C-209/00

OPINION OF MR TIZZANO — CASE C-209/00

O P I N I O N O F ADVOCATE GENERAL TIZZANO delivered on 20 September 2 0 0 1 1

1. By application lodged on 24 May 2000 the Land of North Rhine-Westphalia (here- pursuant to the second subparagraph of inafter 'Land NRW') by the Law of 18 De- Article 88(2) EC, the Commission seeks a cember 1991, for the purpose essentially, declaration that the Federal Republic of according to the Decision, of increasing the Germany has failed to comply with Com- own funds of a public bank, WestLB, and mission Decision 2000/392/EC of 8 July thereby enabling that bank to maintain 1999 (hereinafter the 'Decision') 2on aid high operating margins from which it granted to the public bank Westdeutsche would otherwise have been precluded by Landesbank-Girozentrale (hereinafter national and Community rules regulating 'WestLB'). In its application, the Commis- credit institutions. sion complains in particular that Germany has failed to adopt within the prescribed time-limit the measures necessary to recover the aid unlawfully granted to the aforementioned bank and that Germany has therefore failed to comply with the obligations imposed by the fourth para- 3. In particular, the operation involved graph of Article 249 EC and Article 3 of the transferring (by means of incorporation) Decision. to WestLB another public body, namely the W o h n u n g s b a u f ö r d e r u n g s a n s t a l t des Landes Nordrhein-Westfalen (hereinafter 'Wfa'), wholly owned by Land NRW and having the institutional aim of granting finance to promote the construction of housing. The transfer did not involve Land Facts and procedure NRW taking an increased shareholding in the incorporating bank, but merely pro- vided that, as from January 1992, the Land would receive as consideration remuner- ation for the capital provided, equal to 0.6% of WestLB's annual profits after tax. The Decision

1. Germany shall take all necessary meas- 5. In short, the Commission contested the ures to discontinue and recover from the fairness of the payment made to Land beneficiary the aid referred to in Article 1 NRW as consideration for the transfer of and unlawfully made available to the Wfa, given that, in its opinion, remuner- beneficiary. ation in line with market value should have been 9.3% of annual profits, after tax, for one part of the assets transferred to WestLB and 0.3%, also after tax, for another part. With reference to the period 1992/1998, the difference between the market value 2. Recovery shall be effected in accordance remuneration and that paid to Land NRW with the procedures of national law. The was estimated by the Commission to aid to be recovered shall include interest amount to a total of DEM 1 579 700 000 from the date on which it was at the (EUR 807 700 000), which figure has been disposal of the beneficiary until the date of referred to as the total amount of aid. its recovery. Interest shall be calculated on the basis of the reference rate used for calculating the grant equivalent of regional 3 — OJ 1989 L 124, p. 16. aid.

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Article 3 8. It must be pointed out that, notwith- standing the three pending claims just mentioned, no party has requested that implementation of the contested Decision be suspended pursuant to Article 242 EC. Germany shall inform the Commission, within two months of notification of this decision, of the measures taken to comply with it.

...' Measures taken by the German authorities to implement the Decision

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COMMISSION v GERMANY

those measures may be summarised as 1992-1998, the additional share of 22.1% follows: would have provided Land NRW with some DEM 2.21 thousand million, thereby offsetting the aid contested by the Decision.

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OPINION OF MR TIZZANO — CASE C-209/00

ures communicated did not constitute a 17. It was intended that the non-participat- correct implementation of the Decision. ing shareholding would cover the bank's Indeed, the Commission maintained that losses in full and would earn annual inter- altering the shareholdings in WestLB into est on its book value at the market rate in shares in its capital gains would have had force at the time it was assigned, subject to no impact on the bank's costs: the proposal possible losses. However, that interest, to would in practice have resulted in the other be entered as expenditure on the bank's shareholders forgoing part of the bank's final balance, would not be paid to Land assets in favour of Land NRW, without, NRW, but would be retained by WestLB however, offsetting the distortion of com- until such time as the Community Courts petition caused by the aid contested by the delivered a final ruling on the Decision and Decision. would be added annually to the non-par- ticipating shareholding. Should the Decision be annulled, Land NRW would return the non-participating shareholding to WestLB with the interest without receiv- ing any compensation. It was also intended that the Land could transfer, in whole or in (b) The measures proposed on 15 March part, the non-participating shareholding to 2000 third party investors; to that end, WestLB would issue a nominal share certificate.

