C-342/89

GERMANY v COMMISSION

O P I N I O N O F MR ADVOCATE GENERAL D A R M O N delivered on 11 June 1991*

Mr President, established the system known as 'inter- Members of the Court, mediate financing' by the Member States. Under that system, the financial resources earmarked to cover the expenditure of the EAGGF Guarantee Section are to be 1. The present applications for annulment mobilized by the Member States in brought by the Federal Republic of accordance with the needs of their Germany and the Italian Republic will disbursing authorities; 4 the Commission, on require the Court to determine the extent of sight of the payments effected, is to make the Commission's powers regarding the 'advance payments' not later than 'the third supervision of expenditure incurred by the working day of the second month following European Agricultural Guidance and that in which the disbursing agencies effect Guarantee Fund (hereinafter referred to as the expenditure'. 5 This temporary system 'the EAGGF). was shortly afterwards made permanent by Council Regulation (EEC) N o 2048/88. 6

Regulation (EEC) N o 3183/87 3 temporarily 6 — Council Regulation of 24 June 1988 amending Regulation (EEC) N o 729/70 on the financing of the common agri- cultural policy (OJ 1988 L 185, p. 1). * Original language: French. 7 — Commission Regulation of 31 October 1983 on the operation of the system of advances in respect of expen- 1 — Regulation of the Council of 21 April 1970 on the diture financed by the EAGGF Guarantee Section financing of the common agricultural policy (OJ English (OJ 1983 L 320, p. 1). Special Edition 1970 (I), p. 218). 8 — Commission Regulation of 7 September 1988 on data to 2 — Article 4(2). be sent in by the Member States with a view to the 3 — Council Regulation of 19 October 1987 introducing booking of expenditure financed under the Guarantee special rules for the financing of the common agricultural Section of the Agricultural Guidance and Guarantee Fund policy (OJ 1987 L 304, p. 1). (EAGGF) (OJ 1988 L 249, p. 9).

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O P I N I O N OF MR DARMON — C A S E C-342/89

7. According to the first plea in law, the 5. In its contested decision, the Commission Commission is not empowered to reduce the refused to pay, with regard to the monthly monthly advances and is therefore required advances for July 1989, the amounts corre- to pay the amounts indicated on the declar- sponding to the declarations submitted by ations submitted by the Member States. the Member States, in respect of which it There is, it is claimed, no basis in either proceeded to make various reductions. In a Regulation N o 729/70 or the Community subsequent memorandum 9 the Commission rules taken as a whole for the contention explained that the Management Committee that the Commission has such a power. for Milk and Milk Products had examined the data submitted by the Member States concerning the application of the system of the additional milk levy for the period 8. The Commission takes the view that its 1 April 1988 to 31 March 1989. On the power to reduce the monthly advances is basis of those data, the Commission derived from both the consistent case-law of estimated the total amount of the additional the Court, according to which only expen- levy for that period at approximately ECU diture effected in accordance with 500 million. After provisionally reducing Community rules may be charged to the that amount to ECU 220 million 'in order EAGGF, 1 0 and Articles 2 and 3 of Regu- to maintain a very wide safety margin', the lation N o 729/70, which provide that the Commission allocated it among the Member financing of refunds on exports and inter- States in proportion to the amounts which vention must be subject to compliance with they would have had to pay to discharge the the Community rules. In support of its levy as estimated. The Italian Republic's argument, the Commission also relies on advance payments for that month were thus Article 6 of Council Decision 8 8 / 3 7 7 / E E C reduced by LIT 47 164 600 000 and those of 24 June 1988 concerning budgetary of the Federal Republic of Germany by discipline 11 and on Article 97 of the D M 34 236 729.47. It should be pointed out Financial Regulation of 21 December 1977 that, according to the information submitted at the hearing by the representatives of the 10 — See, for example, the judgments in Case 326/85 German and Italian Governments, the Netherlands v Commission [1987] ECR 5091, at paragraph 7, Case 332/85 Germany v Commission [1987] ECR 5143, at paragraph 7, and Case 347/85 United Kingdom v 9 — VI/340/89 of 12 October 1989 from the Directorate- Commujion [1988] ECR 1749, at paragraph 11. General for Agriculture — EAGGF. 11 — OJ 1988 L 185, p. 29.

