C-100/99

ITALY V COUNCIL AND COMMISSION

OPINION OF ADVOCATE GENERAL JACOBS delivered on 15 March 2001 1

1. In this case, the Italian Republic seeks Agrimonetary arrangements the annulment of two Council regulations adapting agrimonetary arrangements to the introduction of the euro at the beginning of 1999, and concomitantly of the two Com- mission regulations implementing them. It challenges in particular the way in which those regulations determine the amount of Background compensatory aid which Member States may in certain circumstances pay to their farmers, with Community participation. 3. The two principal means whereby the Community aids farmers are guaranteed prices for produce and direct payments based on numbers of hectares, units of livestock etc. Both are, as a matter of principle, uniform throughout the Commu- nity. The former is often referred to as indirect aid and the latter, which is increas- ingly the more important, as direct aid, although those terms are not always used precisely.

2. It argues, essentially, that the same regime should not have been applied to the Member States which had not yet adopted the euro as to those which had, and that the arrangements adopted penalise 4. The amounts involved are calculated in a certain types of agriculture, particularly central currency or accounting unit — those more prevalent in Mediterranean successively the agricultural unit of account countries. (which was based on the gold value of the United States dollar), the European unit of account, the ecu (based on a 'basket' of 1 — Original language: English. Community currencies) and the euro —

8. With the introduction of the European Monetary System and the establishment of the single market, a number of reforms became necessary. Further reform took place in 1995, leading to the system immediately preceding the one in issue in the present case. MCAs finally disappeared, 6. Distortions inevitably arise, however, but the separate agricultural conversion where exchange rates fluctuate to any rate remained, its determination thus appreciable extent. If a national currency acquiring primordial importance. is revalued against the central currency or accounting unit, guaranteed prices and the amount of aid will automatically fall in that national currency unless steps are taken, and the reverse is true in the case of a devaluation. The first and most striking instance occurred in 1969, when the French 9. Before attempting to set out in summary franc was devalued by 11% and the Ger- the measures in force immediately before man mark revalued by 9%. Had no action and after 1 January 1999,1 should perhaps been taken, considerable disparity between point out that the legislation has accrued in

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piecemeal fashion over the years and has ence between the agricultural conversion occasionally lost in clarity what it has rate and the representative market rate, gained in complexity. expressed as a percentage of the former) exceeded a certain threshold.

The arrangements prior to 1999 12. In the case of a positive monetary gap, where the agricultural rate exceeded the market rate, no adjustment was made to the former until the difference exceeded 5 10. The arrangements in force immediately points at the end of a reference period. In prior to the adoption of the single currency the contrary case of a negative gap, an were governed largely by Council Regula- adjustment was triggered when the differ- tions Nos 3813/92, 1527/95 and 724/97. 2 ence exceeded 2 points in absolute terms or 5 points in relation to any other currency. Where an adjustment was made, the new rate was determined by reducing the abso- lute value of the gap by half. 3

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for an increase in amounts of direct aid and able parities for the currencies of all the allowed Member States to grant compen- participating Member States, 6 it would satory aid to their farmers, subject to clearly no longer be possible for market certain conditions but with a Community rates to vary as between those currencies contribution to its financing. 4 and the euro, so that the previous agrimo- netary arrangements would to that extent lose their purpose. The changeover to the single currency would, however, require certain transitional arrangements and pro- vision would still have to be made for conversion rates for the States not yet participating. 14. Subsequently, Regulations Nos 1527/95 and 724/97 froze the agricul- tural conversion rates for certain categories of direct aid until 1 January 1999 and allowed Member States to make compen- satory payments to farmers in three 12- month tranches, again with a Community contribution, in the event of appreciable revaluation of a currency (equivalent to a negative monetary gap). The maximum amount of the aid was to be determined by multiplying the appreciable part of the revaluation by a flat-rate income loss, both of which were to be calculated in accor- 16. New rules were therefore introduced by dance with specified rules. 5 Council Regulations Nos 2799/98 and 2800/98, 7 with detailed implementing rules in Commission Regulations Nos 2808/98 and 2813/98. 8 It is these regulations which the Italian Republic wishes to see annulled, with particular emphasis on certain specific provisions of the two Council regulations.

