres, the motor industry,
agriculture, fisheries, transport and the coal industry) are
not explicitly excluded. In exceptional cases (by decision
of the relevant minister), aid may also be granted to
firms which exceed the turnover and employee thresh-
olds laid down in the SME Guidelines.

2.3. Duration

(11)

The rules governing the Thuringia working capital
programme entered into force on 20 July 1993 for an
unlimited period and were replaced on 16 January 1996
by the Thuringia loan programme
small and
medium-sized enterprises.

for

2.4. Objective

(12)

(13)

The rules are aimed at firms which neither have suffi-
cient bank security nor are in a position to pay the high
interest rates charged on short-term loans. The objective
is to make available to such firms soft loans for the
financing of working capital. Point 1 of the rules (‘Objec-
tive’) stipulates that support is to be provided to small
and medium-sized enterprises to set up business or to
safeguard their activities, in particular in order to avert
risks to their operation or existing jobs.

The aid is granted by the public-sector Thüringer
Aufbaubank in the form of soft loans which are paid via
the firm's main bank at the latter's primary risk. The
main bank may receive a guarantee (release from liabi-
lity) of 60 % of the amount of the loan, with no fee
being provided for in the rules. The Thüringer Aufbau-
bank and the main bank receive a single processing fee
of 0,1 % of the amount of the loan.

(14)

Rescheduling at the expense of the Thüringer Aufbau-
bank is ruled out.

(15)

The loans are granted at an interest rate of between 5 %
and 8 % for a renewable period of three years. The rele-
vant Land minister can approve other implementing
provisions.

2.5. Intensity

(16)

Point 5 of the rules (‘Nature, scope and amount of the
payment’) refers expressly to the programme's de minimis
nature and to the de minimis provisions of the 1992
Community SME Guidelines.

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(17) Under the rules, the aid element of the soft loan is calcu-
lated on the basis of the difference between the effective
interest rate and the applicable reference rate. No direct
ceiling is laid down in respect of the loan, but the
amount of aid that a firm can receive for the same
the aid
purpose within a period of 36 months (i.e.
element resulting from the soft loan) may not exceed the
de minimis thresholds laid down in the de minimis provi-
sions of the 1992 SME Guidelines (4). The aid element
linked to the guarantee was not taken into account.

the

preliminary

proceedings,

(18) According to the documents submitted by Germany
during
loans
amounting to a total of DEM 202 million were granted
and disbursed between 1993 and 1996; some 20 of
them went to the foodstuffs industry. In at least two
cases, firms which had that year or the previous year
received aid under approved schemes for firms in diffi-
culty received such loans (Thuro Back Südthüringer
Backwaren and Bergner & Weiser GmbH).

460

(24)

In so far as loans were granted to economically viable
firms in the sensitive sectors,
the Commission had
doubts about the working capital programme's compat-
ibility with the relevant provisions on regional aid.

(25)

The loans for economically viable firms in the sensitive
sectors constituted operating aid, which the Commission
had to assess in the light of the regional aid provisions
applicable.
in accordance with the
Commission's established practice, such aid had to meet
the following criteria:

In particular,

(a) it had to be limited in time and degressive;

(b) it had to be granted only in regions covered by

Article 87(3)(a) of the EC Treaty;

(c) the sensitive sectors had to be excluded.

2.6. Cumulation

(19)

The rules do not contain any provisions on cumulation.

(26)

In its decision initiating the procedure, the Commission
concluded that the scheme was not degressive and did
not exclude the sensitive sectors.

2.7. Grounds for initiating the procedure

(20)

The Commission initiated the procedure in respect of
the scheme's application to firms operating in the sensi-
tive sectors and to firms in difficulty. It raised no objec-
tions to the scheme's application to viable firms outside
the sensitive sectors.

(21)

The Commission's grounds were as follows.

(22)

Since the sensitive sectors were not excluded from the
scheme, this constituted incorrect application of the de
minimis provisions of the 1992 Community Guidelines.
According to point 3.2 of those Guidelines, they do not
apply to aid for firms in the sectors subject to special
rules. Since the rules were applied to one of
these
sectors, they must be regarded as non-notified aid.

(23) Given the specific characteristics of the sensitive sectors,
the measures concerned constituted State aid within the
meaning of Article 87(1) of the EC Treaty and Article 61
of the EEA Agreement. The aid made it possible for
firms which could not easily access the capital market to
obtain loans in order to finance their working capital on
favourable terms and safeguard or even extend their
activities.
the
measures were liable to affect competition.

In the Commission's view,

therefore,

(4) Stricter provisions than at present were in force at the time, with
the de minimis threshold set at ECU 50 000 (see OJ C 68, 6.3.1996,
p. 9).

