C-348/93

4. The Commission took the view that the capital contribution of LIT 206.2 thousand million was State aid and on 29 July 1987 it initiated the procedure provided for in Arti­ cle 93(2) of the Treaty. On the basis of infor­ mation supplied by the Government and 3. The events which gave rise to the present Finmeccanica in the course of that proce­ proceedings took place in 1985 and 1986. At dure, the Commission established that in that time Alfa Romeo, which was the second 1986 an additional aid in the form of the largest Italian car manufacturer, formed part

2 — Law No 887 of 22 December 1984, Gazzetta Ufficiale della * Original language: English. Repubblica Italiana 1984 No 365, ordinary supplement. 1 — Decision 89/661/EEC, OJ 1989 L 394, p. 9. 3 — Gazzetta Ufficiale 1985 No 163.

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provision of new capital of LIT 408.9 thou­ because it was provided in contravention of sand million was made to Alfa Romeo. The the rules of procedure laid down in Arti­ funds for that aid came from bonds issued cle 93(3). The aid is also incompatible by IRI pursuant to Decree Law No 547 of because it does not satisfy the conditions for 19 October 1985 4 (subsequently amended exemption provided for in Article 92(3). by Law No 749 of 20 December 1985 5) which permitted public bodies, including IRI, to issue bonds bearing interest paid by the State. The proceeds of the bonds issued by IRI were allocated by a decision of the 6 CIPE of 28 November 1985 and on the 7 Article 2 basis of the 1986 budget. On 10 May 1988, the Commission extended the procedure ini­ tiated on 29 July 1987 to cover the capital contribution of LIT 408.9 thousand million.

date of notification of this Decision, of the sponded to the capital contribution of 1985, measures taken to comply herewith.' it was not sufficient to require repayment from Finmeccanica to IRI. In order to com­ ply with the decision, that amount had to be repaid to the Italian State. With regard to the amount of LIT 408.9 thousand million, 6. The decision was notified to the Govern­ which corresponded to the capital contribu­ ment on 31 July 1989. The Government did tion of 1986, he invited the Italian authorities not take the measures necessary for the to provide further information with a view recovery of the aid within the prescribed to enabling the Commission to decide period. It brought an action for the annul­ whether the repayment of that sum by Fin­ ment of the decision. In its judgment in Case meccanica to IRI was sufficient to comply C-305/89 Italy v Commission 8 (the 'Alfa with the decision. He also stated that, since Romeo' case), the Court dismissed that Italy had failed to comply with the decision, action. The Court rejected the Government's he would propose to the Commission before submissions to the effect that there was no the end of July 1992 that enforcement pro­ State aid adversely affecting competition ceedings should be instituted. By a letter within the meaning of Article 92(1) of the dated 14 October 1992, the Italian authori­ Treaty, that {he conduct of the Commission ties requested an additional period of grace was unlawful, and that the aid was not stating that the abolition of the aid should be incompatible with the common market. The addressed within the framework of the pro­ Court also rejected the Government's sub­ gramme for the privatization of public missions concerning the obligation to repay undertakings which the Government was the aid, in particular the submission that that planning to implement. obligation should not be borne by Finmec- canica.

capital and the sum of LIT 571 thousand not been funded by bonds but by budgetary million as interest in relation to the bonds allocations made to IRI. Therefore, the sum issued by IRI in accordance with Law of LIT 206.2 thousand million should be 10 repaid to the Italian State. With regard to the No 749 of 1985 and Law No 41 of 1986. The State had undertaken to repay the capi­ capital contribution of LIT 408.9 thousand tal and the interest of those bonds, which million, the Commission accepted that Law provided the necessary funds to finance the No 405 of 29 December 1990 abolished the capital contribution of LIT 408.9 thousand obligation of the State to pay as capital the million. sum of LIT 698 thousand million to IRI. However, the Commission stated that that amount only represented 11.4% of a total amount of LIT 6 135 thousand million up to which IRI was authorized by Law No 749 of 1985 and Law No 41 of 1986 to issue bonds paid by the State. Consequently, the Com­ 9. In the letter of 12 February 1993, the mission concluded that it could only accept a Government stated that repayment of the reduction in the same proportion of the sum of LIT 719.1 thousand million from amount which, according to the decision, Finmeccanica to IRI fulfilled the obligation IRI owed to the State, namely a reduction of of recovery provided for in the decision. In 11.4% of LIT 408.9 thousand million, i. e. the view of the Government, IRI had no LIT 46.5 thousand million. It followed that obligation to repay that sum to the Italian IRI should pay to the State the sum of State. Repayment from Finmeccanica to IRI LIT 568.6 thousand million. removed the distortions of competition which resulted from the unlawful payment of the aid. Also, there was no reason to dis­ tinguish between IRI and the Italian State since IRI was a public undertaking which was part of the State. Moreover, as a result of the abolition by Law No 405 of 29 Decem­ 11. The Government did not respond to the ber 1990 of the financial obligations of the Commission's letter of 6 April 1993. As a State, IRI did not receive from the State the result, the Commission instituted the present financial contributions which had been char­ proceedings. In its application, it claims that, acterized as aid in the decision. in order to comply fully with the decision, the Government must not only ensure that IRI recovers from Finmeccanica the sum of LIT 615.1 thousand million plus interest; in addition the Italian State must recover from IRI the sum of LIT 568.6 thousand million plus interest. 10. By a letter dated 6 April 1993, the Com­ mission notified the Italian authorities that the decision had not been implemented cor­ rectly. It pointed out that the capital contri­ bution of LIT 206.2 thousand million had

