Executive Summary:
- The Commission enjoys wide discretion in determining the compatibility of state aid with the internal market.
- The Commission may limit its own discretion by adopting guidelines.
- Mistakes in the assessment of the Commission may lead to annulment of a decision only when they constitute a “manifest error”.
- It is not sufficient to show that someone else could have reached a different conclusion than the Commission. It is necessary to show that the Commission could not have reached its conclusion on the basis of the facts before it.
Table of Contents:
- Introduction
- Limits of judicial control and the binding effect of Commission guidelines
- The discretion of the Commission in assessing measures that are “similar” to those laid down in guidelines
- Different conclusions v wrong conclusions
- Must the Commission consider alternatives to the measures proposed by Member States?
- Conclusions
Introduction
It is well-established in the case law that only the Commission can determine the compatibility of state aid with the internal market, not EU courts, and that for that purpose the Commission enjoys wide discretion. EU courts may not substitute their assessment for that of the Commission.
“Wide discretion” does not mean absolute or unconstrained discretion. There are limits to what the Commission may do. Where those limits actually lie depends on the facts of each case. But regardless of facts, those limits lie in a grey area. It is not easy to predict what EU courts may decide on this issue.
This unpredictability was evident again in the judgment of the Court of Justice of the EU [CJEU] of 23 April 2026, in case C-457/23 P, Deutsche Lufthansa v Ryanair & Condor.[1] Even though the CJEU faulted the General Court for committing errors in its analysis of the Commission’s assessment, the appeal of Deutsche Lufthansa [DLH] was dismissed because not all of its pleas were successful.
DLH appealed against the judgment of the General Court in cases T-34/21 and T-34/21, Ryanair and Condor v Commission, by which the General Court annulled the Commission decision concerning state aid measure SA.57153. This judgment was reviewed here on 6 June 2023. It can be accessed at:
https://www.lexxion.eu/en/stateaidpost/a-first-case-of-significant-market-power/
In that decision that had been adopted in June 2020, the Commission authorised German injection fresh capital into DLH so that it could repair the harm to its capital structure caused by covid-19. Ryanair and Condor successfully argued that the Commission had committed errors in the application of the then Temporary Framework [TF, May 2020 version] to counteract the impact of covid-19.
The aid measure was large and consisted of the following three elements:
- Equity participation of EUR 306 million.
- Silent participation I of EUR 4.7 billion [treated as equity under international accounting standards].
- Silent participation II of EUR 1 billion [treated as convertible debt instrument].
At that time DLH and the DLH group also benefitted from other aid measures as follows:
- State guarantee of 80% on a loan of EUR 3 billion granted by Germany.
- State guarantee of 90% on a loan of EUR 300 million granted by Austria to Austrian Airlines, a member of the DLH group.
- Loan of EUR 150 million granted by Austria to Austrian Airlines to compensate it for damage resulting from the cancellation or rescheduling of flights.
- Liquidity support of EUR 250 million and a loan of EUR 40 million granted by Belgium to Brussels Airlines, a member of the DLH group.
- State guarantee of 85% on a loan of EUR 1.4 billion granted by Switzerland to Swiss International Air Lines and Edelweiss Air, members of the DLH group.
This article does not review the parts of the judgment of the CJEU that concern the interpretation of the various provisions of the TF. Afterall, it is no longer in force. Instead, it focuses on those parts that relate to principles and issues which are still relevant today and, in particular, the discretion that the Commission enjoys in its assessment of the compatibility of state aid with the internal market.
Limits of judicial control and the binding effect of Commission guidelines
The CJEU, first, recalled the principles that guide judicial control of Commission decisions.
“(56) It is apparent from settled case-law, …, that, for the purpose of assessing the compatibility of aid measures with the internal market under Article 107(3) TFEU, the Commission enjoys wide discretion, the exercise of which involves complex economic and social assessments”.
“(57) It follows that judicial review must, in that regard, be confined to establishing that the rules of procedure and the rules relating to the duty to give reasons have been complied with, verifying that the facts relied on are accurate, and that there has been no manifest error of assessment or misuse of powers”.
“(58) However, by adopting guidelines, such as those set out in the Temporary Framework, in order to establish the criteria on the basis of which the Commission proposes to assess the compatibility, with the internal market, of aid envisaged by the Member States, and by announcing, by publishing them, that they will henceforth apply to the cases to which they relate, that institution imposes a limit on the exercise of the discretion granted to it in that respect by, inter alia, Article 107(3)(b) TFEU, and cannot, as a general rule, depart from those guidelines, at the risk of being found to be in breach of general principles of law, such as equal treatment or the protection of legitimate expectations”.