(27)

(28)

(29)

The information from Germany showed that in at least
two cases the rules were applied to firms in difficulty as
defined in the 1994 Guidelines on State aid for rescuing
and restructuring firms
(hereinafter
referred to as the ‘1994 Guidelines’). The wording of the
rules did not exclude firms in difficulty from its scope.
The Commission therefore took the view that
the
scheme also applied in part to firms in difficulty.

in difficulty (5)

The soft loans backed by a guarantee from the Thüringer
Aufbaubank and granted to firms in difficulty could have
exceeded the de minimis threshold. The aid element asso-
ciated with the guarantee and the special difficulties of
the recipient firms should have been taken into account
in the calculation of the de minimis threshold. The aid
element of the guarantee must reflect the specific risk
attached to a firm in difficulty and can be as high as the
full amount of the loan secured.

The application of the rules to firms in difficulty thus
took insufficient account of the de minimis provisions. It
was only where the amount from the loan and other aid
taken into account under the provisions on cumulation
did not exceed the de minimis threshold that this was not
the case. In the form in which it was applied, however,
the Thuringia working capital programme had to be
regarded as a non-notified aid scheme.

(5) OJ C 368, 23.12.1994, p. 12.

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(30)

(31)

(32)

(33)

The loans made financial resources available to the firms,
allowing them to avoid being forced out of the market.
If a firm had been forced out of the market, either
existing overcapacities would have been reduced or the
market shares made available would have been acquired
case have
by competitors, which could in either
improved their profitability. The rules did not exclude
the granting of loans to firms engaged in intra-Commu-
nity trade.
the
loans concerned by the proceedings
working capital
were liable to affect trade between Member States.

therefore had to be assumed that

It

The working capital loans provided to firms in difficulty
by the Thüringer Aufbaubank thus constituted State aid
within the meaning of Article 87(1) of the EC Treaty
and Article 61(1) of the EEA Agreement and had to be
assessed on the basis of the relevant guidelines.

In as much as the rules were concerned with the rescue
of firms in difficulty, the relevant provisions made it a
condition for the compatibility of rescue aid with the
common market that it be granted in the form of either
a State loan on market terms or a guarantee for a private
loan. This condition was not met in the case in point
since the loans in question were soft loans. The provi-
sions also required individual notification of aid to large
firms and firms operating in sensitive sectors. However,
the scheme under examination did not rule out aid to
large firms and was applied in a sensitive sector.

In as much as the rules were concerned with the restruc-
turing of firms in difficulty, it must be noted that the
relevant provisions (as most recently confirmed by the
1999 Community Guidelines on State aid for rescuing
and restructuring firms
the
following main conditions for compatibility:

in difficulty (6)

require

(a) submission and implementation of a restructuring
plan capable of restoring the long-term viability of
the firm;

(b) limitation of the aid to the strict minimum required

to achieve this goal;

(c) a significant contribution from the recipient

firm

and its shareholders;

(d) compliance with the special rules governing the
sensitive sectors, requiring in principle the notifica-
tion of individual cases;

(e) individual notification of aid to large firms;

(f) restructuring aid to be granted only once except in
unforeseen circumstances for which the firm is not
responsible.

(6) OJ C 288, 9.10.1999, p. 2.

(34)

The rules under examination do not provide for indivi-
dual notification of aid to large firms or prohibit the
repeated grant of restructuring aid.

3. COMMENTS FROM GERMANY

(35)

In its comments, Germany put the total number of loans
granted under the working capital programme at 365,
amounting to a total of EUR 81,6 million. It explained
the difference between this figure and the figure given in
the decision initiating proceedings by the fact that the
latter also included working capital
loans under the
1996 Thuringia loan programme. The 1996 programme
is the subject of proceedings in case C 87/98 (ex NN
137/98).

(36)

The information in the decision initiating proceedings
regarding Thuro Back Südthüringer Backwaren GmbH
and Bergner & Weiser GmbH was incorrect, according
to Germany, since neither of these firms had received a
the Thuringia working
working capital
capital programme.

loan under

(37) Germany took the view that

the Thuringia working
capital programme did not apply to firms in difficulty.
While it did not explicitly exclude them and while three
out of a total of 365 loans granted did go to firms in
difficulty, the scheme was not open to firms in difficulty,
nor was it intended to be. The Thuringia working capital
programme had to be seen in an overall context together
with the Thuringia consolidation programme (case C 85/
98, ex NN 106/98). While the scope of the consolidation
this
programme explicitly covered firms in difficulty,
was not the case with the Thuringia working capital
programme.

(38)

Furthermore, the high level of own risk which the firms'
main banks were facing, meant that the banks had to
check the creditworthiness of the borrower and to limit
the credit risk.