17. According to its preamble, the aim of Regulation No 2799/98 is to replace the previous agrimonetary system, no longer appropriate, with a simpler one closer to 20. Articles 4 and 5 deal with cases justify- the actual monetary situation, based on the ing the payment of compensatory aid. In euro for participating States and on the such cases, for reasons perhaps inherited actual exchange rate for non-participating from the wording of previous disparate States. 9It was recognised, however, that a legislation, Article 4 refers to a revaluation, major currency revaluation (for non-parti- whereas Article 5 describes what is appar- cipating States) could in certain conditions ently the same phenomenon as a fall in the reduce farm incomes, that aid could tem- exchange rate (of the euro; this is of course porarily be granted to offset such reduc- again the equivalent of what had previously tion, subject to specifically adapted rules also been known as a negative monetary for certain types of direct aid, and that gap, a situation in which an exchange rate provision should be made for the possibility movement implies reduction of the of interim measures. 10 amounts of aid received by farmers in national currency).

21. Article 4 allows Member States, in 18. Under Article 2, prices and amounts cases of appreciable revaluation, to grant fixed in legal instruments relating to the compensatory aid in respect of all prices common agricultural policy are to be and amounts other than those referred to in expressed in euro. They are to be granted Article 5. (An appreciable revaluation is or collected in euro in the participating defined in Article 1(f) as 'a situation where Member States, and in the other Member the annual average exchange rate [of the States to be converted into the national euro] is below a threshold defined as the currency (although provision is made in lowest average annual conversion rate Article 8 for the possibility of such States applied during the preceding three years also using the euro).

24. In the case of Article 4 payments, that involves multiplying the appreciable part of the revaluation (namely, in accordance with Article 1(g), the percentage by which the annual average falls short of the threshold taken for the definition of an appreciable revaluation in Article 1(f)) by a flat-rate 22. Article 5 covers flat-rate aid calculated income loss. That flat-rate loss is to be per hectare or per livestock unit, compen- equal, according to point 1 of the annex, satory premiums per sheep or goat, and essentially to 1% of final agricultural amounts of a structural or environmental production in the case of cereals, sugar nature. (Aid of those kinds, which all beet, milk and milk products and beef and involve direct payments to farmers, was veal, 1 % of the value of products supplied already grouped together as a specific under a contract imposing a minimum price category in Article 7 of Regulation to the producer in the case of other No 3813/92, and it was in respect of that products, and 1 % of aid or premiums paid category that the agricultural conversion to farmers, other than aid referred to in rate had been frozen by Regulation Article 5. That calculation is essentially the No 724/97.) In such cases, where the same as had previously been applied under applicable exchange rate of the euro falls, Regulation No 724/97. compensatory aid in three 12-month tranches is again permitted, again with a maximum amount and a progressive reduc- tion. Member States may, but need not, waive the grant of compensatory aid when the amount calculated corresponds to a reduction of less than 0.5%.

— Regulation No 2800/98 26. However, one significant distinction is clear as between the compensatory pay- ments allowed under the two articles: where Article 5 is concerned the fall in the exchange rate is taken fully into account (subject to an optional waiver for amounts corresponding to a reduction of 29. According to its title and preamble, less than 0.5%) but under Article 4 revalu- Regulation No 2800/98 is intended to ation is taken into account only to the make provision for temporary, degressive extent that it exceeds 2.6%. That 2.6% aid in respect of the transition to the euro threshold had already been introduced into on 1 January 1999 which, with the disap- Regulation No 724/97, as from 1 May pearance of the agricultural conversion 1998, by Regulation No 942/98, 12 in order rates, could have the same effects as an to limit the risk of excessive compensation appreciable revaluation. in cases of 'small appreciable revaluations' (sic). 13 Previously, a different type of lower limit had been set in that aid corresponding to less than 0.5% of appreciable revalua- tion was not payable. 14 30. The formula used to define an 'appre- 12 — Both regulations cited m note 2. ciable revaluation' in Article 1 is slightly 13 — Regulation No 942/98, fifth recital. different from that in Regulation 14 — Article 4(3) of Regulation No 724/97, last subparagraph. No 2799/98; it amounts essentially to a

