Italian Republic v Commission of the European Communities.
Date: 1991-03-21
2 In that decision the Commission held that the aid granted between 1983 and 1987 to ENI-Lanerossi in the form of injections of capital into its men' s outer wear subsidiaries was contrary to Article 93(3) of the EEC Treaty and incompatible with the common market within the meaning of Article 92 of the Treaty. The aid was therefore to be withdrawn by recovery.
11 As the Court has consistently held (see in particular the judgment in Joined Cases 67, 68 and 70/85, Van der Kooy v Commission [1988] ECR 219, at paragraph 35), no distinction should be drawn between cases where aid is granted directly by the State and cases where it is granted by public or private bodies established or appointed by the State to administer the aid. In this case there is considerable evidence in the documents before the Court that the injections of capital were the result of action attributable to the Italian State.
12 Under Law No 136 of 10 February 1953 (Official Gazette of the Italian Republic 1953 No 72), which established it, ENI is a public corporation controlled by the Italian State and the members of its board of directors and management board are appointed by decree of the Prime Minister. Furthermore, although ENI is required to operate in accordance with economic criteria, it does not have full freedom of action, since it must take account of directives issued by the Comitato Interministeriale per la Programmazione Economica (Interministerial Committee for Economic Planning). Taken as a whole, those factors show that ENI operates under the control of the Italian State.
13 In addition, with the authorization of the Minister for State Holdings, ENI may issue bonds guaranteed as to capital and interest by the State. It is not necessary to rule on the question whether that guarantee in itself constitutes State aid; its existence distinguishes ENI' s borrowing from the normal borrowing of a private company.
14 In those circumstances the Commission was entitled to regard the funds provided by ENI through Lanerossi to the four subsidiaries as State interventions which could constitute aid. Contrary to what the Italian Government has submitted, it is not necessary to establish that the capital funds received by ENI from the Italian State were specifically and expressly intended to make up the losses of the four subsidiaries. It is sufficient to observe that in any event the receipt of the capital funds enabled ENI to release other resources to make up the losses of the four subsidiaries.
17 They argue that in private industrial groups it is quite normal to find transfers of funds between companies in order to make up losses suffered by one of the members of the group. Such transfers may be explained by the desire to safeguard the reputation of the group, by a price strategy decided on at group level, for which the group may consider it appropriate to tolerate losses in one sector of its activities for a certain period, or by a programme of progressive disinvestment, where the group may decide to bear the losses suffered during the last years of operation of one of its members. Consequently, a public holding company should be allowed to make up the losses of one of its members under the same conditions as a private holding company.
18 Again according to the Italian and Spanish Governments, the private investor criterion, which is used by the Commission in order to determine whether losses have been made up under normal market conditions, is too narrow. In support of that argument they state that a distinction must be drawn between private investors, whose sole motive is profit, and private entrepreneurs, such as an industrial holding company whose decisions may be governed not merely by short-term profitability but also by social and regional considerations.
20 It follows from that principle of equal treatment that capital placed by the State, directly or indirectly, at the disposal of an undertaking in circumstances which correspond to normal market conditions cannot be regarded as State aid. In the present case it must therefore be determined whether, in similar circumstances, a private industrial group might also have made up the operating losses of the four subsidiaries between 1983 and 1987.
21 As the Court held in its judgment of Case 234/84 (Belgium v Commission [1986] ECR 2263, at paragraph 15), a private shareholder may reasonably subscribe the capital necessary to secure the survival of an undertaking which is experiencing temporary difficulties but is capable of becoming profitable again, possibly after a reorganization. It must therefore be accepted that a parent company may also, for a limited period, bear the losses of one of its subsidiaries in order to enable the latter to close down its operations under the best possible conditions. Such decisions may be motivated not solely by the likelihood of an indirect material profit but also by other considerations, such as a desire to protect the group' s image or to redirect its activities.