9. It seems possible to dispose immediately 11. It would also appear that a power on of Article 97 of the Financial Regulation. the Commission's part to reduce monthly That article provides that 'expenditure advance payments is not expressly set out in effected by authorities and bodies under Regulation N o 729/70 or in Regulation Article 4 of Regulation (EEC) N o 729/70 N o 2776/88, which is the implementing shall be the subject of a commitment by regulation. Article 5(2)(a) of the former chapter, article and item, and shall also be simply provides that 'the Commission shall charged as a payment, after examination of decide solely on monthly advances against the statements forwarded by the Member booking of expenditure effected', while States in accordance with the provisions laid Article 4(1) of the latter states that 'the down pursuant to Article 5(3) of the said Commission shall, on the basis of data sent Regulation . . . '. ' 3 Reference is thus made to in accordance with Article 3, ' 6 adopt appro- the provisions adopted to implement Regu- priate decisions and make the monthly lation N o 729/70 and, accordingly, to advances against booking of expenditure'. Regulation No 2776/88. One ought not in this connection to over-use the expression 'adopt appropriate decisions and make the monthly advances'; the expression 'adopt appropriate decisions' here refers to the Commission's budgetary 10. In the same way, Article 6 of Council power to authorize expenditure, since Decision 88/377 appears to be irrelevant in Community law recognizes the principle the present context. In order to ensure that that authorizing officers and accounting the 'agricultural guideline' H is respected, officers are different individuals. ' 7 As I that article establishes an 'early warning have already pointed out, the only power system' covering the development of which Regulation No 2776/88 formally EAGGF expenditure. According to that recognizes the Commission as having is the provision, 'where the rate of development of power to defer payment of monthly expenditure is exceeding the forecast advances in the absence of information profile, or risks doing so, the Commission supplied by a Member State and to make shall use the management powers at its corrections in the event of discrepancies disposal, including those which it has under between the various notifications submitted the stabilizing measures, to remedy the by that State during the preceding month. situation. If these measures are insufficient, the Commission shall examine the func- tioning of the agricultural stabilizers in the relevant sector and, if necessary, shall present proposals to the Council calculated 12. Consequently, in my opinion, the only to strengthen their action'. , 5 It suffices to relevant principle which could provide a note that that provision confers no new basis for the Commission's power to reduce the advances is that which states that the 12 — OJ 1977 L 356, p. I. EAGGF cannot finance activities which are 13 — Emphasis added. 14 — That is, the maximum progression for EAGGF Guarantee 16 — The reference is to the weekly and monthly declarations of expenditure. the Member States concerning expenditure effected. 15 — Emphasis added. 17 — Article 17 of the Financial Regulation.

14. Let me say right away that, in so far as manifest breaches of the Community rules 13. The financial consequences of this issue governing the common agricultural policy are far from insignificant. There is no need would have the result (on a restrictive inter- to point out that in matters relating to the pretation of Article 5(2) of Regulation common agricultural policy the amounts at N o 729/70 and Article 4(1) of Regulation stake are often considerable. Furthermore, N o 2776/88) that the Community would be while Article 5(2)(b) of Regulation required to finance, for a period often N o 729/70 provides that the time-limit for exceeding several years, practices which making up the accounts is the end of the could in no case be charged to the EAGGF, following year, the Court has already held it appears to be consistent with the in that respect that reasoning behind the Court's case-law that the Commission should in that situation be recognized as having the power (within certain limits) to refuse to pay the monthly ' N o penalty is imposed for failure to comply advances in full. That power, based on both with that time-limit, which may therefore be the Court's traditional case-law, as regarded . . . as a merely formal limit, save mentioned above, and Articles 2(1), 3(1) where the interests of a Member State are and 4(2) of Regulation N o 729/70, must be affected.' « capable of being exercised once the Commission has become firmly convinced, in particular on sight of the information received pursuant to Articles 8 and 9 2 0 of that regulation, that there has been a breach That time-limit is, in practice, often of the Community rules. As any decision exceeded. Finally, the procedure for which the Commission then takes will be of clearing the accounts, the only legal basis a temporary nature, since it will not in any for which is Regulation N o 729/70, which way prejudge the decisions to be taken at established that procedure but failed to lay the time of clearance of the accounts, the down detailed rules for its operation, makes breach must, to my mind, be manifest. Thus, no provision for interest to be added to the any new interpretations that the

' . . . it is possible that irregularities may be 'permit the Commission to charge to the discovered long after the events giving rise Fund only sums paid in accordance with the to them occurred. Until the accounts have rules laid down in the various sectors of been duly cleared, the Commission is agricultural production while leaving the required by Article 2 of Regulation Member States to bear the burden of other No 729/70 to refuse to charge to the sums paid, and in particular any amounts EAGGF refunds which have not been which the national authorities wrongly granted in accordance with the Community believed themselves authorized to pay in the rules. That obligation does not disappear context of the common organization of the merely because the accounts are cleared markets', after the expiry of the period prescribed in Article 5 of the abovementioned regu- lation.' 25

to state that 17. In my opinion, two further points should be added. First, the Commission must, in exercising that power, respect the 'That strict interpretation of the conditions right to a fair hearing. Although those under which expenditure is to be borne by decisions are, as the Commission has

21 — For an application of the same principle at the time of the 23 — Paragraph 7 of the judgment, emphasis added ; see also the clearance of the accounts, see the judgment in Case judgment in Case 332/85, cited above, at paragraph 7. 349/85, cited above, at paragraph 16. 24 — Case 349/85, cited above. 22 — Case 326/85, cited above. 25 — Paragraph 19; my emphasis.