“(59) It is also apparent from the case-law of the Court of Justice that, while the Commission, in the area of State aid, is bound as a rule by the guidelines that it issues, such as the Temporary Framework, the adoption of such guidelines does not relieve the Commission of its obligation to examine the specific exceptional circumstances relied on by a Member State, in a particular case, for the purpose of requesting the direct application of Article 107(3)(b) TFEU. Accordingly, the Member States retain the right to notify the Commission of proposed State aid which does not meet the requirements established in such guidelines and it may authorise such proposed aid in exceptional circumstances”.
The discretion of the Commission in assessing measures that are “similar” to those laid down in guidelines
DLH claimed that the General Court erred in finding that the Commission failed to establish that the German measure in question required a gradual increase in the remuneration of the state so as to incentivise DLH to repay the aid, leading to the exit of the German state from the capital of DLH. The issue of contention was whether the mechanism for a gradually increasing remuneration included in the German measure was “similar” to what was laid down in the TF.
The CJEU, first, stated that “(60) although, in accordance with the case-law of the Court of Justice …, the Commission has set a limit on the exercise of its discretion by adopting the Temporary Framework, it must, nevertheless, be stated that that framework explicitly provides, …, for the possibility of using, in addition to the step-up mechanisms for increasing the remuneration of the State which it details, alternatives which produce similar overall effects.”
So, the decisive element is not the form of the alternative but the overall effects it produces.
“(61) In the light of the criterion of overall similarity set by the Temporary Framework, an alternative mechanism cannot be required to be identical to the mechanism foreseen by the Temporary Framework, whether in its design or in its effects.”
But if the overall effects are not identical, how much can they differ from the effects that can be produced by the mechanism defined in the TF? As seen below, the Commission enjoys discretion to determine whether effects are sufficiently similar.
“(62) Only a manifest error of assessment by the Commission as to whether an alternative mechanism leads to effects that are similar overall to those produced by the step-up mechanisms to increase the remuneration of the State detailed in points 61 and 68 of the Temporary Framework may lead to the annulment of a decision of that institution by an EU Court.”
“(63) In such an exercise, a manifest error may be established by evidence which renders implausible the Commission’s assessment of the facts in its decision. By contrast, such a plea must be rejected if, despite the evidence adduced by the applicants, the contested assessment does not appear to be vitiated by any such error”.
In other words, the mere possibility of error is not enough. It must be shown that the Commission findings are “implausible”. However, what is “implausible” is rather imprecise and may mean different things to different people. It certainly does not mean impossible in the sense of zero probability or a mistake of logical inference.
The CJEU went on to stress that, in this context, “(64) the European Union judicature must, inter alia, establish not only whether the evidence relied on is factually accurate, reliable and consistent but also whether that evidence contains all the relevant information which must be taken into account in order to assess a complex situation and whether it is capable of substantiating the conclusions drawn from it”.
“(65) In addition, the General Court, more generally, cannot substitute its own reasoning for that of the author of the contested act”.
Of course, the same applies to the CJEU itself.
In its judgment the General Court rejected the arguments put forth by the Commission, first, because they did not appear to have any connection with the “step-up mechanism” for the remuneration of the state required by the TF and, second, because they related to separate requirements of the TF.
However, the CJEU considered that “(70) the fact that some of the factors taken into consideration by the Commission under points 62 and 68 of the Temporary Framework might also fall within the scope of other requirements laid down by that framework does not appear, in and of itself, to make them completely irrelevant. It cannot be ruled out that one part of a measure that exactly meets one of the requirements of the Temporary Framework may also contribute to achieving the specific objective of another requirement laid down by that framework.”
This, of course, is correct.
“(71) In that context, the General Court, while finding, …, a failure to put in place either a step-up mechanism to increase the remuneration of the State or alternative mechanisms under points 62 and 68 of the Temporary Framework, did not establish that the Commission was manifestly mistaken as to the effectiveness of the various factors on which that institution relied in the decision at issue, such that its analysis of the overall similarity of the effects produced by the alternative mechanism examined was rendered implausible.”
The General Court focused on form. Instead it should have examined whether the overall effects were similar to those that could be produced by the step-up mechanism in the TF. But that task is not easy. It requires a comparison between the effects that could be produced by a mechanism that was not applied with the effects of an alternative mechanism. And, it remains unknown how similar the effects must be so that the Commission does not commit a manifest error.
The CJEU went on to note that “(72) more specifically, it is not apparent … that the conclusion that the significant discount at which the Federal Republic of Germany had acquired DLH’s shares could contribute to producing incentive effects on the exit of the State from the capital was implausible.”
Hence the bar is pretty high for those that challenge the findings of the Commission. Its conclusions must be shown to be implausible [devoid of any possibility?].
“(73) Nor is it apparent … that the progressive increase in the interest rates providing remuneration for Silent Participations I and II, the increase in the likelihood of a conversion of part of Silent Participation II into equity, or the fact that DLH would be subject to behavioural commitments, would be manifestly incapable of producing effects that are overall comparable to the mechanisms described in … the Temporary Framework.”
The CJEU continued its analysis and found that the General Court had made more mistakes.
“(74) In addition, the General Court failed to take into consideration the cumulative effects of the various factors taken into account by the Commission to establish the existence of an alternative mechanism to that of the step-up to increase the remuneration of the State, in accordance with … the Temporary Framework, whereas it was precisely the combined effects of the various factors referred to in the preceding two paragraphs that that institution relied on.”
Indeed, it is the overall effect that matters.
The CJEU concluded that “(75) the General Court failed to demonstrate that the Commission had made a manifest error of assessment …, and it therefore vitiated its judgment by an error of law.
Different conclusions v wrong conclusions
At a later point in the judgment, the CJEU examined how the General Court had assessed the Commission’s analysis of DLH’s market power. In doing so, the Commission had considered, among other things, DLH’s market share and the number of slots it held at different airports. The General Court carried out its own assessment and produced a result that was different from that of the Commission.
The CJEU censured again the General Court. “(126) The General Court, using the same data as the Commission, carried out a new analysis of those data … and, based on an overall assessment thereof, ultimately reached a different conclusion from that of the Commission, without, however, calling into question the latter’s findings in the decision at issue.”
In other words, it is not sufficient to interpret the evidence differently. It must be shown that the conclusion of the Commission is wrong or that it cannot be drawn from the available data.
“(127) As a result, the General Court did not confine itself to reviewing whether the Commission had committed a manifest error of assessment, …, but substituted its own assessment for that of the Commission in a situation, however, where that institution enjoys broad discretion.”
Must the Commission consider alternatives to the measures proposed by Member States?
Later on the CJEU examined the General Court’s review of the Commission’s assessment of the German measures for preserving competition as an antidote to the state aid granted to DLH. The General Court considered that there were other measures that could be more effective in preserving competition. Again, the CJEU disagreed with the General Court.
“(141) In that regard, it should be observed that it is apparent from the case-law of the Court of Justice … that the Commission has broad discretion to determine whether additional measures proposed by Member States are able to meet the requirements arising from … the Temporary Framework.”
“(142) Furthermore, given the actual wording of [the relevant provisions of the TF] and the principles governing the oversight of State aid, the Commission is not required, when making its assessment, to determine whether the proposed additional measures are the most effective possible measures to promote competition on the relevant markets, but only whether those measures are sufficient to preserve effective competition on those markets.”
“(143) DLH is thus justified in arguing that the fact that measures other than those referred to in the decision at issue would be likely to promote greater competition on the markets at issue could not, on any view, render that decision unlawful.”
“(144) It follows that the General Court could not properly conclude that there was a manifest error of assessment in the decision at issue by basing its finding on the fact that the Commission had not examined the potential positive effects of a slot divestiture procedure which did not exclude existing competitors, even though such a mechanism would have favoured greater competition, without finding, within the limits of the review it is required to make, that the commitments referred to in the decision at issue were insufficient to enable the preservation of effective competition on the markets at issue.”
Conclusions
Despite the various errors in law committed by the General Court, the CJEU dismissed the appeal because the General Court had annulled the Commission decision also for reasons with respect to which the appeal of DLH was not successful.
Five important lessons can be drawn from this judgment. First, the analysis of the Commission can be faulted only when it commits a manifest error in the sense that its conclusions are shown to be implausible. Second, the fact that someone else could reach a different conclusion is not relevant. Third, although the Commission is bound by its guidelines, it may not reject outright reasoned requests by Member States asking for assessment of their measures directly on the basis of the Treaty. Fourth, the Commission may consider mechanisms alternative to those defined in guidelines, as long as they produce similar effects. And, fifth, the Commission assesses the sufficiency of the measures proposed by Member States without being obliged to reject them on the grounds that alternative measures may be more effective.