2000. That letter contested, in particular, share complied with normal market con- the fact that the repayment of the aid was ditions because of: linked to its being immediately reinvested by Land NRW in the form of the purchase of a non-participating shareholding in WestLB. Indeed, such reinvestment could in turn have constituted a State aid and — the particular nature of the transaction; should therefore have been notified to the Commission under Article 88 EC in order to allow the Commission to verify whether that operation complied with the estab- lished market economy private investor principle and, if it did not, to verify its — the fact that, until a final ruling was compatibility with the common market. delivered by the Community Courts, Since the Commission's verification pro- the proceeds of the non-participating cedure would have required the initiation shareholding would be retained by of contested proceedings, which would WestLB and capitalised; probably have continued for some time, the solution proposed by the German authorities would in practice have para- lysed the recovery procedure, thereby negating the immediately enforceable — the difficulty in establishing whether nature of the Decision. For that reason, the non-participating shareholding the Commission stated it was not accept- could be included in WestLB's own able. funds and, thus, the resultant uncer- tainty as to the bank's situation in that respect;

22. The exchange of correspondence referred to was followed by various meet- ings between the parties, during which they 24. On 9 August 2000, the German Gov- attempted to adapt the proposal of the ernment submitted its counter-claim, German authorities to comply with the thereby concluding the written phase of Commission's stated requirement of a rapid the procedure, since the Commission did and correct implementation of the not submit a reply. However, the parties Decision. It appears that during these had the opportunity to expand further meetings the Commission essentially upon their arguments during the hearing restated the need for recovery of the aid held on 7 June 2001. and the reinvestment to be carried out in two separate phases in order to enable it to assess the possible presence of an element of aid and, should it do so, the compatibil- ity of such aid with the common market. For its part, the German Government noted that immediate repayment of the aid, with- out creating at the same time a hidden reserve to maintain the bank's solvency, Legal analysis would seriously jeopardise WestLB's sta- bility; to avoid that danger, it proposed, inter alia, notifying the Commission of a new measure concerning the creation of a hidden reserve to be kept in place until such time as the Commission itself reached a decision on the reinvestment of the aid. Preliminary considerations

25. As noted above, in the present case the Court has been requested to rule on the failure to implement a decision, the lawful- 23. Not any more convinced by the new ness of which is still under consideration by proposals drawn up by the German auth- the Court of First Instance and which must orities, the Commission informed them subsequently be re-examined by the Court accordingly, at a meeting held on 3 May of Justice. Thus, it cannot be ruled out that

the Court of Justice may end up censuring WestLB and to communicate to the Com- the failure to implement a decision or the mission, within two months of notification incorrect implementation of a decision of the Decision, the provisions adopted to which might subsequently be annulled. comply with that Decision. Although they have contested the Decision, the German Government, Land NRW and WestLB have not requested its interim suspension under Article 242 EC, with the result that the contested act continues to have full effect, as indeed expressly acknowledged by the 26. However, this procedural overlap is not German Government in its abovemen- entirely new, given that it has occurred in a tioned communications of 4 [October] case similar to the present one (Case 1999 and 15 March 2000. C-404/97 Commission v Portugal 5), in which the Court was obliged to point out the independent nature of the two sets of proceedings. Indeed, as Advocate General Ruiz-Jarabo Colomer observed in that case, 'if, in an action brought by the Commission under the second subparagraph of Article 93(2), the Court of Justice were unofficially to stay the proceedings and wait until the Court of First Instance had delivered judgment so as to hear the case at the same time as the action for annulment 28. However, the German Government has brought by the Member State, or as the asserted the need to identify 'reversible' appeal of the undertaking this would, in measures for implementing the Decision, practice, amount to suspension of the pointing out that WestLB would otherwise implementation of the contested act when suffer irreparable damage should the neither the undertaking nor the Member Decision be annulled. 6 Indeed, that need State had applied to the Community judi- referred to by the German Government is cature for the adoption of provisional quite understandable; it is also consistent measures, even though they could have with the principle whereby Member States done so' (point 37 of the Opinion). have a margin of discretion in implement- ing a Commission decision and may there- fore choose, if there are various procedures for recovering unlawful aid, those pro- cedures which may most easily be revoked should the decision be annulled. It should also be borne in mind that, according to 27. In the present case, as we have seen, the settled case-law, 'in the absence of provi- Decision requires the German authorities to sions of Community law concerning the recover without delay the aid granted to recovery of amounts unduly paid, the recovery of aid improperly granted must 5 — In that case (Case C-404/97 [2000] ECR I-4897) the Court was also required to rule on the failure to recover aid in respect of which proceedings were pending before two 6 — This statement was made particularly with reference to the courts (before the Court of justice, which stayed the comments of the Commission in its abovementioned letter procedure, and the Court of First Instance) on the lawful- of 29 March 2000 on the need to recover in two separate ness of the decision requiring recovery, against which no stages the aid and the subsequent reinvestment of the application for suspension of operation had been made. relevant amount.

