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(ii) order the Commission, under Article 23 of the ECSC Statute of the Court of Justice, to transmit to Germany the documentation relating to the case which has been compiled since 1994, 3. In 1990, Gröditzer had been taken over so that the applicant may inspect the by the Treuhandanstalt (a body which was file; and set up to ensure that the approximately 8 000 State undertakings of the former German Democratic Republic were made suitable for the market economy) in order (iii) order the defendant to pay the costs. to be restructured and, subsequently, pri- vatised. 3 It was decided to continue production of the same type of steel, while reducing capacity from 285 000 to 150 000 I — Background to the dispute tonnes per year and cutting 2 500 jobs, which reduced the number of employees from 5 200 to 2 700. It was felt that relatively modest investment would be 2. On 6 June 1997, the German Govern- ment informed the Commission, pursuant 3 — Under the arrangements governing the Treuhandanstalt, aid granted to undertakings under its management which operated in non-sensitive sectors, did not have to be 1 — Original language: Spanish. notified, provided that, in the period 1992 to 1994, the 2 — Notified under document number C(1999) 2264. The aid undertaking concerned had fewer than 1 500 employees and was granted to Gröditzer Stahlwerke GmbH and its the aid was less than DEM 150 million. In 1995, those subsidiary Walzwerk Burg GmbH (OJ 1999 L 292, p. 27). thresholds changed to 250 employees and DEM 50 million.

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4. At the beginning of 1997 the undertak- 4 — In the contested decision, the Commission assessed ing was sold to Georgsmarienhütte. Walzwerk's position under the EC Treaty, but only in connection with the privatisation and in so far as it entered Walzwerk is an independent undertaking into the total cost of the liquidation. which carries on non-ECSC activities and 5 — Commission Decision No 2496/96/ECSCor 18 December 1996 establishing Community rules for State aid to the steel whose public shareholder sold it to Grö- industry (OJ 1996 L 338. p. 42). ditzer as part of the privatisation process, 6 — OJ 1997 C 395, p. 5.

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7. Germany commented on the initiation of 10. Article 4 states that investment aid to the procedure and three undertakings (Max Gröditzer amounting to DEM 83.2 million, Aicher GmbH & Co, Neue Maxhütte consisting of bank loans carrying a 100% Stahlwerke GmbH, and Lech Stahlwerke guarantee from the Treuhandanstalt and GmbH) also submitted observations. In the Bundesanstalt für vereinigungsbedingte their opinion, the sale at a negative price Sonderaufgaben, of loans granted by Grö- provided the purchaser with liquid assets ditzer's successive public shareholders from which enabled it to improve its financial 1992 to 1996, and of aid granted under the position and to finance acquisitions. They joint programme 'Community objective: added that the conditions associated with improvement of regional economic struc- the sale of Gröditzer had distorted compe- tures', paid in the years 1997 and 1999 is tition. incompatible with the common market.

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11. Article 5 states that measures taken by equivalent of regional aid. For the purposes Germany in respect of Gröditzer totalling of Article 7, the term 'recipient' refers not DEM 155.5 million, DEM 14.3 million of only to Gröditzer but also to any other which was investment aid and DEM 141.2 undertaking to which assets have been million of which was operating aid (of transferred in order to obstruct the repay- which 17 million was a privatisation grant ment of the aid. and 124.2 million was financed by means of bank loans carrying a 100% guarantee and by means of shareholder loans granted by public shareholders), constitute State aid incompatible with the common market in coal and steel.

13. By virtue of Article 7 Germany is required to seek recovery from the recipient In accordance with Article 23 of the ECSC of the aid referred to in Articles 4 and 5, Statute of the Court of Justice, on 24 July which was unlawfully granted. Recovery is 2001 the Court requested the Commission to be made in accordance with the pro- to transmit to it all the documents relating cedures of national law, in so far as to the case, since Germany had applied to national law does not render it impossible inspect them in the application and in the or unduly difficult. The sums to be reply. On 3 October 2001, the Commission recovered are to bear interest from the date sent a list of the 48 documents in the file on which they were made available to the directly to the applicant which replied, on recipient until their actual recovery, at the 19 October, that it did not need to inspect reference rate used for calculating the grant any of them.

