C-342/96

SPAIN ν COMMISSION

OPINION OF ADVOCATE GENERAL LA PERGOLA delivered on 9 July 1998 *

1. In these proceedings the Kingdom of Spain Fogasa'), for payment of wages due. The seeks annulment of Commission Decision Fogasa is an independent organisation under 97/21/ECSC, EC of 30 July 1996 on State aid the control of the Ministry of Employment granted in favour of Compañía Española de and Social Security and financed by contribu- Tubos por Extrusión SA, located in Llodio, tions paid by undertakings. Its role is to pay Álava. 1 workers the salaries which they have not been paid 3by undertakings which have been declared insolvent or which find themselves in financial difficulty; those undertakings must then reimburse the Fogasa. 4 O n that point, Facts and national legislation Article 32(1) of Royal Decree N o 505/85 provides that '[i]n order to assist the recovery of sums due, the Wages Guarantee Fund may conclude repayment agreements defining mat- ters concerning the form, time-limits and guar- antees, linking the effect of the subrogatory 2. The Compañía Española de Tubos por action to the requirements of keeping the Extrusión SA (hereinafter 'Tubacex') is a com- undertaking running and of preserving jobs. pany governed by private law, established at Sums whose repayment has been rescheduled Llodio (Álava). It specialises in the produc- shall bear interest at the statutory rate in tion of seamless steel tubes and has a steel- force.' producing subsidiary, Acería de Álava, estab- lished in Amurrio (Álava).

The Decree of the Ministry of Employment In June 1992, after a long period of serious and Social Security of 20 August 1995 sets financial difficulties, Tubacex was declared out the criteria with which the Fogasa must provisionally insolvent in accordance with the comply 'within the limits of the margin national legisation governing insolvency, 2 and required for manoeuvre, to enable the par- suspended payments. 1st workers thereupon ticular features of every individual case to be turned to the Fondo de Garantía Salarial taken into account'. Article 2(1) fixes the (Wages Guarantee Fund; hereinafter 'the limits within which the Fogasa may reschedule

4. I shall now turn to the agreements which Tubacex and Acería de Álava entered into with the Tesorería General de la Seguridad

5 — Under the first amendment, on 8 February 1993, the sum of ESP 376 194 837 was payable as principal and ESP 183 473 133 by way of interest. This was to be paid over 16 six-monthly instalments subject to a rate of interest of 9%. The second amendment was made on 16 February 1994 and this fixed the principal at ESP 372 000 000 to which interest of ESP 154 138 830 was added, repayable at a rate of 9%. 3. Rescheduling of social security debts or 6 — The agreement of 10 March 1994 provided for payment of their payment by instalments may be per- ESP 465 727 750 as principal and ESP 197 580 900 by way of interest. The rate of interest fixed was 9%. Following the mitted in accordance with the forms and pro- agreement of 3 October 1994 the sum to be repaid amounted to ESP 469 491 521 as principal and ESP 205 335 378 in interest, cedure defined by the Ministry of Employ- repayable over eight years. Payment of the interest was ment and Social Security, taking into account deferred to the final three years, while 70% of the principal was repayable as of 30 December 1998. the circumstances of each individual case.'

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SPAIN ν COMMISSION

Provision is also made for surcharges for ment, of interest at the statutory rate in force delay to be added to rescheduled debts. at the time of authorisation ... .'

5. Tubacex owed the TGSS a series of debts, '1. The rescheduling or repayment by instal­ which were settled by the October 1993 agree- ments [of social security debts] may be per­ ment 8 under which the suspension of debt mitted in the form and in accordance with the repayments was lifted. As a result of that conditions prescribed by the Ministry of agreement, Tubacex and Acería de Álava again Employment and Social Security. ceased payment of social security contribu- tions, thus accumulating a debt of ESP 1 156 601 560 for Tubacex, and ESP 255 325 925 for Acería de Álava. Those debts were increased by late payment sur- 2. ... rescheduling or repayment by instal­ charges, pursuant to Article 27 of the General ments of social security debts shall give rise Law on Social Security (referred to above). 9 to the payment, from the date on which authorisation was granted for rescheduling or payment by instalments until the date of pay­ 8 — Sec footnote 2 above. 9 — Thus Tubacex then owed the sum of ESP 253 335 669 and Acería de Alava the sum of ESP 49 083 697. When added to the principal, the total debts amounted to ESP 1 409 957 329 and ESP 274 409 604 to be paid by Tubacex and Acería de 7 — See Article 27 of the General Law on Social Security. Álava respectively.