(39) According to the information from Germany, calculation
of the de minimis amount was based solely on the aid
element contained in the interest-rate subsidy, calculated
on the basis of
the difference between the effective
interest rate for the final borrower and the reference
interest rate. The aid element contained in the guarantee
had not been taken into account in implementing the
working capital programme because, it was argued, the
German authorities were not aware in the period from
1993 to early 1996 that the aid element associated with
the guarantee should be taken into account. This
letter of 11
changed only with the Commission's
November 1998 (ref. D/54570).

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(40) As far as the sensitive sectors are concerned, Germany
argued that aid to firms in sensitive sectors was excluded
by the reference contained in point 5 of
the rules
governing the Thuringia working capital programme.
Point 5 explicitly states that ‘the loans […] are granted
in accordance with the Community Guidelines on State
aid for small and medium-sized enterprises (OJ C 213,
19.8.1992, p. 2)’. As a result of this reference, the provi-
sions concerning sensitive sectors had been directly
applicable and the granting of aid for these sectors
strictly ruled out.

(41) According to the information provided by Germany, no
loans were granted to firms in the sensitive sectors
referred to in point 1.6 of the 1992 Community Guide-
lines on State aid for SMEs.

(42) Moreover,

in Germany's view,

it was only since 1998
that the special aid rules under the 1996 Guidelines for
State aid in connection with investments in the proces-
sing and marketing of agricultural products (7) had been
applicable pursuant to Commission Decision 1999/183/
EC of 20 May 1998 concerning State aid for the proces-
sing and marketing of German agricultural products
which might be granted on the basis of existing regional
aid schemes (8). For the period from 1993 to 1996,
therefore,
it considered that no special State aid rules
applied.

(43) Of the 365 working capital loans committed, only five
had been granted to firms in the food and tobacco
sector.

Member States. Against this background, the notification
requirement under Article 88(3) of the EC Treaty does
not apply to aid that does not exceed an absolute
maximum amount and, as de minimis aid, does not fall
within the scope of Article 87(1) of the EC Treaty.

(48) A definition of what the Commission understood by de
minimis aid was first set out in the 1992 SME Guide-
lines. (9) The scope of the de minimis provisions is defined
at point 3.2 of
as payments of
the Guidelines
ECU 50 000 to any one firm in respect of a given broad
type of expenditure (e.g. investment and training) over a
three-year period. Therefore, one-off payments of aid of
up to ECU 50 000 in respect of a given type of expendi-
ture and schemes under which the amount of aid that a
given firm may receive in respect of a given type of
expenditure over a three-year period was limited to that
figure were no longer considered notifiable under Article
88(3) (formerly Article 93(3)) of the EC Treaty. However,
there had to be an express condition in the grant deci-
sion or scheme that any further aid which the same firm
might receive in respect of the same type of expenditure
from other sources or under other schemes did not take
the total aid received over the ECU 50 000 limit. It was
made clear in point 3.2 that the de minimis facility was
not available in sensitive sectors (steel, shipbuilding,
synthetic fibres, the motor industry, agriculture, fisheries,
transport and the coal industry).

(44)

The application of the rules to non-SMEs in exceptional
cases was, in Germany's view, in line with the require-
ments set out in the de minimis rule contained in the
1992 SME Guidelines.

(49)

(45) Germany sent

the Commission a table listing the
working capital loans granted in the period from 1993
to 1995. The list shows that, of the 365 loans granted,
firms in difficulty were involved in three cases. The table
also showed that loans were granted in agriculture (a
sensitive sector) in only five instances, although a letter
from Germany dated 29 January 1999 showed that a
total of some 20 loans were granted to firms in the
foodstuffs industry.

(46)

It is not clear from the documents sent by Germany
what criteria were used to define the sensitive sector of
agriculture or a firm in difficulty.

The 1996 Commission notice on the de minimis rule for
State aid (10) amended the de minimis provisions of the
1992 SME Guidelines. The ceiling for aid covered by the
de minimis provisions was set at ECU 100 000 over a
three-year period beginning when the first de minimis aid
was granted. This ceiling applied to all types of public
assistance considered to be de minimis aid and did not
affect the possibility of the recipient obtaining other aid
under schemes approved by the Commission.

(50)

The provisions did not apply to the industries covered
by the ECSC Treaty, to shipbuilding, to transport or to
aid towards expenditure in connection with agriculture
or fisheries.

4. ASSESSMENT OF THE MEASURE

4.1. Existence of State aid

(47) Although any financial payment to a firm alters the
conditions of competition to some extent, not all aid has
a perceptible impact on trade and competition between

(51) Article 1 of Commission Regulation (EC) No 69/2001 of
12 January 2001 on the application of Articles 87 and
88 of the EC Treaty to de minimis aid (11) extended the
scope of the de minimis provisions, albeit still to the
exclusion of aid granted to the transport sector and to
linked to the production, processing or
activities
marketing of products listed in Annex I to the EC Treaty.
the Regulation does not apply to aid for
Similarly,

(7) OJ C 29, 2.2.1996, p. 4.
(8) OJ L 60, 9.3.1999, p. 61.