29. However, the freedom that Member 31. That said, I will now proceed to assess States are thus recognised as having is whether the measures drawn up by the obviously limited by the requirement to German authorities were suitable for the implement the Commission's Decision cor- purpose of implementing the Decision cor- rectly and without delay. Furthermore, it is rectly. In view of the complexity of those precisely for this reason that the above- measures, I must therefore note that the mentioned case-law also provided that 'the examination I am now embarking upon application of national law must not affect would have had a more solid and secure the scope and effectiveness of Community base if, during the stage prior to the judicial law. In other words, the application of the proceedings, the parties had provided a national rules must not make it impossible more structured and detailed analysis than in practice to recover the sums irregularly that which can be inferred from the case- granted...'. 9Article 14(3) of Regulation file, particularly with regard to the direct No 659/1999, cited above, provides that and indirect implications of those meas- national procedures are to apply only ures. 'provided that they allow the immediate and effective execution of the Commis- sion's decision'.

The measures communicated on 4 October 30. Thus, in cases like the one under 1999 consideration, recourse to 'reversible'

7 — Case T-459/93 Siemens v Commission [1995] ECR II-1675, paragraph 82. In the same vein see, inter alia, Case 94/87 32. As already stated, on 4 October 1999, Commission v Germany [1989] ECR 175, paragraph 12; Case C-142/87 Belgium v Commission [1990] ECR I-959, two months after notification by the Com- paragraph 61; and Case C-24/95 Alcan Deutschland [1997] mission, the German Government com- ECR I-1591, paragraph 24. 8 — OJ 1999 L 83, p. 1. municated to the Commission the imple- 9 — Siemens v Commission, cited above, paragraph 82. menting measures which Land NRW

(i) granting the Land the right to obtain, in the event of WestLB's liquidation or a change in its company structure, an additional share of the capital gains made by the bank between 1992 and 34. However, the solution to this question 1998; does not seem to me a decisive factor for purposes of the present case. Indeed, as I have stated, the Commission rejected the measures communicated by the German Government on the ground that they were not such as to ensure that the Decision (ii) for the period following 1998, trans- would be implemented correctly. Accord- ferring Wfa's special reserves into a ingly, in bringing these proceedings, the non-participating shareholding of Land Commission seeks to establish that the NRW, the features of which however defendant Member State did not adopt were not specified. the necessary measures to implement the Decision. Thus, even if it were to be accepted that the contested measures could be regarded as having been correctly adopted, the merits of those measures should be assessed for the purpose of establishing whether or not they would 33. Before examining those measures, it allow the aid unlawfully granted to WestLB should be pointed out that, during the to be recovered. hearing, the parties discussed at length the nature of the agreement of WestLB's guar- antors annexed to the Federal Govern- ment's communication of 4 October 1999 in order to establish whether it involved measures adopted for the purpose of implementing the Decision, as the German 35. Accordingly, in considering those Government maintains, or was merely a measures, I note that, according to the proposal for its implementation, as the Commission, the Land's majority share in Commission contends. Essentially, this dis- the bank's capital gains would not have cussion turned on, primarily, the fact that resulted in the correct implementation of the measures under (i) had been approved the Decision because it would have by WestLB's guarantors 'subject to the involved other public shareholders in agreement of the board' (the nature of that WestLB forgoing a portion of the bank's condition not being clear); and, secondly, assets in favour of Land NRW, without any the fact that the measures under (ii) con- bearing on the company's costs. However, stituted merely the 'main points' of an in the Commission's opinion, by taking