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OPINION OF MR LA PERGOLA — CASE C-342/96

O n 25 March and 2 April 1994 the TGSS aid elements which were granted illegally and entered into agreements with Tubacex and are incompatible with the common market Acería de Álava for recovery of the debts. pursuant to Article 92 of the EC Treaty and Under those agreements, the parties agreed to Decision N o 3855/91/ECSC in so far as the reschedule the debts and to pay them in rate of interest was below market rates: instalments in accordance with the provisions of national law referred to above. Under both agreements, interest at 9% was to be applied .10

SPAIN ν COMMISSION

4. the agreement of 12 April 1994 between The alleged infringement of Article 118 of the Social Security Fund and Tubacex to the Treaty reschedule debts amounting to ESP 1 409 957 329.'

7. The Spanish Government submits, first, that the contested decision infringes Article 118 of the Treaty. 1 1The measures which the Commission has treated as State aid are, in fact, arrangements arising under employment Accordingly, Spain was called upon under law, more specifically from the social security Article 2 to 'abolish the aid elements con­ rules, a sphere falling within the exclusive tained in the measures referred to in Article competence of the Member States and in 1 by withdrawing them or by applying normal which the Commission's role is simply to market conditions to the interest rate, with propose and to coordinate. In particular it effect from when the Fogasa loans were ini­ claims that Fogasa merely pays workers the tially granted and from when the resched­ wages which have not been paid by the under­ uling of the post-suspension Social Security taking, its role thus being to provide the debts was agreed; and by recovering the sum wages guarantee which forms an integral part corresponding to the difference between this of the actual provisions of the contract of rate and the rate actually charged up until the employment. Recovery of debts owed by date of abolition of the aid.' undertakings to the Social Security Fund where contributions payable have not been paid is governed by the General Law on social security; that is, in consequence, a social secu­ rity rule laying down the detailed rules for payment of obligations provided for by that same law.

In essence, the Spanish Government main­ them in relation to their effects' (see Case tains that the Commission infringed Article 173/73 Italy ν Commission [1974] ECR 709, 118 of the Treaty in treating social security paragraph 13) and that 'the social character of measures as State aid. I am not swayed by State aid is not sufficient to exclude it out­ that argument. As the Commission rightly right from being categorised as aid for the 12 observed in its written pleadings, the aid ele­ purposes of Article 92 of the Treaty'. It fol­ ments identified by the contested decision are lows that, contrary to the arguments put for­ not to be found in the intervention by the warded by the Spanish Government, the social Fogasa or the TGSS per se, but rather in the character of the intervention by the Fogasa rules for repayment to those bodies of the and the TGSS is not enough to preclude sums owed by the undertakings and, specifi­ application of Article 92. cally, in the fact that the rate of interest applied is fixed by statute rather than the market. In other words, as the Commission itself acknowledges, neither the payment of the wages by the Fogasa nor the renegotia­ tion of the debt by the TGSS were classified per se as State aid. The aid consists in the fact The general nature of the measures at issue that the undertakings, albeit called upon to repay the amounts advanced or rescheduled to the bodies concerned, are being granted preferential treatment in that the statutory rate of interest applied is lower than the market rate.