(9) See footnote 2.
(10) OJ C 68, 6.3.1996, p. 9.
(11) OJ L 10, 13.1.2001, p. 30.

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i.e. aid directly linked to the
export-related activities,
quantities exported, to the establishment and operation
of a distribution network or to other current expenditure
linked to an export activity. Lastly, aid contingent upon
the use of domestic over
is also
excluded from the scope of the Regulation.

imported goods

(52) Article 2 of the Regulation stipulates that the total de
minimis aid granted to any one enterprise must not
exceed EUR 100 000 over any period of three years.
This ceiling applies irrespective of the form of the aid or
the objective pursued.

(55)

the
accounted for. From an economic standpoint,
Commission takes the view that a financial measure
which cannot be classed as aid within the meaning of
Article 87(1) of the EC Treaty under Regulation (EC) No
69/2001, in force today in an integrated market, cannot
in the past have given rise to any aid in a less integrated
market. It will therefore base its further assessment of
the financial measures on Regulation (EC) No 69/2001,
which does not rule out the possibility of the provisions
in force at the time the measures were implemented
being applied, provided that the measures concerned are
not exempt under Regulation (EC) No 69/2001.

The proceedings initiated thus cover both the rules at
issue and the cases of application which do not fall
within the scope of Regulation (EC) No 69/2001 or the
other relevant de minimis provisions and the cases which
do fall within the scope of the Regulation or of the other
relevant de minimis provisions and in which cumulation
with other aid has led to the de minimis ceiling being
exceeded.

(53)

Since Regulation (EC) No 69/2001 entered into force
only on 2 February 2001, whereas the rules under exam-
ination applied from 20 July 1993 to 16 January 1996,
the question arises whether the Commission, for the
purposes of
this Decision, can apply the Regulation
retroactively to financial assistance paid before it entered
into force or whether the de minimis provisions in the
1992 SME Guidelines in force in the relevant period
should be taken into account (consecutio legis).

(56) Aid for activities relating to the manufacture, processing
or marketing of the goods listed in Annex I to the EC
Treaty are excluded from the scope of Regulation (EC)
No 69/2001.

(57)

The Commission therefore takes the view that all the
working capital loans granted to the foodstuffs industry
fall outside the scope of Regulation (EC) 69/2001 or of
the previous de minimis provisions in so far as they were
granted for the manufacture of the goods listed in Annex
I to the EC Treaty and must thus be classed in the sensi-
tive sector of agriculture.

(54)

Commission Regulation (EC) No 69/2001 does not indi-
cate whether it is applicable to the assessment of aid
granted before its entry into force. However, its wording
does not rule out its application to previous cases, which
in any event are subject to the control mechanism under
Article 3. The Commission has reached the conclusion
that, given the absence of any other express provision,
Regulation (EC) No 69/2001 should apply to de minimis
aid granted before its entry into force. For one thing, the
Regulation, in so far as it exempts a particular category
of measure from the notification requirement, is a proce-
dural regulation and should thus apply immediately to
all pending proceedings. For another,
the immediate
application of the Regulation is in line with the under-
lying objectives of procedural simplification and decen-
tralisation. Only in respect of aid not caught by the
Regulation and thus not eligible for exemption on this
basis will the Commission take account of the provisions
that were in force when the aid was granted. Since the
Regulation is,
in principle, more generous than its de
minimis predecessors and since the latter apply in any
event to cases where the aid concerned is not exempt
legal principles of
under the Regulation,
legitimate expectation and legal certainty are suitably

the general

(58) Germany's argument that the special aid rules contained
in the 1996 Community Guidelines for State aid in
connection with investments in the processing and
marketing of agricultural products were applicable only
as from 1998 is immaterial here since the special rules
did not affect the scope of the de minimis provisions (12).

(59)

In the Commission's view, the residual scope of Regula-
tion (EC) No 69/2001 or other relevant de minimis provi-
sions might be exceeded because failure to take account
of the aid element contained in the guarantee might
mean that, in granting working capital loans, the ceilings

(12) The Guidelines concerned entered into force on their publication in
the Official Journal (OJ C 29, 2.2.1996, p. 4). By Decision 1999/
183/EC,
the Commission found that national aid schemes in
Germany were incompatible with the common market within the
meaning of Article 87(1) of the EC Treaty in so far as they did not
comply with the Guidelines and appropriate measures for State aid
(in connection with investments in the processing and marketing
of agricultural products) which were communicated to Germany by
letter SG (95) D/13086 of 20 October 1995.