22 However, when injections of capital by a public investor disregard any prospect of profitability, even in the long term, such provision of capital must be regarded as aid within the meaning of Article 92 of the Treaty, and its compatibility with the common market must be assessed on the basis solely of the criteria laid down in that provision.
24 In those circumstances, and having regard to the length of the period during which ENI-Lanerossi continued its financial support to the four subsidiaries, the Commission was entitled to take the view that the losses were made up in circumstances which would have been unacceptable for a private investor operating under normal market conditions and that no private investor, even an industrial holding company, would have taken into account the considerations put forward by the Italian and Spanish Governments, mentioned above. The Commission could thus conclude that no private investor would have covered capital losses of such an extent for so long a period. It must therefore be held that ENI' s action constituted State aid within the meaning of Article 92(1) of the EEC Treaty.
27 It must be observed right away that as the Court held in its judgment in Case 102/87 (France v Commission [1988] ECR 4067, at paragraph 19), aid may be such as to affect trade between the Member States and distort competition where the recipient undertaking competes with producers in other Member States, even if it does not itself export its products. Where a Member State grants aid to an undertaking, domestic production may thereby be maintained or increased with the result that undertakings established in other Member States have significantly less chance of exporting their products to the market in that Member State. Furthermore, even aid of a relatively small amount is liable to affect trade between Member States where there is strong competition in the sector in question (judgment in Case 259/85 France v Commission [1987] ECR 4393, at paragraph 24).
34 It must be pointed out first of all that as regards the application of Article 92(3) of the Treaty the Commission enjoys a wide discretion, the exercise of which involves assessments of an economic and social nature which must be made within a Community context (judgment in Case C-301/87 France v Commission [1990] ECR I-307, at paragraph 49).
43 When a Member State which grants aid contrary to the duty of notification laid down in Article 93(3) of the Treaty subsequently displays reluctance to provide the appropriate information to the Commission, it is itself responsible for prolonging the examination procedure; it cannot therefore rely on the length of that procedure as a ground for a legitimate expectation regarding the compatibility of the aid in question with the common market. If it could do so, Articles 92 and 93 of the Treaty would be set at naught, as the Court held in Case C-5/89 (Commission v Germany [1990] ECR I-3437), since national authorities would thus be able to rely on their own unlawful conduct in order to deprive decisions taken by the Commission under provisions of the Treaty of their effectiveness.
46 The consequences of an infringement of Article 93(3) were set out in paragraphs 12 et seq. of the judgment in Case C-301/87, cited above. The Court held in that judgment that once the Commission has established that aid has been granted without notification, it has the power, after giving the Member State in question an opportunity to submit its comments on the matter, to issue an interim decision requiring it to suspend immediately the payment of the aid pending the outcome of the examination of the aid and to provide the Commission, within such period as it may specify, with all such documentation, information and data as are necessary in order to examine the compatibility of the aid with the common market.
52 As the Court has consistently held, the statement of the reasons in which a decision is based must enable the Court to review the legality of the decision and provide the party concerned with details sufficient to allow that party to ascertain whether or not the decision is well founded. The requirement of a statement of reasons must be viewed in the context of the circumstances of the case, and in particular the content of the measure in question, the nature of the reasons relied on and the interest which the addressee may have in obtaining explanations (see in particular the judgment in Case 41/83 Italy v Commission [1985] ECR 873, at paragraph 46).
57 With regard to the alleged uncertainty of the identity of the addressees of the order for recovery, it is clear from the contested decision that the aid was to be recovered from the undertakings which actually benefited from it, that is to say the four subsidiaries.
58 If the Italian Government had serious doubts in that regard it could, like any Member State which encounters unforeseen difficulties in implementing an order for recovery, have submitted those problems for consideration by the Commission. In such a case the Commission and the Member State concerned must, in accordance with the duty of genuine cooperation stated in particular in Article 5 of the Treaty, work together in good faith with a view to overcoming the difficulties whilst fully observing the Treaty provisions, in particular the provisions on aid (see the judgment in Case 94/87 Commission v Germany [1989] ECR 175, at paragraph 9).