However, that argument also fails to persuade. ment and Social Security of 20 August 1995 It goes without saying that measures of gen­ specifies, when laying down the general cri­ eral application do not fall within the scope teria with which the Fogasa must comply, of Article 92. However, the Court has already that such criteria apply 'within the limits of given warning that even intervention which is the margin required for manoeuvre, to enable prima fade applicable to all undertakings may the particular features of every individual case in fact be selective and therefore to be regarded to be taken into account'. Moreover, Article as intended to favour particular undertakings 2(1) of that Decree prescribes the maximum or the production of particular goods. This time-limits within which debts can be resched­ arises, for instance, whenever the administra­ uled; thus, in practice, the Fogasa is free to tion, when called upon to apply a general choose the deadline by which the undertaking rule, enjoys a measure of discretion. Indeed, must repay its debts. A further measure of in France ν Commission (mentioned above), discretion is implied by Article 3 of the the Court held that the national legislation at Decree, concerning guarantees, in that it pro­ issue was 'liable to place certain undertakings vides that a guarantee 'considered sufficient' in a more favourable situation than others may be requested. Lastly, under Article 6(3), and thus to meet the conditions for classifica­ the Fogasa may refuse any request for resched­ tion as aid with the meaning of Article 92(1) uling of the debt or for payment by instal- of the Treaty', since the national body con­ . ments. As for the TGSS, a measure of discre­ cerned 'enjoys a degree of latitude which tion is expressly provided for by the same enables it to adjust its financial assistance legislation. Article 39(1) (headed 'Discretion having regard to a number of consider­ of the administration') provides that '[t]he ations'. 13 decision to permit... debts to be rescheduled ... is at the discretion of the administration'. 14

The Spanish Government goes on to observe interest entails a financial sacrifice on the part that the Commission altered its own stance of the State which may be precisely quanti­ with regard to classification of the aid at issue. fied, since it is the difference between the At first, it held that the aid consisted in the income accrued on application of the market application of the statutory rate of interest; rate and that accrued on application of the subsequently, it maintained that it consists in lower, statutory rate. the measure of discretion enjoyed by the Fogasa and the TGSS in defining the detailed rules. That is not the position, however. Those two stances are clearly linked and they com­ plement one another in defining the existence of State aid. The application of the statutory rate of interest rather than the market rate is the advantage granted to the recipient under­ taking: the existence of discretion provides confirmation that this is not a measure of general application but one which is adopted As for the alleged absence of any distortion for the benefit of 'certain undertakings or the of competition, the Spanish Government production of certain goods', as required by argues essentially that the application of the Article 92(1). statutory rate of interest is, in itself, a neutral action because that rate would be applied to any undertaking with dealings with the Fogasa and the TGSS. In any event, any distortion would be very slight, given that the market rate set by the banks is only marginally higher Whether the aid was granted from State than the statutory rate and that the debt, on resources and whether it distorted competi­ which the interest was calculated, was not tion very high. Thus the impact of the alleged aid on the financial situation of the undertakings in question would be negligible. Here, too, however, I share the Commission's view that payment of the wages and social security contributions is one of the general operational costs which all undertakings are required to pay from their own resources. 1 5 Thus, when­ 9. The Spanish Government maintains that ever those financial burdens are mitigated — the intervention of the Fogasa and the TGSS as they were here by the fact that payments does not amount to State aid in that it does were rescheduled at a rate of interest other not entail any expenditure, or any loss of rev­ than the market rate — the undertaking con­ enue, on the part of the public authorities. cerned enjoys outside help which cannot but alter the conditions of competition.

However, that argument is unsound. The aid reviewed by the Commission consists in the application of a statutory rate of interest, whereas the penalties referred to form part of the principal debt. They are two quite sepa­ rate issues. As the Commission observes, if I disagree. Certainly, neither the Fogasa nor payment of the penalties had been waived in the TGSS was motivated by commercial gain, the case of those undertakings, that would that is to say, they were not seeking to make have constituted yet another form of State a profit by granting a loan to the recipient aid. companies or by rescheduling repayments. But that is precisely where the aid lies. Those undertakings derived a financial advantage from a source extra commercium and the rules on State aid are directed specifically towards preventing State intervention which alters market conditions in ways which run counter to the forces of free and undistorted competi­ The behaviour of a private creditor tion. Moreover, it appears to me that the public authorities in this case departed even from the criterion proposed by the Spanish Government, namely, that of a private creditor who seeks to recover a debt. It is quite dif­ ficult, in fact, to imagine a private creditor who would grant credit and allow repayments to be rescheduled on preferential terms when dealing with undertakings in financial diffi­ 11. Lastly, the Kingdom of Spain submits that culty. O n the contrary, far from encouraging the Commission erred in its finding of State aid in so far as it refers to the requirements a creditor to grant preferential terms for repay­ that would have been set by a private bank, ment of existing debts, the serious financial specifically in its reference to the rate of difficulties facing the recipient undertakings interest set by the banks. In the present case, would normally lead a creditor to rule out the public authorities did not grant a loan for the extension of fresh credit.

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