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laid down in Article 2 of the Regulation or in other,
previously applicable de minimis provisions might be
exceeded. The rules do not offer any assurance that the
de minimis ceiling is complied with in every instance.
There is in particular no guarantee that it was complied
with where the rules were applied to firms in difficulty,
involving as they do a high risk of default.

the consolidation
not be viewed in isolation, but
programme should be included in the assessment and
the scope of the working capital programme determined
by viewing both schemes as a whole. The Thuringia
working capital programme therefore did not apply to
firms in difficulty.

(60)

In the Commission's view, the beneficiaries under the
rules at least included firms in difficulty.

(61)

(62)

For the purpose of differentiating between firms in diffi-
culty and viable firms,
the Commission included an
explanation of what is meant by a firm in difficulty in
point 2.1 of the 1994 Community Guidelines (13). This
definition essentially confirmed the Commission's deci-
sion-making practice of the preceding years, as described
in its Eighth Report on Competition Policy published in
1979 (points 227 to 229) (14).

The definition of a firm in difficulty, which the Commis-
sion will use here, is given in the 1994 Guidelines as a
firm which is ‘unable to recover
through its own
resources or by raising the funds it needs from share-
holders or borrowing. The typical symptoms are dete-
riorating profitability or increasing size of losses, dimin-
ishing turnover, growing inventories, excess capacity,
rising interest
declining cash flow,
charges and low net asset value.
In acute cases the
company may already have become insolvent or gone
into liquidation.’

increasing debt,

(63) According to point 3 (‘Aid recipients’) of the rules, they
are directed at start-ups, management buy-outs and
management buy-ins and privatisations, with priority
given to applications related to consolidation measures.
The Commission takes the view that the inclusion of
firms in need of consolidation indicates that those in
need of recovery within the meaning of the definition of
firms in difficulty could receive subsidised working
capital loans.

(64) Germany argues that

the Thuringia working capital
programme should be viewed in an overall context
together with the Thuringia consolidation programme.
While the scope of the consolidation programme expli-
citly covered firms in difficulty, this was not the case
with the Thuringia working capital programme. In deter-
mining the substance of the rules, the wording should

(13) See footnote 5.
(14) As regards non-notified aid, paragraph 101 of the 1999 Commu-
nity Guidelines on State aid for rescuing and restructuring firms in
difficulty (Notice to Member States including proposals for appro-
priate measures: OJ C 288, 9.10.1999, p. 2) lays down that the
Commission will examine for its compatibility with the common
market any rescue or restructuring aid granted without its authori-
sation and therefore in breach of Article 88(3) of the EC Treaty on
the basis of the Guidelines in force at the time the aid was granted.
The Commission accordingly assessed the rules on the basis of the
decision-making practice set out in its Eighth Report on Competi-
tion Policy (published in 1979) and on the basis of the 1994
Guidelines.

(65)

This argument is not convincing as evidence that the
working capital programme was not applied to firms in
difficulty. According to their wording,
the specific
purpose of the rules was to assist firms to set up busi-
ness or to safeguard their activities, in particular in order
to avert risks to their operation or existing jobs. More-
over, applications related to consolidation measures were
to be given priority.

(66) Germany also argues that the main bank's own risk was
an incentive to it to check the creditworthiness of the
borrower.

(67) Although the likelihood of the recipient actually being a
firm in difficulty may perhaps have been reduced by the
risk which the main bank still faced, the granting of aid
to firms in difficulty was by no means ruled out by the
wording of the rules. The Commission also takes the
view that it could be advantageous for the main bank, in
particular in the case of firms in difficulty, to participate
in granting loans under the rules since the granting of a
working capital
liquidity of
the recipient firm and reduces the risk of default on
loans previously granted by the main bank. It may in
fact make economic sense for a bank to reduce a high
risk of default in respect of existing loans by acting in
such a way as to ensure that new funds are made avail-
able to the firm for its restructuring. This is particularly
true where the associated risk is partly assumed by the
State.

loan improves the overall

(68) After all, the individual

lists sent by Germany of aid
promised or disbursed under the rules show that firms
in difficulty were assisted. Germany also conceded in its
firms in difficulty had been assisted
comments that
under the Thuringia working capital programme.

(69)

The aid element of the guarantee should have been taken
into account in the calculation of the aid intensity of the
loans, especially bearing in mind the risk of default in
the case of firms in difficulty.

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(70)

in its comments that

This assessment is not affected either by Germany's state-
ment
the German authorities,
between 1993 and early 1996, did not know that the
aid element associated with the guarantee and the parti-
cular risks involved in the granting of loans to firms in
difficulty should have been taken into account in calcu-
lating the aid intensity. The Commission cannot accept
this argument since back in 1989 it sent a letter to
Member States pointing out that, in its view, all guaran-
tees given by the State fell within the scope of Article
the EC Treaty (15). The German authorities
87(1) of
should, in granting guarantees to firms facing liquidity
difficulties, at least have had doubts as to whether the
measures involved aid and they should have notified the
measures contained in the scheme in good time to the
Commission, in order to allow it to give its opinion on
the matter.

would not otherwise have received from private credit
institutions on the basis of the loan terms normally
applied by the latter.

