Italian Republic v Commission of the European Communities. (State aid) [1993] EUECJ C-364/90 (28 April 1993)

Judgment 1 By application of 11 December 1990, the Italian Government brought an action pursuant to the first paragraph of Article 173 of the EEC Treaty for the annulment of Articles 1, 2, 3 and 4 of Commission Decision 91/175/EEC of 25 July 1990 concerning aid provided for in Italian Law No 120/87 to assist certain areas of the Mezzogiorno affected by natural disasters (OJ 1991 L 86 p. 23, hereinafter "the contested decision"). 2 In that decision, the Commission declared illegal and incompatible with the common market within the meaning of Article 92(1) of the Treaty certain aid measures introduced by Italian Law No 120 of 27 March 1987 ("Law No 120/87") jointly with Decree-Law No 474 of 20 November 1987, converted into Law No 12 of 21 January 1988 ("Decree No 474/87") for regions of southern Italy which had suffered natural disasters. 3 As a result of major earthquakes in southern Italy in November 1980 and February 1981, the Italian authorities adopted Law No 219 of 14 May 1981 ("Law No 219/81"), Article 32 of which provided for the grant of aid for reconstruction and development. The aid was to go towards investment projects the cost of which did not exceed LIT 20 000 million relating to 20 zones in Basilicata, Campania and Apulia. The intensity ceiling of the aid was limited to 75% of the cost of the investments. The deadline by which undertakings had to submit applications for aid was 31 December 1982. 4 By Law No 64 of 1 March 1986 ("Law No 64/86") Italy then set up a general scheme for exceptional assistance to the Mezzogiorno. By Decision 88/318/EEC of 2 March 1988 on Law No 64 of 1 March 1986 (OJ 1988 L 143, p. 37), the Commission approved various components of that aid scheme. In particular, it authorized intensity ceilings varying between 28.07% and 73.78% in "net grant equivalent". 5 Less than one year later, by Decree-Law No 8 of 26 January 1987, converted into Law No 120/87, Italy extended the deadline for obtaining the aid provided for by Law No 219/81 until 30 June 1987. Jointly with Decree-Law No 474/87, Law No 120/87, however, varied the previous rules in certain respects. 6 In the first place, the territorial scope of the aid scheme laid down by Article 32 of Law No 219/87 was extended beyond the twenty zones for which it was originally intended (Article 8(7) of Law No 120/87 and Article 10(3) of Decree-Law No 474/87). 7 Secondly, the initial investment ceiling of LIT 20 000 million, subsequently increased to LIT 32 000 million by Law No 187 of 29 April 1982, was raised to LIT 50 000 million (Article 8(2 bis) and (2 ter) of Law No 120/87). 8 Thirdly, the maximum percentage of an investment project eligible for financing, which under the general scheme laid down by Law No 64/86 varied between 28.07% and 73.78%, was increased to 75% in the case of investment projects in the municipality of Senise (Article 3(5) of Law No 120/87) and in the case of investment projects drawn up by small and medium-sized undertakings located in zones struck by earthquakes between 1980 and 1986 (Article 6(14 ter) of Law No 120/87). 9 By letters dated 2 May and 15 November 1988, the Commission asked the Italian Government for information on the reinstatement of the aid scheme laid down by Law No 219/81. The Italian Government replied by letters of 19 July 1988 and 6 January 1989. 10 Having taken the view that the measures concerned were prima facie incompatible with the common market and having initiated on 18 October 1989 the procedure provided for by Article 93(2) of the Treaty, the Commission adopted the contested decision. 11 In that decision, the Commission held that the measures provided for by Law No 120/87 and Decree-Law No 474/87 were illegal and incompatible with the common market within the meaning of Article 92(1) of the Treaty in so far as: ° they increased the intensity ceiling laid down by Law No 64/86 to 75% (Article 1 of the contested decision); ° they extended the scope of Article 32 of Law No 219/81 beyond the twenty industrial development zones initially specified (Article 2 of the contested decision); ° they provided for the grant of aid for investment in excess of LIT 32 000 million (Article 3 of the contested decision). 12 Consequently, by Article 4 of the contested decision the Commission demanded the repayment, within two months from the date of notification of the decision, of the aid which was declared to be incompatible with the common market. 13 By this action the Italian Government seeks the annulment of Articles 1, 2, 3 and 4 of the contested decision. Article 1 of the decision 14 Article 1 of the contested decision declares illegal and incompatible with the common market Articles 3(5) and 6(14 ter) of Law No 120/87, which increase to 75% the grants specified in Article 9 of Italian general Law No 64/86 for investment projects relating to the municipality of Senise and for investment projects put forward by small and medium-sized undertakings located in regions which suffered earthquakes between 1980 and 1986, respectively. 15 In the Commission' s view, the aid authorized under Law No 64/86 constitutes regional aid within the meaning of Article 92(3)(a) of the Treaty. It should therefore be capable of being increased if it is shown that the regions for which it is intended were affected by natural disasters which caused a serious deterioration in their socio-economic situation. 16 In the contested decision, however, the Commission took the view that that requirement was not fulfilled in this case. The earthquakes which occurred between 1980 and 1986 and the landslide in the municipality of Senise were not on the same scale as the disasters which devastated Irpinia in November 1980 and February 1981 and, unlike them, could not have seriously affected the socio-economic situation of the regions in question. 