bility of the action, which is contested by the Rules of Procedure, according to which the Government on two grounds. application must state the subject-matter of the proceedings and a summary of the pleas in law on which it is based. The Government states that the Commission's application does not explain why the failure of the Ital­ ian State to recover the aid from IRI 13. The Government claims that the alleged infringes the decision. obligation of IRI to repay the aid to the Ital­ ian State is not stated in the decision. It was first invoked by the Commission in its letter of 26 January 1992. According to the Gov­ ernment, therefore, the application is inad­ missible because the Commission seeks a declaration that Italy has failed to fulfil an obligation which is not provided for in the 16. That argument must also be rejected. In decision. order to comply with the requirements of Article 38(1)(c) of the Rules of Procedure, the Commission must indicate in its applica­ tion the specific complaints on which the Court is called upon to rule and, at least in summary form, the legal and factual particu­ 14. I do not find that argument persuasive. lars on which those complaints are based. 11 It is true that, in enforcement proceedings The application in the present case contains a under Article 93(2), the Commission may clear exposition of the facts and of the Com­ only claim that the defendant Member State mission's arguments and has enabled the 12 has failed to comply with the decision the Government to submit a detailed defence. alleged infringement of which is the subject- The application is therefore admissible. I matter of the proceedings. The Commission turn now to examine the substance of the may not in such proceedings impose obliga­ case. tions on the defendant State other than those already provided for in the decision. In this case, however, the Commission does not seek to impose any new obligations on the Italian State. It claims rather that, according to the decision, the Italian State has the obli­ gation to recover the aid from IRI. Whether that is so is a matter of interpretation of the 17. The Commission argues that repayment decision and is therefore an issue of sub­ of the aid by Finmeccanica to IRI is not suf­ stance. ficient to comply with the decision. The aid must be repaid to the Italian State.

18. I should first point out that even if it sand million of aid plus LIT 104 thousand were accepted that repayment of the aid million of interest. In its letter, Italy did not from Finmeccanica to IRI was sufficient to furnish any proof of that payment. After the comply with the decision, Italy would still commencement of the present proceedings, be in breach of its obligations under the the Government sent to the Commission, Treaty. That is so because, under Article 2 of with a letter dated 25 November 1993, the the decision, the Government was required documents which in its view proved that the to recover the aid within two months from aid had been repaid by Finmeccanica to IRI. notification, which took place on 31 July In its reply, the Commission claims that the 1989. It is clear from the information sub­ Government has calculated the interest due mitted to the Court that Finmeccanica had incorrectly. Under Article 2 of the decision, not repaid the aid to IRI within the pre­ interest must be calculated as from the scribed period. It is sufficient to refer to the expiry of the two-month period from the letter of 13 March 1992 by which the Italian notification of the decision to the Govern­ authorities informed the Commission of ment. The decision having been notified on their intention to recover the aid by requir­ 31 July 1989, interest should be calculated as ing Finmeccanica to repay to IRI a sum from 30 September 1989. The Government equal to the amount of the aid plus inter­ took as a starting point for the calculation of 13 est. That letter is accompanied by a com­ interest not the date of notification but the munication of the Italian Ministry respon­ date of publication of the decision in the sible for State holdings to the Italian Official Journal, i. e. 30 December 1989. It Ministry of Foreign Affairs dated 7 March calculated interest as of 28 February 1990. 1992. It appears from that communication The Commission concludes that, in addition that on 7 March 1992 the aid had not yet to the payments that it has already made, been repaid by Finmeccanica to IRI. It Finmeccanica must pay interest for a period follows that, in any event, Italy has failed to of five months, at the rate of 5 %. implement the decision within the prescribed period.

ian State. In their submissions to the Court cle 1 of the decision makes it clear that the the Commission and the Government con­ aid was granted by the Government to Alfa centrate on that issue. Romeo and that IRI and Finmeccanica acted only as intermediaries. Article 2 is readily understood as meaning that the aid must be repaid to the Italian State. That interpreta­ tion is supported by the Italian language ver­ sion of the decision which is the only authentic version. Article 2 states that '11 22. As already stated, in enforcement pro­ Governo italiano è tenuto a sopprimere gli ceedings under Article 93(2), the Commis­ aiuti di cui all'articolo 1 mediante ricupero sion may only claim that the defendant presso la Finmeccanica ...'. That interpreta­ Member State has failed to fulfil an obliga­ tion is also supported by the English lan­ 1 tion arising from the decision the alleged guage version of the decision. 4I note that 15 infringement of which is the subject-matter the French language version is less clear of the proceedings. It follows that the issue but, as already stated, only the Italian text is which entity is responsible for recovering the authentic. unlawfully paid aid should be determined by reference to the decision. In interpreting the decision, account should be taken of the pur­ poses of the obligation to recover.

25. The preamble to the decision confirms that IRI acted merely as an intermediary and that the funds necessary to finance the capi­ 23. The Government states that the obliga­ tal contributions of 1985 and of 1986 were tion to repay the aid falls upon the benefi­ 16 provided by the State. It states as follows: ciary. Since under Article 2 of the decision Finmeccanica is the beneficiary of the aid, it is the only entity responsible for repaying it. IRI was the institution via which the aid was managed and paid and not the beneficiary of the aid. IRI therefore has no obligation to repay it to the Italian State.

and convertible bonds specifically earmarked is sufficient for the aid to be recovered by for Finmeccanica and, in particular "... for IRI. One of the arguments submitted by the the recapitalization and financial restructur­ Government in that case was that since the ing of undertakings in the engineering (and) actual recipient of the aid was Alfa Romeo automotive sectors ..." (see, for example, the the decision should not have imposed the Official Journal of the Italian Republic, Gen­ obligation to repay the aid on Finmeccanica. eral Series No 163, 12.7.1985, p. 4954, and The Court rejected that argument stating No 6, 9.1.1986, p. 40). that Finmeccanica, as the holding company to which Alfa Romeo belonged at the mate­ rial time, was the recipient of the aid and 18 therefore was required to repay it. In 'Alfa Romeo' the Court did not examine the issue who was ultimately responsible for recover­ ing the aid but only the issue who was The present case, therefore, concerns aid responsible for repaying it. granted by the Italian State or through State resources, to Alfa Romeo Auto, by indirect means through public financial entities (IRI and Finmeccanica) wholly controlled by the State ...'.

to administer the aid. In applying Arti 30. One of the purposes of the obligation to cle 92, it is necessary to have regard pri recover is to re-establish the previously 22 marily to the effects of the aid on the existing situation, namely the situation undertakings or producers favoured and not which existed before the beneficiary received to the status of the institutions entrusted the aid. Since according to Article 93(3) of with the distribution and administration of the Treaty Member States are under an obli

29. Contrary to what the Government argues, however, it does not follow from the above case-law that, where aid has been granted by the State through a public under- talcing, it is sufficient for that aid to be repaid to the public undertaking and not to the 31. The Government argues that repayment State. The purpose of the above case-law is of the aid by Finmeccanica to IRI removed to prevent the provisions of the Treaty on the distortions of competition which had State aid from being undermined by the been caused by the granting of the aid.

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granting of unlawful aid can no longer be that there is a difference between, on the one remedied by recovery when recovery is hand, legitimate financial operations between ordered or that aid unlawfully granted can the State and public undertakings and, on the no longer have any effect on the recipient, other hand, State aid. With regard to the because, for example, the recipient is in liq­ first, there is only an obligation of transpar­ uidation does not affect the obligation to ency and not an obligation of notification. recover which is the 'logical consequence' of Where there is no obligation of notification, 23 there cannot be an infringement of Arti­ illegality. The case-law of the Court points to the conclusion that the obligation to cle 93(3) and, consequently, there cannot be recover is determined by the need to termi­ an obligation to recover. nate the infringement of Community law, over and above the actual consequences of recovery.

34. I do not find those arguments persua­ sive. It seems to me that where the State 32. The Government states that the obliga­ transfers funds to a State holding company tion to recover may only refer to State aid with the specific instruction to use those which has been granted unlawfully. It argues funds to grant aid to an undertaking or to a that the transfer of funds from the State to specific sector, the transfer of funds to the IRI, which took place in a transparent man­ State holding company cannot be viewed as a ner and on the basis of legislative measures, complete transaction in its own right. It is was not examined, and was not characterized rather to be seen as a step in granting aid to as State aid, in the decision. It follows that the undertaking or undertakings concerned. there is no obligation on the part of the Ital­ ian State to recover those funds from IRI.

bonds. It is clear, therefore, that IRI was 37. It is not disputed that in order to fulfil not intended to be the final recipient of those the obligation of recovery it is necessary to funds nor did it exercise any discretion with deprive the beneficiary undertaking of the regard to their allocation. They were unlawfully paid aid that it has received. intended for Finmeccanica as the holding However, that may not be sufficient. Where company to which Alfa Romeo belonged at aid is ultimately provided by the State, the time. In those circumstances, it can be whether by direction of the State or by the doubted whether there was no obligation to use of State resources, it must be repaid to notify the transfer of funds from the State to the State, even if it was provided indirectly, IRI. e. g. via a holding company. It is not suffi­ cient to repay the holding company which acted as an intermediary or, as here, to trans­ fer it from one holding company to another. Otherwise recovery of the aid might amount to no more than a book-keeping operation, requiring only the appropriate entries in the accounts of the respective holding compa­ nies. It would be difficult in that event both to ensure that the aid had been properly repaid and also to ensure that the funds so transferred would be used in the future in accordance with the requirements of the Treaty provisions on State aid. For these rea­ sons, it seems to me that proper compliance 36. Even if it were accepted that Italy could with the Commission's decision in a case have fully complied with the obligation of such as the present one can be effected only notification imposed by Article 93(3) if it if the sums in question are repaid to the had made a notification after the funds had State. been transferred to IRI, namely after CIPE had taken the decisions concerning their allocation, it seems to me that the Italian State would still be under an obligation to recover the funds from IRI in order to com­ ply with the decision. As already stated, in this case the transfer of funds from the State 38. I cannot see how the Commission Com­ to IRI was never intended to be a transaction munication to which the Government refers in its own right but merely a step in granting can support its arguments. In order to deter­ aid to Alfa Romeo. Therefore the require­ mine the relevance of the Commission Com­ ment to restore Community legality will be munication in the present proceedings, it is fulfilled only if the aid is returned to the necessary to examine briefly its background. State. In the circumstances of this case, I fail to see any material difference between the transfer of funds by the Italian State to Fin­ meccanica via IRI and the transfer of funds by the Italian State directly to Finmeccanica.

40. Article 1 of the Transparency Directive 42. The purpose of the Commission Com­ imposes the obligation on Member States to munication is to lay down policy guidelines ensure that financial relations between public concerning the application of the rules on authorities and public undertakings are State aid to public undertakings. The Com­ transparent so that the following emerge mission identifies a need for increased trans­ clearly: (a) public funds made available parency and for developing a policy with directly by public authorities to the public regard to public undertakings because those undertakings concerned; (b) public funds undertakings have not been covered suffi­ made available by public authorities through ciently 'by State aid disciplines'. 29 It notes the intermediary of public undertakings or that, under Article 93(3), aid granted to pub­ financial institutions; (c) the use to which lic undertakings must, like aid granted to pri­ vate undertakings, be notified in advance to the Commission in order to enable it to 26 — Directive 80/723/EEC, OJ 1980 L 195, p. 35 as amended by Commission Directive 85/413/EEC, OJ 1985 L 229, p. 20 and Commission Directive 93/84/EEC, OJ 1993 L 254, p. 16. 27 — See preamble to the Transparency Directive, recitals 4 28 — Preamble, recital 13. and 5. 29 — See paragraph 1 of the Commission Communication.

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determine whether it falls within the scope 45. I conclude therefore that in order to of Article 92. comply with the decision IRI must repay the aid to the Italian State in the amount requested by the Commission.

47. In its application, the Commission states that the obligation of Finmeccanica and IRI 44. The Government also argues that in to repay the unlawful aid, plus interest, does order to comply with the obligation of not eliminate the harmful effects that the recovery it is not necessary for the aid to be payment of the aid has already caused to repaid to any State entity, and that it would other undertakings competing in the same be sufficient, for example, to transfer an market with Finmeccanica. It refers to the amount equal to the amount of the aid plus case-law of the Court according to which a interest to a cultural or a charitable organiza­ declaration in proceedings under Arti­ tion. In the present case, however, the aid is cle 169 that a Member State has failed to ful­ not transferred to any cultural or charitable fil its obligations under the Treaty may organization. Rather, it remains with IRI, a establish the basis of liability which that State holding company which acted as the Member State may incur as a result of its intermediary for paying the aid and through default towards other Member States, the which the State intervenes in commercial enterprises. There is plainly a risk that IRI would use the funds by which the aid was 30 — Case C-303/93 Commission v Italy [1994] ECR I-1901, financed to grant State aid to undertakings in paragraph 6 of the judgment; Case C-255/93 Commission v France, judgment of 5 October 1994, [1994] ECR I-4949, the same sector or in another sector. paragraph 29.

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(2) order the Republic of Italy to pay the costs.

31 — Case C-263/88 Commission v France [1990] ECR I-4611, paragraph 9 of the judgment; Case 154/85 Commission v Italy [1987] ECR 2717, para 6. 32 — Opinion delivered on 19 January 1995, paras 25 and 26.

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