(76)

These financial resources made it possible for recipient
firms either to avoid being forced out of the market or
to improve their market position. If the firm had been
forced out of the market, either existing overcapacities
would have been reduced or the market shares made
available would have been acquired by competitors,
which could in either case have improved their profit-
ability. The working capital loans do not preclude loans
being granted to firms which produce goods or provide
services that are the subject of intra-Community trade. It
must therefore be assumed that the financial measures
concerned by the proceedings are liable to affect trade
between Member States.

(71) Under the Commission notice on the application of Arti-
cles 87 and 88 of the EC Treaty to State aid in the form
of guarantees (16), the cash grant equivalent of a loan
guarantee in a given year can be:

(77)

(a) calculated in the same way as the grant equivalent of
a soft loan,
the interest subsidy representing the
difference between the market rate and the rate
obtained thanks to the State guarantee after any
premiums paid have been deducted; or

(b) taken to be the difference between the outstanding
sum guaranteed, multiplied by the risk factor (the
probability of default) and any premium paid,
i.e.
(guaranteed sum x risk) — premium; or

(c) calculated by any other objectively justifiable and

generally accepted method.

(72)

(73)

(74)

The Commission thus confirmed its long-held view that,
if at the time of the loan decision the probability of the
borrower being unable to pay is evidently very high, the
intensity of the aid can be equivalent to the sum actually
secured by the guarantee.

Furthermore, the aid element of the guarantee can, even
in the case of viable firms, result in the de minimis ceiling
being exceeded.

In the Commission's view, the rules and their application
involve aid within the meaning of Article 87(1) of the
EC Treaty in so far as they do not fall within the scope
of Regulation (EC) No 69/2001 or do fall within the
scope of
the Regulation but exceed the de minimis
ceiling. The same applies in respect of the other de
minimis provisions in force at the time the measures
were implemented.

(75) Where applied to firms in difficulty, the rules meant that
recipient firms received from a private bank financial
resources which, in view of their financial situation, they

Even viable firms would not have obtained such finance
from private banks on the terms offered and were there-
fore able to improve their market position vis-à-vis
competitors within the common market as a result of
the working capital loans provided. This applies in parti-
cular
to viable firms operating in sensitive sectors.
Community markets in sensitive sectors are faced with
overcapacity. The financial advantage conferred on the
specific firms by the working capital loans led to their
position being strengthened vis-à-vis competitors, with
the result that trade between Member States might be
affected.

(78)

The rules thus might have distorted or threatened to
distort competition.

(79)

The Commission accordingly concludes that the rules
and their application constitute State aid within the
meaning of Article 87(1) of the EC Treaty for firms
involved in intra-Community trade.

4.2. Lawfulness of the aid

(80)

The Commission regrets
in granting the aid,
Germany acted in breach of Article 88(3) of the EC
Treaty.

that,

4.3. Compatibility of

the aid with the common
market in so far as the scope of application of
Regulation (EC) No 69/2001 or of the other,
previously applicable, de minimis provisions
was exceeded

(15) Commission letter to Member States (SG(89) D/4328 of 5 April

1989).

(16) OJ C 71, 11.3.2000, p. 14.

(81)

The Commission assessed the rules on the assumption
that they were directed both at viable firms and at firms
in difficulty.

(82)

(83)

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L 157/63

In as much as aid was granted to firms in difficulty, it
constituted restructuring or rescue aid as defined in the
Commission's Eighth Report on Competition Policy
published in 1979 and in the 1994 Guidelines (17),
confirmed by the Guidelines adopted in 1999 (18).

(86) Under the rules, the only precondition for the granting
of funds was that the applicant bank representing a firm
had to provide appropriate backing from its own
resources in the provision of the working capital.

In so far as the aid was granted to viable firms in the
sensitive sectors, it constituted operating aid within the
meaning of the Commission communication of 1979 on
regional aid systems (19) and of the Commission commu-
nication of 1988 on the method for the application of
to regional aid (20). These
Article 92(3)(a) and (c)
communications were confirmed by the 1998 guidelines
on national regional aid (21).

(84)

The compatibility of the rules will be examined in the
light of the relevant provisions applicable (22).

(85)

In so far as the restructuring of firms in difficulty is
involved, it should be noted that, in accordance with the
Commission's practice and the 1994 Guidelines,
the
following criteria had to be met as a precondition for
compatibility of the aid with the common market:

(a) submission and implementation of a restructuring
plan capable of restoring the long-term viability of
the firm;

(87) However,

the rules did not require submission of a
viable restructuring plan which, taking account of the
working capital
loan, made it likely that profitability
could be restored on a long-term basis.

(88)

The wording of the rules does not prohibit the repeated
grant of restructuring aid or limit the amount of aid to
the strict minimum required to achieve the goal.
Germany did not indicate whether these criteria were
taken into account in the granting of aid.

(89)

The rules did not provide for individual notification of
aid for large firms or require compliance with the special
rules for sensitive sectors.

(b) a significant contribution from the recipient

firm

(90)

and its shareholders;

(c) limitation of the aid to the strict minimum required;

(d) compliance with the special rules governing the
sensitive sectors, requiring in principle the notifica-
tion of individual cases;

(91)

(e) individual notification of aid to large firms;

(f) restructuring aid to be granted only once in so far as
there are no unforeseen circumstances for which the
company is not responsible.

The Commission therefore finds that, to the extent that
the rules provide for restructuring aid to firms in diffi-
culty, such aid is not compatible with the common
market.

In so far as the rescue of firms in difficulty is involved, it
must be noted that the established policy in this respect
was to make it a precondition of compatibility with the
common market that rescue aid be granted either in the
form of public loans on market terms or in the form of
a State guarantee on a private-sector loan. This condition
was not met in the case in point since the loans in ques-
tion were soft loans.

steel,

fisheries,

the motor

shipbuilding,
industry,

(17) Under point 2.2 of the 1994 Guidelines, they applied only to the
extent that they were consistent with the special rules in the sensi-
tive sectors. At the time in question, there were special aid rules in
agriculture,
textiles and clothing,
synthetic fibres,
transport and the coal
industry. In the agricultural sector, as an alternative to these Guide-
lines, special Commission rules for rescue and restructuring aid
could still be applied to individual recipients at the discretion of
the Member State concerned.
(18) See point 101 of the Guidelines.
(19) OJ C 31, 3.2.1979, p. 9.
(20) OJ C 212, 12.8.1988, p. 2.
(21) OJ C 74, 10.3.1998, p. 9.
(22) OJ C 119, 22.5.2002, p. 22.

the
Commission refers to the provisions specified. It examined the aid
to viable firms in the light of its 1988 communication on the
method for the application of Article 92(3)(a) and (c) to regional
aid. Its assessment is not affected by application of the 1998 Guide-
lines on national regional aid).

(For the definitions applied,

(92)

To the extent that the provision of rescue aid under the
this aid is incompatible with the
rules is involved,
common market.

(93)

In as much as loans were granted to economically viable
firms in the sensitive sectors, they constituted operating
aid, which had to be assessed by the Commission in the
light of the provisions on regional aid that applied to
the rules.

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(94)

Thuringia is an assisted area under Article 87(3)(a)
(formerly Article 92(3)(a)) of
the EC Treaty. The
Commission communications on regional aid of 1979
and 1988 (23) allowed the Commission exceptionally and
on certain conditions to approve certain types of oper-
ating aid in assisted areas in view of the particular diffi-
culties they face.

(95) A prerequisite for approval of operating aid was that it
should contribute to durable and balanced economic
development and should not give rise to sectoral overca-
the resulting
pacity at Community level, such that
Community sectoral problem was more serious than the
original
regional problem. A sectoral approach was
required here whereby the Community rules and guide-
lines applicable to certain sectors of industry (steel, ship-
building, synthetic fibres, textiles and clothing) and agri-
culture and to industrial firms involved in processing
agricultural products were to be observed. Under these
Community rules and guidelines, operating aid cannot
be granted in the sectors concerned.

(96)

(97)

(98)

The rules are incompatible with the common market in
so far as aid to viable firms in the sensitive sectors is
involved, since the Community rules and guidelines
applicable to sensitive sectors, which prohibit
the
granting of operating aid to viable firms, should have
been observed.

The Commission takes the view that the exemptions
under Article 87(2) of the EC Treaty do not apply in this
case as the rules do not pursue any of the aims listed
there. Nor did Germany claim that those exemptions
applied (24).

The Commission concludes that, apart from the Guide-
lines for assessing aid for rescuing and restructuring
firms in difficulty, no special provisions concerning aid
with horizontal objectives pursuant to Article 87(3)(c) of
the EC Treaty are applicable to the rules since they do
not pursue one of the special objectives and Germany
has not argued that this is the case.

(99)

In the Commission's view, the aid is equally not intended
to promote an important project of common European
interest or
to remedy a serious disturbance in the
economy of a Member State. Nor does it promote

(23) See footnotes 19 and 20.
(24) As regards application of the exemption under Article 87(2)(c) of
the EC Treaty, the Commission refers to the Court of Justice ruling
of 19 September 2000 in Case C-156/98, Germany v Commission
the German
(not yet published) concerning Section 52(8) of
Income Tax Law.

culture or heritage conservation. The Commission there-
fore concludes that neither Article 87(3)(b) nor Article
87(3)(d) of the EC Treaty applies to the rules.

(100) Some of the individual cases covered by the rules may
have been the subject of other formal
investigation
proceedings under Article 88(2) of the EC Treaty. This
decision does not apply to them.

5. CONCLUSION

(101) The aid scheme is unlawful. Aid that exceeded the scope
of Regulation (EC) No 69/2001 or, where it was not
caught by the Regulation, exceeded the scope of the
other applicable de minimis provisions in force at the
time the scheme was implemented was granted unlaw-
fully.

(102) The aid scheme is incompatible with the common
market in that it allows rescue aid to be granted at subsi-
dised interest rates outside its de minimis scope, allows
restructuring aid to be granted without taking account
of the conditions that it was the Commission's estab-
lished practice to impose, does not require notification
of individual cases in the sensitive sectors and does not
rule out aid to viable firms in the sensitive sectors.

(103) Accordingly, application of the rules outside the scope
of Regulation (EC) No 69/2001 or of the other relevant
de minimis provisions to firms in difficulty and in respect
of operating aid to viable firms in the sensitive sectors
was incompatible with the common market.

(104)

is

the Commission's

long-established practice to
It
require recovery from the recipient of aid which, under
Article 87 of the EC Treaty, has been unlawfully granted
and is incompatible, provided that the aid is not covered
by de minimis provisions. This practice was confirmed by
Article 14 of Council Regulation (EC) No 659/1999 of
22 March 1999 laying down detailed rules for the appli-
cation of Article 93 of the EC Treaty (25). This Article
requires Member States to take all necessary measures to
recover the aid from the beneficiary. To clarify the
the
number of cases where
Commission considers that Germany should draw up a
list of all firms not covered by the scope of Regulation
(EC) No 69/2001,

recovery is

required,

(25) OJ L 83, 27.3.1999, p. 1.

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HAS ADOPTED THIS DECISION:

Article 1

The rules governing the Thuringia working capital programme
(hereinafter referred to as ‘the rules’) establish State aid within
the meaning of Article 87(1) of the EC Treaty.

The rules do not establish aid within the meaning of Article
87(1) of the EC Treaty if the payments fall within the scope of
Regulation (EC) No 69/2001 or, where this is not the case,
within the scope of the de minimis provisions in force at the
time the rules were implemented and,
in combination with
other de minimis aid, do not exceed the relevant de minimis
ceiling of Regulation (EC) No 69/2001 or the previous de
minimis provisions.

The rules do not establish aid within the meaning of Article
87(1) of the EC Treaty if the payments were for firms not
involved in producing goods or providing services for intra-
Community trade.

To the extent that the rules are caught by Article 87(1), they
involve unlawful aid.

Article 2

In so far as the rules establish aid for viable firms outside the
sensitive sectors,
they are compatible with the common
market.

Article 3

In so far as the rules establish rescue and restructuring aid for
firms in difficulty, they are incompatible with the common
market where they fall within the scope of Article 87(1) of the
EC Treaty.

Article 4

In so far as the rules establish operating aid for firms in the
sensitive sectors,
they are incompatible with the common
market where they fall within the scope of Article 87(1) of the
EC Treaty.

was at the disposal of the beneficiaries until the date of its
recovery. Interest shall be calculated on the basis of the refer-
ence rate used for calculating the grant equivalent of regional
aid.

Article 6

This Decision does not apply to those cases covered by the
rules that have been the subject of other Commission proceed-
ings or of a final Commission decision. Germany shall draw up
a list of the cases concerned.

Article 7

Germany shall, in implementing this Decision, draw up a list of
the firms concerned in cases which fall outside the sectoral
scope of Regulation (EC) No 69/2001 or which,
if the aid
element contained in the guarantee and other de minimis aid
granted during the relevant period are included, exceed the
ceiling laid down in that Regulation.

In implementing this Decision, Germany shall draw up a list of
all firms in difficulty assisted under the rules which are not
caught by Regulation (EC) No 69/2001 and shall indicate the
criteria on which the classification is based.

In this connection, Germany shall also devise a method to iden-
tify the aid element in the guarantee.

In implementing this Decision, it shall draw up a list of firms
assisted under the rules which are not caught by Regulation
(EC) No 69/2001 and which were not involved in producing
goods or providing services for intra-Community trade and
shall indicate the criteria applied.

Article 8

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

Article 9

Article 5

This Decision is addressed to the Federal Republic of Germany.

Germany shall take all necessary measures to recover from the
beneficiaries the aid referred to in Articles 3 and 4 and unlaw-
fully made available to them.

Recovery shall be effected without delay and in accordance
with the procedures of national law provided that they allow
the immediate and effective execution of the Decision. The aid
to be recovered shall include interest from the date on which it

Done at Brussels, 27 November 2002.

For the Commission

Mario MONTI

Member of the Commission