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Since Germany had made a formal appli- Code); fifth, that the Commission incor- cation to present oral argument, the Court rectly assessed the investment aid for the of Justice decided to hold a hearing, which non-ECSC production; and, sixth, that the took place on 27 November 2001. Commission did not sufficiently evaluate the circumstances surrounding the privati- sation.

IV — Pleas in law

V — Analysis of the action 15. Germany claims that, despite the fact that the measures taken to enable the privatisation of the undertaking qualify as State aid, Articles 4 to 7 of Decision 1999/720 should be annulled on the ground that they are unlawful, and puts forward six pleas in law in support of its A — First plea in law: infringement of application. Articles 213 EC, 215 EC and 9 CS et seq., in that, at the time when the decision was adopted, the composition of the Commis- sion was irregular

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The Treaty makes no provision for cases 18. The contested decision was adopted on where a Commissioner resigns and ceases 8 July 1999. Germany claims that there to perform his or her duties. The Commis- was an infringement of an essential pro- sion amended the number of its Members cedural requirement in the adoption pro- by its own authority, without waiting for cess, in that the Commission amended the another nomination to be made or for the number of Commissioners laid down in the Council to decide, as in fact it did, that it Treaties, without having the authority to was not going to replace the Member due do so. to the amount of his term of office that he had left to serve. For that reason, the applicant claims that the defendant, in addition to usurping the Council's decision- making powers, was also irregularly con- stituted.

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20. On 9 July 1999 the Council adopted missioner has resigned, the Commission Decision 1999/493/EC, ECSC, Euratom 8 must continue with its business, rather than on the composition of the Commission, in await the appointment of a replacement by which it announced that Mr Bangemann's the Council. The decision-making process post would remain vacant pending the of the Commission, which has the power to appointment of a new Commission. 9 initiate legislation in numerous fields, can be halted only if there is no quorum. 12 In a situation such as that caused by Mr Bange- mann's resignation, the Commission must act calmly and swiftly, in order not only to continue working normally but also to dispel at once any impending public mis- trust as to the impartiality of those involved 21. Articles 213 EC and 215 EC 10 provide in the decision-making process. that there are to be twenty Commissioners and that if a Commissioner resigns, he or she must remain in office until a replace- ment is appointed or until the Council decides that there is no need to appoint a successor, in which case the Commission will continue to operate, despite its not consisting of the original number of Members. 11 The Commission is entitled 22. In the light of the criticism aroused and to play a significant role in the removal of of the predictable alarm which such an one of its Members only under Article 216 occurrence was liable to create in the EC, which did not apply to Mr Bange- Community, and since the individual in mann, and there are no legislative provi- question had tendered his resignation, the sions governing the removal of a Commis- Commission acted within its powers to sioner from office. organise its internal operations once it had suspended Mr Bangemann from his duties as a Member of the College of Commis- sioners, pending a decision from the Coun- cil regarding his replacement.

ing which approved the contested decision (i) The duty to act within a reasonable time means that the Directorate-General for and the principles of sound administration Industrial Policy was not represented or and legal certainty in relation to the that, if it had been, the decision might subsidies already paid perhaps not have been adopted. First, during the drafting stage, the decision was submitted to the competent Directorate- General so that it could forward a written opinion; and second, the service in question was indeed represented at the meeting, since Commissioner Van Miert had taken 26. The applicant explains that in 1994 over the responsibilities of the Commis- and 1995 it notified details of the public sioner who had resigned. financing measures it had adopted and that for three years the Commission allowed the applicant to believe that it would not raise any objections to the financial measures pertaining to the restructuring on the basis of the rules governing State aid. The applicant considers that such conduct, which lasted from the first notification 24. For the reasons given, it is my opinion until the decision to initiate the review that when the contested decision was procedure, in addition to the fact that the adopted, there was no infringement of any Commission failed to warn it that the essential procedural requirement as alleged information provided was insufficient, is by Germany. The first plea in law must contrary to the principle of protection of accordingly be dismissed as unfounded. legitimate expectations. The Commission ought to have declared in 1994 and 1995 whether the financial measures, which had already been implemented and notified, constituted State aid and whether they were compatible with the common market. In the applicant's view, the Commission is therefore not entitled to seek recovery of the funding granted before the end of 1995.

informal notification, since those letters ning of 1997, the Commission again contain information provided by the com- requested formal notification, which it did petent department of the Ministry of not receive until 7 June, and as a result of Finance on behalf of the German Govern- which it initiated the review procedure in ment, having regard to the fact that Com- August 1997. munity law does not regulate the manner in which Member States must notify plans to grant aid. The applicant points out that it withdrew the partial notification of 29 June 1994, by its letter of 2 December 1994, at the request of the Commission which had insisted on suspending the declaration pro- cedure for a transitional period, because the 28. I do not agree with Germany's con- undertaking was not immediately to be tention that the Commission ought to have privatised. Those were the circumstances in taken a view as to whether the measures which Germany continued to implement were compatible with the common market the restructuring measures for the under- in 1994 or 1995. Moreover, the case-law taking. which Germany cites in support of its argument is irrelevant. 13

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initiated the review procedure, the infor­ of the supervision of State aid by the mation provided still required further clari­ Commission under Article 88 EC, under­ fication, further bolsters my opinion. 15 takings to which aid has been granted may not entertain a legitimate expectation that the aid is lawful unless it has been granted in compliance with the procedure laid down in that article, and that is something which a diligent businessman should be In the absence of a full notification of the able to determine. 1 7 Similarly, a Member measures, the Commission did not have State which has granted aid contrary to the available to it all the information it needed procedural rules laid down in Article 88 EC in order to form a view on the compatibil­ may not rely on the legitimate expectations ity of those measures with the common of recipients in order to justify a failure to market, and, as a result, the two-month comply with the obligation to take the steps period within which the Commission was necessary to implement a Commission required to deliver its decision could not decision instructing it to recover the aid. start to run. According to a recent judg­ If it could do so, Articles 87 EC and 88 EC ment of the Court, for the purposes of the would be set at naught, since national preliminary phase, in order for a notifi­ authorities would thus be able to rely on cation to be regarded as complete and thus their own unlawful conduct in order to cause the two-month period to begin to deprive decisions taken by the Commission run, it is sufficient if it contains, either from of their effectiveness. 18 the beginning or once the Member State has replied to questions raised by the Commission, such information as will enable the Commission to form a prima facie impression of the compatibility of the aid with the Treaty. 16

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(ii) The duty to act within a reasonable time The Commission could scarcely have and the principles of sound administration adopted a swift decision concerning the and legal certainty, in relation to the financing measures when it was notified of financing measures planned and notified the plans, if it had not received formal in 1994 and 1995 notifications setting out all the relevant information. Evidence that it acted within the reasonable time required is to be found in the fact that, following the letter of 6 June 1997, it initiated the review pro- cedure on 5 August, in other words within the two-month period which it is permitted 30. In the applicant's opinion, by failing to under Article 6(5) of the Fifth Code and comment swiftly on the financing measures Article 6(6) of the Sixth Code. According to when it was informed of the plans, and by the Court's case-law, only after it has had failing to make known its doubts regarding the opportunity to form an opinion about their lawfulness, the Commission acted in the compatibility of the plans notified with breach of Community law on State aid, the Treaty is the Commission bound to since both Article 6(5) of Decision 3855/91 initiate, without delay, the contentious (the Fifth Code) and Article 6(6) of procedure provided for in Article 88(2) Decision 2496/96 (the Sixth Code) provide EC, giving notice to the Member State to that the procedure to review the measures submit its comments. 19 The maximum must commence within two months of period granted to the Commission for receipt of the notification. deliberation is two months. 20

sion that Germany granted subsidies to the the incomplete information which the Ger- undertaking for years, without notifying man authorities had provided over the the Commission. years and then the Commission took that information into account in adopting the contested measure. The decision contains a clear, precise and detailed description of the reasons on which it is based and it is not therefore vitiated by a failure to state reasons. 34. The contested decision does not refer to information which the German authorities forwarded to the Commission before June 1997. As has been shown, the letter of 6 June 1997 is the only one that can be taken into account for the purposes of Article 88(3) EC and, when it was sent, most of the measures had been imple- mented. At the hearing, it was my impression that the agent for the German Government was also submitting that the decision did not contain any reference to the effect on trade between the Member States of the aid granted to the undertaking, or to whether or not the aid had distorted, or was liable The Court of First Instance has held that, in to distort, competition, following the judg- stating the reasons for the decisions it has ment in Sardegna Lines. 23 That argument to take in order to ensure that the rules of was not advanced in the written procedure competition are applied, the Commission is and it must therefore be regarded as new not obliged to adopt a position on all the and, as such, i n a d m i s s i b l e under arguments relied on by the parties con- Article 42(2) of the Rules of Procedure. cerned, and it is sufficient if it sets out the Despite the fact that the judgment in the facts and the legal considerations having case cited was delivered after the close of decisive importance in the context of the the written procedure it is not new case-law decision. 21 That ruling was upheld by the because it was based on several precedents. Court of Justice on appeal. 22

36. The applicant complains that the Com- The applicant claims that the greater part mission has presented a distorted and of the operating aid was assigned to the contradictory account of the facts and has forge, the ring-rolling mill and the foundry, misinterpreted the rules on State aid. Grö- which do not come under the ECSC Treaty, ditzer has only a very limited presence on and that, in order to apply the provisions of the markets for the products listed in that Treaty governing State aid to non- Annex I to the ECSC Treaty, since 90% ECSC production, the Commission relied of its commercial activities consists of the exclusively on its definition of Gröditzer as sale of products which are not governed by a steelmaking undertaking under Article 80 that treaty. Nonetheless, the Commission CS, without examining the effects of its applied the steel aid rules in assessing the business activities on the market. That undertaking as a whole and, by extension, decision fails to take into account either when assessing the effects on competition the demarcation of the scope of the two of the undertaking's non-ECSC operations, treaties, or the general principles governing without proving that the subsidies defined State aid. as operating aid had been applied dispro- portionately to the undertaking's ECSC production.

whether an undertaking is subject to the 38. In my opinion, Germany's arguments ECSC Treaty is not the marketing but in support of this plea in law cannot rather the production of intermediate prod- succeed. In 1959, the Court of Justice ucts, since there is a danger that products defined the scope of the ECSC Treaty, 24 intended for use in the undertaking will, in laying down clear case-law of which the practice, be placed on the market. Accord- applicant appears to be aware, despite ingly, in so far as an undertaking manu- citing it in a biased fashion. In this judg- factures ECSC products, the ECSC Treaty ment, having dismissed as contrary to the will apply regardless of whether those Treaty the concept of production which products are intended for sale in their consists exclusively of the production of current state or whether the undertaking goods for marketing, the Court went on to intends to transform them into other, non- state that Annex I contains a list of ECSC, products. products which frequently are manufac- tured and then transformed, at separate sites having the same business name, into products which are technically or economi- cally different, and which are not offered for sale. The exclusion from the jurisdiction of the Treaty of the products in question would be contrary to the intention of its authors, not to mention the fact that the question whether a product was included under the Treaty or not would depend on the legal structure of the producer under- The Commission could have accepted that taking, with the result that the production most of the aid granted was to be used to of large integrated undertakings would be maintain the production of articles gov- excluded from the jurisdiction of the ECSC erned by the EC Treaty, had the undertak- Treaty. 25 ing's ECSC production been completely separate from its EC activities. Since it has not been proved that the two are separate, the Commission considers that there is a real risk of aids being diverted from one area to another, and the Com- The Court also considered whether the mission explains that risk in detail before concept of production contained in stating, in Recital 40 of the decision, that Article 80 CS included the production of the steelmaking plant has enjoyed the pig iron produced and transformed in benefit of the aid given to the downstream works which together made up an inte- EC activities. Aid which was apparently grated technical unit, in a situation where intended for the main, loss-making EC there was a very close economic and tech- production area was, in practice, used to nical link between the blast furnaces and benefit the downstream ECSC activities so the foundries of the undertaking in ques- that, using internal accounting, an artifi- tion. The Court held that the authors of the cially-fixed full price was obtained. In Treaty had used the criterion of production order for aid to be assessed under the EC Treaty, there must be no diversion of funds; furthermore, the burden of proof falls on 24 — Case 14/59 Société des fonderies de Pont-à-Mousson High Autority [1995] ECR 215. the Member State. 25 — Paranraph 1. p. 227.

39. The Court of First Instance has recently held that it is inappropriate to assume that investment aid to an ECSC undertaking Nor does Deutsche Babcock 28 support the must always be assessed according to the applicant's arguments. In that case, the State-aid rules of the ECSC Treaty; the Court was required to rule in relation to same applies to aid granted to a steelmak- Regulation (EEC) No 1430/79 on the ing undertaking which carries on some repayment of import or export duties, 29 activities which are governed by that and held that Article 305 EC extends the Treaty and others which are not, even application of European Community rules where the undertaking is in receipt of to products covered by the ECSC Treaty investment aid for its non-ECSC activ- where a specific matter is not governed by ities. 31 The Commission states as much in that Treaty or by provisions adopted for its Recital 33 of the contested decision. implementation.

Therefore, in order to determine whether an undertaking falls within the scope of the ECSC Treaty, it is necessary to have regard 40. Recital 34 of the contested decision to production alone, and not to marketing, distinguishes the end products of the forge, bearing in mind that aid is prohibited by ring-rolling mill and foundry, which are Article 4(c) CS, even if it entails only a sold on other markets. Since those products slight distortion of competition. Moreover, are manufactured in dedicated facilities, the in contrast to Article 87(1) EC, it is not production processes are not integrated apparent from the aforementioned provi- which means that, in the case of investment sion that the Commission has a duty to

That concern was raised in a 1988 docu- ment, the purpose of which was to delimit certain steelmaking sectors which are not Conversely, as concerns operating aid, regulated by the ECSC Treaty. 33 In the Recitals 35 to 41 of the contested decision document, the Commission acknowledged explain that it is impossible to distinguish that, in addition to the particularly sensi- aid granted for ECSC activities from that tive competitive position of the sectors in granted for EC production, since the under- question, there was also a danger that its taking does not have separate accounting. aid policy to the steel industry could be Moreover, as the table in Recital 36 circumvented by paying aid to subsidiary demonstrates, the accounting data con- companies for activities which, although tained in the report drawn up by KPMG, not within the ambit of the ECSC Treaty, on which the German Government relies as might promote their development. It seems proof that there is separate accounting, logical that the risk should be even greater contradict the data contained in the notifi- in cases where ECSC steel is transformed cation of June 1997 for practically every by the same undertaking, rather than by a heading, and confirm the Commission's subsidiary. assessment concerning diversion of funds, which is set out in Recital 39. I share the Commission's view that the risk of diver- sion is a cause for concern in undertakings which do not have separate accounting for each production activity. 32 I also subscribe to the view that, pursuant to paragraph 4 of 41. The Court of First Instance recently Annex I, it must be borne in mind that confirmed that application of the ECSC some of the products in the list are linked to Treaty to investment aid granted in respect by-products which, although they are not of non-ECSC production cannot be justi- listed themselves, are nevertheless capable fied, unless there are adequate guarantees of affecting the price; accordingly, the removing any risk of diversion of the aid to annex must be taken to include by-prod- ECSC production, it being the responsibil- ucts, as well as other transformed ECSC ity of the Member State, assisted by the recipient undertaking, to furnish the Com- mission with all the evidence necessary to 32 — In paragraph 314 of Case T-371/97 British Airways and verify the existence of those guarantees Others v Commission [1998] ECR II-2405, the Court of First Instance held that the mechanism of the holding during the administrative procedure. 34 company, in which the companies are independent of one another, in conjunction with the system of verification by independent consultants and the scheduling of payment of the aid in several tranches, could be treatea as an adequate and appropriate means by which to guarantee that the 33 — OJ 1988 C 320, p. 3. nominal beneficiary would be the sole beneficiary of the 34 — ESF Elbe-Stahlwerke Feralpi v Commission, cited above, aid. paragraphs 125 and 126.

35 — The decision in question is Commission Decision 97/21/EC, ECSC of 30 July 1996 on State aid granted in 46. Nor do I share Germany's view in that favour of Compañía Española de Tubos por Extrusión SA, connection. The Fifth Code lays down a located in Llodio, Alava (OJ 1997 L 8, p. 14), which was adopted pursuant to the ECSC Treaty and the EC Treaty. perfectly clear deadline by which aid may The authorisation for State aid to Productos Tubulares (OJ 1998 C 409, p. 6) was granted because the undertak- be assessed as compatible with the common ing had undergone a complete restructuring and its ECSC production, which was for internal consumption, was market, and, once that deadline has passed, negligible and was not offered for sale. the Commission cannot approve such aid. 36 — Case 134/84 Williams v Court of Auditors [1985] ECR That was the Court of Justice's interpre- 2225, paragraph 14, and Case T-347/94 Mayr-Melnhof v Commission [1998] ECR II-1751, paragraph 334. tation concerning a provision of Decision

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legislation and of the judgment which the and receive authorisation. The applicant Court delivered in 1985 in a case to which claims that the undertaking's activities in Germany had itself been a party. 42 spheres governed by the EC Treaty do not form part of any of the economic sectors in relation to which the Commission has laid down criteria for the authorisation of State aid (sensitive sectors). It points out that a restructuring plan was submitted as part of 49. For the reasons set out, this plea in law the exchange of letters in 1994, 1995 and is also unfounded and must be dismissed. 1996, and that it was kept up to date until the undertaking was privatised.

E — Fifth plea in law. erroneous assess- ment of the investment aid to the non- ECSC production area 52. The Commission submits that decisions relating to the Treuhandanstalt do not apply to ECSC steel production alone, but rather to the whole of the steelmaking 50. This plea in law is subdivided into two sector, including products which are not parts: regulated by the Treaty. The recipient of the aid manufactures both ECSC and other products. It belongs to a sensitive sector, in other words, it is liable to be affected by distortions of competition due to over- capacity in that sector. The fact that special (i) Application of the Fifth Steel Aid Code rules exist is an indication that the sector is instead of the guidelines on restructuring sensitive. aid

The specific exceptions laid down in the In Gröditzer's case, no restructuring plan subsequent regulations of the Treuhand- showing a return to viability has ever been anstalt did not apply, wherefore, as the submitted. As the Commission points out, rules of the Treuhandanstalt expressly neither the brief description nor the sum- stipulate, the Commission had to assess mary of the investment projects notified the aid in accordance with provisions such amounted to a coherent and detailed as the Guidelines on State aid for rescuing restructuring programme. The Court of and restructuring firms in difficulty 43 and First Instance has indicated that a docu- the Guidelines on national regional aid. 44 ment cannot be considered to be a genuine restructuring plan if it contains no provi- sion for any particular measure to remedy the specific problems of the undertaking. Therefore, in the case in question, the aid from public funds was thus not linked to actual restructuring measures provided for in a programme drawn up for that purpose, those being essential conditions for a restructuring plan. 46

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and guaranteeing the loans, the Treuhand- (ii) Failure by the Commission to apply anstalt and its successors were acting as a Article 87(2)(c) EC de facto regional aid authority, and the loans were a substitute for regional invest- ment aid.

58. Germany claims that the restructuring of the undertaking, together with the associated measures taken by the Treu- handanstalt and other public bodies, are a typical example of the application of 56. To my mind, the Commission was right Article 87(2)(c) EC, in particular because to consider that the Guidelines on national Gröditzer, as a steelmaking site, was seri- regional aid, in force when the aid was ously affected by the repercussions arising granted, were the only legal basis appli- from the socialist regime's economic plan- cable to assessment of the investment aid. ning and by the problems it had in over- The undertaking's EC activities are carried coming them, and because, as a result of out in a sensitive sector and, under the legal the division of Germany, the region's aver- framework for certain steel sectors not age economic level is far from attaining covered by the ECSC Treaty, the regional that of the old Länder. aid ceilings likewise apply.

59. There are two reasons why I am unable to agree with the applicant's attempts to rely on Article 87(2)(c) EC in support of its 57. I agree with the Commission that a claim that the aid granted to boost the return to viability has not been proved and economies of certain regions of the Federal does not appear very plausible, since it Republic of Germany, which were affected could simply be owed to exeptional by the division of the country, is compat- income, in the form of the subsidies, and ible with the common market provided that cannot be accepted as proof that the it is required to compensate for the dis- undertaking has become viable. The Court advantages caused by that division. of First Instance has held that the existence of a positive cash flow is not sufficient to indicate the financial position of an under- taking, in particular where its liquidity is the result of massive subsidies. 47

The second is based on the Court's inter­ pretation of Article 87(2)(c) in Germany v Commission,48 where, having confirmed 61. This plea in law is subdivided into two that that article had not been repealed by parts. either the Treaty on European Union or the Treaty of Amsterdam, the Court pointed out that, since it constitutes a derogation from the general principle that State aid is incompatible with the common market, (i) Inaccurate interpretation of German law Article 87(2)(c) must be construed nar­ and erroneous application of the private rowly, adding that the economic disadvan­ investor criterion tages caused by the division of Germany can mean only the economic disadvantages caused in certain areas of Germany by the isolation which the establishment of that physical frontier entailed, such as the breaking of communication links or the 62. The Federal Republic of Germany is of loss of markets as a result of the breaking the opinion that, in Recital 75 et seq. in the off of commercial relations between the preamble to the contested decision, the two parts of German territory. However, Commission has based its assessment of the the geographical rift is not the direct cause cost of liquidation on incorrect figures. of those disadvantages suffered by the new Germany claims that the distinction, drawn Länder as a whole, but rather the different in Recital 80(a), between the obligations of politico-economic systems set up in each federal institutions owned by the State and 49 part of Germany. those of shareholders, is misleading, since guarantees are not forms of aid laid down in a State guarantees programme, but 48 — C a s e C-156/98 Germany v Ctmumssum [20001 LCR instead are comparable to declarations I-6857, paragraphs 46 to 56. The Court of first Instance gave a similar interpretation in līs judgment in Joined issued by holding companies, normal in Cases T-132/96 and T-143/96 Freistaat Sachsen and Others v Commission | 1 9 9 9 | UCR II-3663, paragraphs the private economy, or to guarantees 136 and 137. granted by subsidiaries. In respect of a 49 — In reply to a question 1 asked at the hearing, the agent for the Federal Government acknowledged that, in the light of subsidiary's liquidation costs, a private rh.it judgment, which was delivered while the written holding company governed by private law phase of these proceedings was in progress, this head of claim had little chance of success. must bear in mind its obligation to act as

64. To my mind, for the purpose of review- ing the criteria used by the Commission to assess the privatisation procedure, it must Moreover, Germany has included in the be assumed that, as is stated in Recital 44 in total cost of the liquidation a series of costs the preamble to the Decision, the under- taking in question has been in difficulties since it was set up and has received, from 50 — Joined Cases C-278/92 to C-280/92 Spain v Commission several State shareholders, interest-free [1994] ECR 1-4103, paragraph 26.

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to the shareholder which are in fact costs cheaper to wind up the undertaking than to that the State has to bear in its capacity as a privatise it, from which it follows that a public authority; thus, the reimbursement private investor would have chosen liqui- of DEM 49 million in bank loans guaran- dation. teed by the Treuhandanstalt and other public bodies; a provision of DEM 15 million for long-standing debts; DEM 22 million for costs arising out of a social plan that are not required by any binding obligation; and a provision of DEM 87 million for the cost of site clearance, which (ii) Failure to understand the bidding includes the demolition of buildings, total procedure clearance of the site, and the sale of the site, which would not have fetched more than DEM 9 million.

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commitments to be entered into by both plaints about the privatisation procedure seller and buyer, which were to be finalised amount to interference with a Member in a process which was not clearly defined. State's autonomy. While Article 259 EC It can therefore be inferred that the obli- lays down safeguards for the system of gations entered into influenced the price private ownership of property, Article 87 stipulated. EC and Article 4(c) CS prohibit the grant of State aid where property is transferred from public to private ownership. I agree with the Commission that the fact that the undertaking was sold to the highest bidder in an auction, because the other bidders were not prepared to purchase it unless the State provided more funds, does not prove that the terms agreed with the successful bidder did not include aid. Second, the differences between positions in the final negotiations were necessarily due to the procedure chosen and the purchasing company, Georgsmarienhütte, had the opportunity to adapt its final position to the seller's requirements, so that, in the absence of genuine competition, 70. For the reasons given, this plea in law there was no guarantee that the consider- also must be dismissed in its entirety as ation paid for the commitments entered unfounded. into, which had not been notified to all the tenderers in advance, reflected the normal market price. That lack of transparency is confirmed by Article 6 of the contested decision, which states that, under Article 9(2) of the agreement of 27 February 1997 governing the sale of shares in Gröditzer to Georgsmarienhütte, Germany planned to grant to the under- taking a loan amounting to DEM 3.3 VI — Costs million by way of an advance against regional aid to be received.

(2) order the applicant to pay the costs.

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