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reduction in the conversion rate on 1 Jan- lower than that applied previously, aid is to uary 1999 in comparison with the lowest be granted and is to be calculated in levels of the previously applicable rates. accordance with Article 5 of Regulation No 2799/98. Exceptionally, however, the Community contribution in that case is to be 100% for the first year.

34. In those circumstances, it does not seem 15 — I take the word 'cancelled' here to mean 'reduced to zero' necessary to set out the details of their rather than implying the removal of any upper limit whatever. provisions.

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Analysis tions occurring (for participating States) at the moment of the transition from the previous agrimonetary regime to the euro and in respect of those occurring (for non- participating States only) after that moment 35. The Italian Republic seeks the annul- as a result of fluctuations of exchange rates ment of all four regulations (Council Reg- as between the euro and the currencies of ulations Nos 2799/98 and 2800/98, Com- those States. mission Regulations Nos 2808/98 and 2813/98) and the Council and the Commis- sion contend that the application should be dismissed. The Council confines its submis- sions to its own regulations; the Commis- sion essentially challenges the admissibility of the claim for the annulment of the 38. The Italian Republic claims that such implementing regulations and concentrates treatment is contrary to Article 39 of the its own submissions on the validity of the EC Treaty (now Article 33 EC), the second Council regulations. and third subparagraphs of Article 40(3) of the EC Treaty (now, after amendment, Article 34(2) EC) and the principle of proportionality.

The Council regulations 39. Since the Italian Republic has not identified either the provision of Article 39 of the EC Treaty which it claims has been breached or the way in which the principle 36. The Italian Republic puts forward three of proportionality has allegedly been pleas in law. infringed, I consider that its plea may be dismissed in so far as those allegations are concerned.

41. The continuing 2.6% threshold is jus- tified, it considers, with respect to the non- participating States because it cushions the effects of exchange rate fluctuations and because rates of exchange with the euro continue to evolve. It was not, however, justified when making the adjustments 44. The Council makes the point, correctly required on 1 January 1999, involving in my view, that as regards the transition simply a one-off change with no possibility from the old arrangements to the new, the of further adjustment. These are different first stage is to determine for all currencies situations and should be treated differently. whether there has been an appreciable revaluation and the only difference in treatment depends on whether that has or has not been the case. Thus, there is no breach of the principle of equal treatment. (After the changeover, however, there is a clear difference between the situation of currencies which can continue to fluctuate as against the euro and that of currency units which have an irrevocably-fixed con- version rate. A difference in treatment can 42. In particular, the Italian Republic thus be justified at the later stage.) asserts, the 2.6% threshold was introduced by Regulation No 942/98 to deal with a serious risk of currency speculation in the run-up to the introduction of the euro. Its retention was justified as regards the exchange rates for the currencies of the non-participating States, still subject to fluctuation and thus to speculation, but not as regards the transition itself, a 45. I agree moreover with the Commission situation in which all further change was that there is nothing in Regulation excluded. No 942/98 to suggest that the 2.6% thresh-

46. The further argument that a revalua- tion of under 2.6% on 1 January 1999 is forever 'lost' for participating Member States whereas it may subsequently creep over the threshold and give rise to com- pensatory aid for farmers in non-partici- 48. I can see no evidence for those asser- pating States may also be dismissed. On the tions. There is nothing in any of the one hand, it is precisely because the reva- regulations which makes any amount or luation cannot increase in the participating adjustment dependent on variations in any States that no compensatory aid is payable; rate of exchange with the dollar, nor are on the other, the Council stated at the there any grounds for taking that currency hearing that the mechanism could not as the yardstick against which to measure operate in that cumulative manner for the variations in European farm incomes. The non-participating States. In any event it can fact that the euro's ancestor, the agricul- certainly work in the opposite way — tural unit of account, was originally based under the second paragraph of Article 2 on the gold value of the dollar is of purely historical relevance to the current agrimo- netary arrangements. The fall of the euro as 16 — See paragraph 12 above. against the dollar may well have had some

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(not always adverse) effect on farm — Second and third pleas: illegality of the incomes in Europe, but the contested difference in treatment between agricul- regulations deal solely with changes in tural sectors as regards the maximum exchange rates as between European cur- amount of compensatory aid rencies.

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compensatory aid is authorised in respect 55. The Commission states that the meth- of the latter. ods used for the calculation of the flat-rate loss are the same as those which had proved their worth over a number of years — specific treatment for the cate- gories referred to in Article 5 of Regulation No 2799/98 dates back to Article 7 of Regulation No 3813/92 — and points out that the Italian Government has produced no data substantiating its allegation of a 53. There are in addition two differences discriminatory effect. The aim, as stated in between the rules governing Article 4 and recital 4 in the preamble to Regulation those governing Article 5 of Regulation No 2799/98, is to offset the reduction in No 2799/98. For the prices and amounts farm incomes which may result under covered by Article 4, no aid is to be granted certain conditions from a major currency for the portion of the maximum amount revaluation. Such revaluations have a that does not exceed appreciable revalua- greater effect, however, where direct aid is tion of 2.6%, a condition that does not involved (since they have an immediate apply in the cases covered by Article 5. And effect on the amount of aid, which forms a under Article 3 of Regulation No 2800/98, significant part of farm incomes) than in which applies Article 5 of Regulation the case of indirect aid and, within the No 2799/98 to the transitional measures, latter category, a greater effect in some the Community contribution to the aid is sectors (such as cereals, where market exceptionally 100% for the first year, as prices closely follow intervention prices) compared with 50% in all other cases. than in others (for example, the wine sector where wine prices and distillation prices are very different). It is thus justifiable to calculate the amount of compensatory aid differently in order to take account of those different effects.

58. I can only agree with the Council and the Commission: the Italian Republic has not substantiated any of its claims. 61. It is true that the preamble gives no precise justification for each detailed choice of rule; however, I do not consider such an omission to constitute a defect in the statement of reasons, especially since the 59. It is clear that the common agricultural distinction between the categories covered policy has never been and can never be a respectively by Articles 4 and 5 of Regula- matter of 'one size fits all'. Differences in tion No 2799/98 dates back to Regulation markets call for differences in approach, No 3813/92 and the different methods of and the type of adjustment needed to calculation under Article 4 of Regulation compensate for exchange-rate fluctuations No 2799/98 appeared in Regulation will necessarily vary according to the type No 724/97. It may simply be pointed out of aid and the way in which it is received by that compliance with the obligation to state farmers, as the Commission has convin- reasons must be assessed in the light of the cingly explained. whole context and that where a measure discloses the essential objective pursued there is no need to give a specific statement of reasons for each of the technical choices made. 19

60. That need for differences in treatment 19 — See, for example, Case C-122/94 Commission v Council is referred to in recitals 4 and 5 in the [1996] ECR 1-881, paragraph 29 of the judgment.

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62. Against that background, the Italian The Commission regulations Republic has not explained why the differ- ent detailed rules applied in the past to respond to exchange-rate fluctuations were no longer appropriate to deal with the changes occasioned by the introduction of the euro, which were of the same nature.