— on the other hand, whether the bank's private shareholders would have agreed to forgo part of their own share of capital gains in favour of another 36. I also believe, along with the Commis- shareholder in exchange for the latter's sion, that in reality such an operation waiving of credit equal in the amount would essentially have involved other pub- of aid to be recovered; lic shareholders forgoing a portion of WestLB's capital gains in favour of Land NRW with the result, I further believe, of recompensing the latter for waiving repay- ment of the aid. However, I am not entirely — whilst having regard, in both cases, to convinced that such an operation should be the shareholders' specific interest in the regarded in itself as unfeasible. On the bank's increase in value which, clearly, contrary, I believe that, had it been done in would entail an increase in the value of accordance with normal market conditions, their shares. it could have constituted an investment by WestLB's public shareholders intended to finance the rescheduling of the debt for the purposes of recovering the aid. Accord- ingly, to that end it would have been necessary to assess, as the German Govern- 37. If the result of the private investor test ment proposed, whether the conduct of had proved negative, the operation would Land NRW and WestLB's other public clearly have been unacceptable, in the shareholders was consistent with the mar- absence of express authorisation on the ket economy private investor criterion. It part of the Commission, as it would in

38. That general point having been made, it should nevertheless be noted that the 40. It follows that in the case in question Decision required Germany to adopt the the German Government should have fur- measures necessary to recover the aid nished evidence designed to demonstrate granted to WestLB and to communicate that the granting to Land NRW of an those measures to the Commission. It was additional share of WestLB's capital gains therefore the Member State's responsibility would allow the recovery required by the to communicate to the Commission the Decision to be achieved and would not measures adopted (or which it intended to involve the granting of further aid. How- adopt) to recover the aid and to demon- ever, it does not seem to me, at least in light strate that they were suitable for the of the evidence brought to the attention of purpose of achieving the object prescribed the Court, that such a demonstration has by the Decision. Indeed, I consider that, been given. whilst it is true that, in principle, it falls to the Commission to prove that a Member State has granted unlawful aid, it is equally true that it falls to the Member State in question to demonstrate that it has imple- mented in full and without delay any 41. First, the German Government has not decision requiring recovery of aid, notwith- demonstrated that a private shareholder

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42. Since the German Government has not demonstrated that the operation formu- lated by it was compatible with the private investor criterion and that that operation therefore allowed for the proper recovery 45. I am likewise unconvinced by the of the aid, it cannot be contended that German Government's argument that the Germany adopted without delay and com- measures in question had been selected municated to the Commission suitable solely because of their 'reversible' nature, measures for implementing the Decision. with the intention, should the Decision be confirmed definitively, of replacing them by 'irreversible' but less onerous measures for WestLB's shareholders. This argument does not in fact overcome the objection based on the extremely precarious nature of the measures in question which, in any 43. Similarly, I take the view that the case, were intended to be annulled with German Government has not demonstrated retroactive effect and were therefore inap- that transforming, as from 1998, Wfa's propriate for the purpose of implementing special reserves into a non-participating the Decision. shareholding of Land NRW was capable of yielding adequate remuneration for the Land (pro futuro) in return for transferring Wfa to WestLB. Moreover, the extremely vague nature of that operation should be noted, as no details concerning the non- 46. In light of the preceding considerations, participating shareholding to be assigned to I therefore consider that the measures the Land have been provided. communicated to the Commission on