17 The Italian Government does not dispute the Commission' s categorization of the contested aid or the rule that an increase in the level of aid allocated to zones affected by natural disasters can be justified only if the disasters have effected a major change in their socio-economic situation, but argues, first, that the Commission made an error of assessment in refusing to recognize the seriousness of the disasters which occurred in the regions concerned between 1980 and 1986. It adds that the Commission should have carried out an-depth inquiry into the nature of those disasters and their economic and social consequences, and that the statement of reasons of the decision is insufficient in that respect. 18 Secondly, the Italian Government complains that the Commission failed to take account of the fact that the increase in the intensity ceiling provided for by Article 6(14 ter) of Law No 120/87 was intended to benefit small and medium-sized undertakings, which, according to the guidelines generally authorized by the Commission in connection with Article 92, should receive more favourable treatment. 19 Thirdly, the Italian Government considers that the increase in the level of aid to 75% is insignificant, given that the Commission had already authorized intensity ceilings of 73.78% under Decision 88/318 approving the general scheme of aid for the Mezzogiorno established by Law No 64/86. 20 As regards the first argument, it should be observed that a Member State which seeks to be allowed to grant aid by way of derogation from the Treaty rules has a duty to collaborate with the Commission. In pursuance of that duty, it must in particular provide all the information to enable the Commission to verify that the conditions for the derogation sought are fulfilled. 21 In this case, it appears from the case file that, during the administrative procedure, the Italian Government forwarded to the Commission four hundred pages of documents and reports purportedly containing all the information necessary for the Commission' s assessment. Those documents were annexed to the reply. When asked by the Court to indicate the parts which it considered to be particularly significant, the Italian Government replied that "the documentation produced to the Commission ... in the course of the procedure does not contain specific items with which to appraise the exacerbation of socio-economic conditions in the disaster-struck areas". 22 Having regard to this reply, it must be held that the Italian Government has not fulfilled the aforementioned duty of cooperation. In view of the small amount of information at its disposal, the Commission cannot be charged with having erred in assessing the consequences of the disasters or of having given insufficient reasons for its decision. 23 The objection to the second argument is that, as the Commission has pointed out, the intensity ceilings applicable to the aid provided for by Article 9 of Law No 64/86 and approved by the Commission by Decision 88/318 of 2 March 1988 vary according to the scale of the proposed investment and are such as to favour small and medium-sized undertakings. 24 In any event, whilst the specific interests of small and medium-sized undertakings warrant greater flexibility on the part of the Commission in assessing the compatibility of aid with the Treaty, they do not oblige it to approve systematically all aid schemes which benefit such undertakings. 25 As regards the third argument, contrary to the Italian Government' s claims, the increase in the intensity ceiling provided for by the contested Italian provisions is far from being invariably negligible. Since the intensity ceilings authorized under Law No 64/86 vary between 28.07% and 73.78%, the increase may in certain cases be as much as 46.93%. 26 In view of the foregoing, the pleas relating to Article 1 of the contested decision must be held to be unfounded. Article 2 of the decision 27 Article 2 of the decision declares that the extension of the territorial scope of Article 32 of Law No 219/81 beyond the zones initially defined is illegal and incompatible with the common market. That extension was brought about by Article 8(7) of Law No 120/87 and Article 10(3) of Decree-Law No 474/87. 28 The former provides that the enterprise zone of Calaggio, hitherto limited to Campania, is to be extended into Apulia and that the region of Apulia is to determine the extension of the new zone within the confines of the municipalities adjoining the existing zone. 29 Article 10(3) of Decree-Law No 474/87 provides that the investment projects mentioned in Article 32 of Law No 219/81 which are deemed to qualify for aid but which cannot be implemented because they go beyond the confines of the zones contemplated by that article, may be extended to municipalities affected by natural disasters, to the municipality of Senise and to the mountain communities to which the disaster-struck municipalities belong, in accordance with a location programme to be drawn up by the regions of Campania and Basilicata within 120 days of the date when the statute converting the relevant decree into a law comes into force. 30 The Italian Government raises two main objections to the Commission' s decision holding the aid incompatible with the common market. 31 First, it considers that the Commission disregarded the fact that the new zones earmarked for the aid provided for by Article 32 of Law No 219/81 had been hit by natural disasters which caused a serious deterioration in their socio-economic situation. 32 Secondly, the Italian Government stresses that, at the time when the Commission adopted its decision, the regions to benefit from the contested measures had not yet been defined by the competent Italian authorities. In those circumstances, the Commission was not in a position to assess whether that aid was compatible with the Treaty, and ought to have waited until the implementing measures had been drawn up by the Italian authorities. 33 In order to give a ruling on this point, it must be observed that, in the application, the Italian Government stated that it was in a position to show that, at the implementation stage, the geographical extension in question was limited and objectively justified, whereas, in the rejoinder, the Commission emphasized that at that date the additional zones earmarked for the contested aid had not yet been defined. 34 By letter dated 14 October 1992, the Court asked the Italian Government to indicate the regions concerned by those measures. In a letter dated 16 November 1992, the applicant Government did not give a precise answer to that question. 