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I would booking shall be made not later than on the point out, moreover, that in my opinion, third working day of the second month bearing in mind the requirement that the following that of the execution of the breach must be manifest, such situations expenditure by the paying departments or ought to arise on a relatively infrequent agencies', while the necessary information is basis. to be sent to the Commission not later than the 20th of the month following that during which the advances were paid. 2 6 The Commission is thus required to act within a relatively short period. Furthermore, the 19. It is under these conditions that, to my requirement that the breach of the mind, on the basis of the principle that the Community rules be manifest reduces the EAGGF may not finance measures which urgency for a detailed consultation with the are contrary to Community rules, the competent services of the Member State Commission's power to reduce monthly

18. Secondly, this decision, which, as I have Member States. said, is a temporary measure, is unable as such to prejudice a Member State in a situation where, when the accounts are cleared, it becomes clear that the advances should not have been reduced. Conse- 21. As the Commission's memorandum of quently, in such a case, the Commission, in 12 October 1989 pointed out, the infor- mation received by the Management 26 — Anicie 3(5) of Regulation No 2776/88. Committee for Milk and Milk Products

showed that quotas had been exceeded by Accordingly, I propose that the Court some 1.6 million tonnes. The Commission dismiss the application brought by the thus estimated the total amount of Italian Republic. additional levies to be collected for the 1988/1989 marketing year at approximately ECU 500 million. The amounts credited by 24. The Federal Republic of Germany, in the Member States to the EAGGF account support of its application, puts forward a in respect of this levy were significantly second plea based on the failure of the lower. T h e Commission reduced the contested decision to state the reasons on estimated amount to ECU 220 million and which it was based. It refers to the Court's allocated it among the Member States. The case-law, in the words of which the obli- differences between the amounts declared gation to state the reasons on which and the amounts thus estimated were Community decisions are based charged to the advances for July 1989. It was thus in the light of the statistical infor- mation in its possession concerning the volume of Community milk production and 'is not only for the protection of interested the significant discrepancies appearing in the parties, but also has as objective to enable declarations of the Member States the Court to review the decisions fully from concerning the additional levy that the the legal point of view as required by the Commission concluded that there had been Treaty'. 2 S a manifest breach of Community rules. The applicant Member States, upon whom the burden of proof rests, have produced no The Federal Republic of Germany takes the evidence capable of calling in question the view that the exchange of correspondence analysis carried out by the Commission. between the parties did not suffice to give it the necessary information regarding the grounds for the reduction made by the Commission 29 and that the Commission's 22. With regard to the right to a fair memorandum setting out the reasons on hearing, it should first of all be pointed out which the decision was based cannot be that the Member States are represented taken into account since it came after that within the Management Committee for decision. 30 Milk and Milk Products and were thus in a position to be aware of the information received by that committee, that the 25. It should be pointed out that, while the EAGGF Committee was consulted in Court regularly refers to the case-law cited writing and that, for that purpose, the by the applicant, it also accepts that the Commission sent to the Member States by statement of grounds required by Article telecopy of 14 August 1989 three tables 190 of the Treaty need not give details of showing the expenditure declared and the 'all relevant factual and legal aspects' and reductions envisaged. 27 that it

legal rules governing the matter in made aware of the factual and legal aspects question'. 31 justifying the decision, so that it could, where appropriate, make use of its right to 26. Concerning the procedure for clearance bring proceedings. The unavoidable of the accounts, the Court has already conclusion in this case is that the applicant pointed out that the governments were Member States were perfectly aware of the closely involved in the process by which the reasons underlying the contested decision. decision for clearance was made and that they were therefore in a position to be 27. On the other hand, no point is served aware of the reasons for which the by taking the Commission's memorandum Commission considered that the disputed of 12 October 1989 into consideration as a amounts might not be charged to the statement of reasons. That memorandum is EAGGF. 3 2 T h a t involvement is less essentially confined to formalizing the stand extensive here; it is achieved merely through taken by the Commission concerning the the presence of representatives of the point disputed by the Member States when Member States within the management the EAGGF Committee was consulted, committee for the product in question and namely the possibility for the Commission within the EAGGF Committee. None the to reduce the monthly advances. It is ques- less, it seems to have been sufficient for the tionable, moreover, whether the Court Member States to have been informed with could take account of it, in so far as it has regard to both the factual data justifying already held that recourse to a reduction in the advances and the legal grounds forming the basis of such a reduction. T h e 'Annex to the Information 'the statement of reasons must in principle Sheet "Authorization" — EAGGF — be notified to the person concerned at the Guarantee Advances' shows that, when the same time as the decision adversely affecting EAGGF Committee was consulted in him'." writing, Italy and Germany disputed the legal basis of the draft decision. The Court's case-law is concerned with the fact that a 28. The second plea in law put forward by Member State was involved in the the Federal Republic of Germany in support procedure by which the decision was of its application must for that reason also reached only in so far as it was thereby be dismissed.