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4 October 1999 were not appropriate to ment of the amount to be repaid, in the guarantee implementation of the Decision. form of a purchase of a non-participating shareholding, would have concealed a new State aid. That operation should therefore have been notified under Article 88(3) EC to enable the Commission to verify whether it complied with the market economy private investor criterion and whether the aid in question was compatible with the common market, which would have The measures proposed on 15 March 2000 required, in all probability, long-drawn-out proceedings being i n i t i a t e d under Article 88(2) EC. In order not to delay implementation of the Decision, it would therefore have been necessary to distinguish 47. The measures proposed on 15 March two separate successive stages for the 2000 essentially involved, as I have pre- recovery of the aid and its reinvestment. viously noted, granting Land NRW a non- The Commission has also expressed serious participating shareholding in WestLB, doubts, on the basis of the information freely transferable to third parties, with a forwarded by the German authorities, value of DEM 2.2 thousand million. It was about the compatibility of the operation envisaged that this shareholding would in question with the private investor cri- cover the bank's losses in full (even though terion and, consequently, about the poss- no details had been provided in that ible payment of new aid to WestLB. respect) and would earn annual interest Finally, the Commission contends that the on its book value, at the market rate in German authorities had not indicated force at the time it was established (sub- clearly that in future any element of aid sequently fixed at 5.804%), subject to relating to the proceeds of Wfa's assets possible losses. However, that interest transferred to WestLB would have been would not be paid immediately to the eliminated. Land, but would be retained by the bank and capitalised until such time as a final ruling was delivered by the Community Courts on the actions for annulment of the Decision. Should those actions succeed, the Land would return to the bank the non- participating shareholding with the interest 49. The German Government, for its part, earned up to that point, without obtaining contended that the operation in question, any compensation. being fully compatible with the private investor criterion, would not have involved the granting of new aid, and therefore would not have needed to be notified under Article 88(3) EC; consequently, the Com- mission's request that the operation be carried out in two separate stages (the 48. According to the Commission, those recovery of the aid and its subsequent measures would not have been adequate to reinvestment) was not justified. As regards guarantee effective implementation of the the elimination of aid in the future the Decision because the immediate reinvest- counter-claim states that even if the pro-

50. For my part, I note that the Commis- — the interest accrued thereon; sion's concern to avoid unlawfully granted aid being recovered by means of granting new aid, seems to me well founded in the instant case. Indeed, as I noted above, in order to finance the recovery of aid with new investments, the Member States must — the effect of possible bank losses on the demonstrate that the prospective oper- value of the shareholding and on its ations are adequate to implement the yield; Commission's decisions and do not amount to the payment of new aid. Where such proof is effectively provided, and the Com- mission is therefore able to verify the practicability of the solutions chosen, there — the possibility of having the sharehold- does not appear to me to be any need to ing reimbursed and any conditions have two separate stages for the recovery of necessary for that purpose; the aid and its subsequent reinvestment. However, should the information provided by the Member States not preclude the payment of new aid, then the Commission's request that provision be made for the immediate recovery of unlawfully granted — the practicality of transferring that aid, in order that implementation of its shareholding to third parties. decisions not be delayed, seems to me justified.

52. However, it does not seem to me that that proof has been furnished by the 51. In the instant case, the German auth- German authorities, which, in practice, orities should therefore have demonstrated merely observed that the non-participating to the Commission that the measures shareholding would not constitute new aid communicated on 15 March 2000 would to WestLB because it would be granted have enabled the Decision to be imple- under market conditions. The fact that the mented without granting new aid to non-participating shareholding would have

56. Pursuant to Article 69 of the Rules of 54. Accordingly, since it has not been Procedure, the unsuccessful party must be demonstrated that the measures proposed ordered to pay the costs if they have been on 15 March 2000 complied with the applied for in the other party's pleadings. private investor criterion and that they Since the Commission has applied for costs, therefore would allow for the correct and in light of what I have just said on the recovery of the aid, it also cannot be admissibility of the claim, I consider that contended in this case that the German that application should be accepted.

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Conclusion

57. For the reasons stated above, I therefore propose that the Court:

(1) declare that, by not complying with Commission Decision 2000/392/EC of 8 July 1999 on a measure implemented by the Federal Republic of Germany for Westdeutsche Landesbank-Girozentrale, the Federal Republic of Germany has failed to fulfil the obligations imposed on it by the fourth paragraph of Article 249 EC and Article 3 of the aforementioned Decision;