35 Consequently, it must be held that the Italian Government once again failed to fulfil the aforementioned obligation of collaboration, which, in this instance, placed it under a duty to specify the regions for which the aid was intended and the disasters which they had suffered, and that it did not produce proof that the regions which received the aid actually suffered the disasters in question. 36 In this respect, therefore, the Italian Government' s pleas should be rejected. Article 3 of the decision 37 Article 3 of the decision declares that the aid granted pursuant to Article 8(2 bis) and (2 ter) of Law No 120/87 in respect of investment in excess of LIT 32 000 million is illegal and incompatible with the common market. 38 The Italian Government contests that part of the decision on the ground that the increase in the investment ceiling from LIT 32 to 50 000 million reflects the depreciation of the Italian lira between 1982 and 1987. In support of this statement, the Italian Government annexed to its application a document from the Istituto Nazionale di Statistica (National Statistical Institute). 39 The Commission asks the Court to declare that plea inadmissible on the ground that it was not raised during the pre-litigation stage; it is thus new and may not be taken into consideration in these proceedings. The Commission adds that the letter from the Istituto Nazionale di Statistica is dated 10 December 1990, that is to say, it postdates the Commission' s decision. 40 For the rest, the Commission observes that, if the justification put forward by the Italian Government in order to explain the increase in the investment ceiling were to be accepted, it would mean that the Italian currency was devalued by 56% over five years. 41 It must be observed, first, that the contested decision mentions that, during the administrative stage, the Italian authorities stated to the Commission that "after five years, [the Italian legislature felt it] necessary to adapt (' aggiornare' ) the original investment ceiling by increasing it to LIT 50 000 million in order to make the aid provided for in Article 32 of Law No 219/81 sufficiently attractive ...". 42 Since that wording, particularly the use of the term "aggiornare" (update), makes it sufficiently clear that the aid scheme was altered so as to take account of inflation between 1982 and 1987, the plea cannot be regarded as new. 43 By the same token, the Commission cannot object that the document from the Istituto Nazionale di Statistica which is annexed to the application bears a date subsequent to that of the decision. That document contains information which is in the public domain and which was undoubtedly accessible when the Commission adopted the contested decision. 44 It must be held that in its decision the Commission did not clearly explain its grounds for rejecting the argument put forward by the Italian Government. In the statement of reasons, the Commission merely explains that "other measures, such as the increase in the investment ceiling from LIT 32 000 million (the present ceiling) to LIT 50 000 million, would constitute a further exception to the general aid scheme introduced by Law No 64/86 and would confer additional unjustified advantages on firms in those zones". 45 In those circumstances, it must be held that the decision does not fulfil the obligation laid down by Article 190 of the Treaty for decisions to state the reasons on which they are based and Article 3 of the decision must be annulled in so far as it declares incompatible with the common market the measures provided for by Article 8(2 bis) and (2 ter) of Law No 120/87. Article 4 of the decision 46 Article 4 of the decision requires the aid declared incompatible with the common market in Articles 1, 2 and 3 to be repaid within two months of the date of notification of the decision. 47 The Italian Government considers that this provision is devoid of purpose on the ground that, during the administrative procedure, it informed the Commission that the contested measures had not yet been implemented. This fact is reported in the statement of reasons of the decision itself. 48 That argument is not convincing. The step of informing the Commission during the administrative procedure that the contested aid had not yet been paid to the beneficiaries in no way guarantees that such payments were not made subsequently, particularly between the time when the Commission was so informed and the time when the contested decision was notified. 49 In any event, the Commission cannot be criticized for clearly setting out the practical consequences of its decision with the intention of creating greater legal certainty. 50 It follows from the foregoing that the plea raised by the Italian Government must be rejected. However, since Article 3 of the decision must be annulled in so far as it declares the measures concerned incompatible with the common market, Article 4 must be annulled in so far as it relates to that provision. Costs 51 Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party' s pleadings. However, Article 69(3) provides that the Court may order that the costs be shared if each party succeeds on some and fails on other heads. 52 In this case, having regard to that which has been decided above, the Italian Government should be ordered to pay three-quarters of the costs and the Commission one quarter. On those grounds, THE COURT hereby: 1. Declares Article 3 of Commission Decision 91/175/EEC of 25 July 1990 concerning aid provided for in Italian Law No 120/87 to assist certain areas of the Mezzogiorno affected by natural disasters void in so far as it declares the aid concerned incompatible with the common market within the meaning of Article 92(1) of the Treaty; 2. Declares Article 4 of that decision void in so far as it relates to the foregoing Article 3; 3. Dismisses the remainder of the application; 4. Orders the Italian Government to pay three-quarters and the Commission one-quarter of the costs. © European Communities, 2001 All rights reserved BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII