Commission of the European Communities v Council of the European Union.
Date: 2004-06-29
13. The Commission argues in its first plea that the Council did not have the power to adopt the contested decision, and its reasoning in that respect is in two stages.
18. As for the power conferred on the Council under Article 88(2) EC, the Commission argues that that is exceptional in character. That is clear from the wording both of the third subparagraph of that provision, which refers to ‘exceptional circumstances’, and of the fourth subparagraph, which lays down a period during which the Member State’s application is to suspend the procedure before the Commission, at the expiry of which period the Commission recovers its power to ‘give a decision’, that is to say decide definitively on the aids concerned. The granting to the Council of such a power of decision, taking precedence over that of the Commission for a limited period, would, moreover, be devoid of meaning if the Council’s decision could prevail over that of the Commission in all circumstances.
19. It follows, in the Commission’s view, that the Council does not have the power to adopt a decision on the basis of the third subparagraph of Article 88(2) EC where an aid has been declared incompatible with the common market by a Commission decision. Nor, to that extent, did the Council have the power to override the effects of such a decision, by authorising the grant of aids designed to compensate the beneficiaries of the aid declared incompatible for the repayment which that decision obliged them to make.
21. What counts as new aid, the Council argues, depends on formal and objective considerations. In this case the aid authorised by the contested decision consisted of an entirely new payment, arising from a national provision other than the Decree-Laws of 1994 and 1999, corresponding to different eligibility and payment conditions from those which applied to the aids granted under those Decree-Laws.
24. Finally, the Council argues that neither decisions of the Commission declaring an aid incompatible with the common market nor any other text constitute a prohibition against the beneficiaries of such aid receiving other aid sooner or later. The principle that each successive aid is to be examined individually should be complied with in all circumstances (Case C-441/97 P Wirtschaftsvereinigung Stahl  v Commission [2000] ECR I-10293, paragraph 55). If the contested decision had not been taken, the aid which it authorised, which had, moreover, been notified to the Commission by the Portuguese Republic, would have had to have been examined by the Commission and to have given rise to a decision by the latter.
25. Concerning, secondly, the scope of Article 88(2) EC, the Council argues that the three-month period referred to in the fourth subparagraph of that provision is laid down for purely suspensive purposes. It follows, in the Council’s submission, that it remained at liberty to authorise the aid concerned notwithstanding the expiry of that period.
27. The Portuguese Republic essentially shares the analysis of the Council. The aid authorised by the contested decision was a new aid, distinct from those established by the Decree-Laws of 1994 and 1999, having been notified as new aid to the Commission. Portugal adds that the fact that the third subparagraph of Article 88(2) EC empowers the Council to rule not only on aid which a Member State ‘intends to grant’ but also on aid which it ‘is granting’ confirms that the Council is empowered to authorise aid even where the Commission has already expressed its view on it. Article 88(3) shows that any granting of aid requires prior examination by the Commission, with the result that the aid cannot be granted unless there has been a favourable decision by the Commission in that regard.
Findings of the Court
28. In order to rule on the Commission’s first plea in support of its action, it first needs to be determined whether, as the Commission has argued, Article 88(2) EC must be interpreted in such a way that, where the Commission has adopted a decision finding aid incompatible with the common market, the Council no longer has the power to decide, on the basis of the third subparagraph of that provision, that that aid must be regarded as compatible with the common market.
29. In that respect, it should be noted that the intention of the Treaty, in providing through Article 88 EC for aid to be kept under constant review and supervised by the Commission, is that the finding that aid may be incompatible with the common market is to be arrived at, subject to review by the Community judicature, by means of an appropriate procedure which it is the Commission’s responsibility to set in motion. Articles 87 EC and 88 EC thus reserve a central role for the Commission in determining whether aid is incompatible (Case C-354/90 Fédération nationale du commerce extérieur des produits alimentaires and Syndicat national des négociants et transformateurs de saumon  [1991] ECR I-5505, paragraphs 9 and 14).
30. As is clear from its very wording, the third subparagraph of Article 88(2) EC covers an exceptional case (Case 156/77 Commission v Belgium  [1978] ECR 1881, paragraph 16). According to that provision, the Council acting unanimously, ‘on application by a Member State’, may decide that aid which that State is granting or intends to grant must be regarded as compatible with the common market ‘in derogation from the provisions of Article 87 or from the regulations provided for in Article 89’, if such a decision is justified by ‘exceptional circumstances’.
31. It follows that, as the Commission has rightly pointed out, the power conferred upon the Council by the third subparagraph of Article 88(2) EC is clearly exceptional in character.
32. In such a context, the further provisions in the third and fourth subparagraphs of Article 88(2), whereby, on the one hand, application to the Council by a Member State suspends examination in progress at the Commission for a period of three months, and, on the other, in the absence of a decision by the Council within that period, the Commission is to give a ruling, undeniably indicate that, where that period has expired, the Council is no longer competent to adopt a decision under that third subparagraph in relation to the aid concerned. The taking of decisions the operative parts of which might prove contradictory is thereby avoided.
33. The enactment of a temporal limitation of that kind on the Council’s competence where the Commission has already opened the procedure under the first subparagraph of Article 88(2) EC, without, however, yet having adopted a decision declaring the aid incompatible with the common market, and the fact that, at the end of the three-month period laid down by the fourth subparagraph of that provision, the Commission alone retains the competence to rule on the aid concerned, also demonstrate that, if the Member State concerned has made no application to the Council under the third subparagraph of Article 88(2) EC before the Commission declares the aid in question incompatible with the common market and thereby closes the procedure referred to in the first subparagraph of Article 88(2), the Council is no longer authorised to exercise the exceptional power conferred upon it by the third subparagraph in order to declare such aid compatible with the common market.
35. As the Commission has rightly pointed out, the interpretation adopted in paragraphs 32 and 33 of this judgment, which makes it possible to avoid the same State aid being the subject of contrary decisions taken successively by the Commission and the Council, contributes to legal certainty. It should be noted in particular that the definitive nature of an administrative decision which is acquired on the expiry of reasonable time-limits for bringing an action or by the exhaustion of remedies contributes to such certainty (Case C-453/00 Kühne & Heitz  [2004] ECR I-0000, paragraph 24).
39. The Court has, on the contrary, held that when the Commission considers the compatibility of a measure of State aid with the common market, it must take all the relevant factors into account, including, where relevant, the circumstances already considered in a prior decision and the obligations which that previous decision may have imposed on a Member State (see, in particular, Case C-261/89 Italy v Commission  [1991] ECR I-4437, paragraph 20; TWD  v Commission , paragraph 26). The Court deduced in particular that, where the Commission has not been informed of any new fact allowing it to assess whether the aid in question might have the benefit of a derogation under the Treaty, it is justified in basing its decision on the assessments it has already made in its previous decision and the failure to comply with the condition it has imposed thereby ( Italy  v Commission , paragraph 23).
41. It has, moreover, consistently been held that the abolition, by means of recovery, of State aid which has been unlawfully granted is the logical consequence its being found unlawful (Case C-142/87 Belgium  v Commission  ( Tubemeuse ) [1990] ECR I-959, paragraph 66; Case C-310/99 Italy  v Commission  [2002] ECR I-2289, paragraph 98).
42. The aim of obliging the State concerned to abolish aid found by the Commission to be incompatible with the common market is to restore the previous situation, and that objective is attained once the aid in question, increased where appropriate by default interest, has been repaid by the recipient. By repaying the aid, the recipient forfeits the advantage which it had enjoyed over its competitors on the market, and the situation prior to payment of the aid is restored (see, in particular, Case C-350/93 Commission  v Italy  [1995] ECR I-699, paragraphs 21 and 22, and Case C-310/99 Italy  v Commission , paragraphs 98 and 99).
43. In those circumstances, to hold that a Member State is able to grant to beneficiaries of unlawful aid, which has previously been declared incompatible with the common market by a Commission decision, new aid in an amount equivalent to that of the unlawful aid, intended to neutralise the impact of the repayments which the beneficiaries are obliged to make pursuant to that decision, would clearly amount to thwarting the effectiveness of decisions taken by the Commission under Articles 87 EC and 88 EC (see, by analogy, Case C-5/89 Commission  v Germany  [1990] ECR I-3437, paragraph 17; Case C-310/99 Italy  v Commission , paragraph 104).
44. Finally, it should be noted that, as is clear from paragraphs 33 and 35 of this judgment, where a decision finding an aid incompatible with the common market has been adopted by the Commission, the Council cannot paralyse the effectiveness of that decision by itself declaring the aid compatible with the common market on the basis of the third subparagraph of Article 88(2) EC.
45. Nor, therefore, can the Council thwart the effectiveness of such a decision by declaring compatible with the common market, in accordance with that provision, an aid designed to compensate the beneficiaries of the unlawful aid declared incompatible with the common market for the repayments they are required to make pursuant to that decision.
46. In such circumstances, moreover, the aid granted in the second instance is so indissolubly linked to that previously found by the Commission to be incompatible with the common market that it appears largely artificial to claim to make a distinction between those aids for the purposes of applying Article 88(2) EC.