Financial Cooperatives

National courts may not question Commission decisions but they may ask the Court of Justice for guidance on how to interpret Commission decisions. Protection of shareholders of a particular category of companies is a selective measure.


This is the last article dealing with the judgments that were rendered by EU courts on 21 December 2016. This article reviews the reply of the Court of Justice to a request for a preliminary ruling from the Belgian Constitutional Court in case C‑76/15, Paul Vervloet and others v Ministerraad.[1] The dispute concerned the interpretation of Directives 94/19 and 2005/1 both of which were later repealed by Directive 2014/49. The directives laid down common provisions on deposit guarantee schemes. However, the case also involved issues of State aid related to guarantees that Belgium had granted to shareholders of financial cooperatives.

In July 2014, the European Commission decided, in decision 2014/686, that the state guarantees to the shareholders of financial cooperatives constituted incompatible State aid.[2] Belgium argued, first, that the provision of the guaranteed was mandated by EU law and, second, that the measure was non-selective. The Commission rejected both arguments. EU law did not oblige Member States to provide guarantees to shareholders. Hence the measure was attributed to the Belgian state. The Commission was also of the view that the measure was selective because it discriminated in favour of shareholders of financial cooperatives as opposed to shareholders of other companies. It also thought that shareholders were not in the same legal or factual situation as depositors.

The Belgian Constitutional Court submitted a number of questions, two of which are of relevance to State aid. The answers of the Court of Justice to those two questions are explained below.


Question concerning the deposit guarantee directives

The Belgian Constitutional Court first asked whether Directive 94/19 and the principle of equal treatment require or preclude Member States from adopting measures that guarantee the shares of financial cooperatives.

The Court of Justice observed that shares fall outside the definition of deposits. Shares are own capital, while deposits are borrowed capital [paragraphs 65-66]. Then, it went on to note that “(75) […] shares of recognised cooperatives operating in the financial sector, […], are different from deposits made with credit institutions”.

But, after examining the provisions of Directive 94/19, it found that “(81) […] the extension of a deposit guarantee scheme, […], to shares in recognised cooperatives operating in the financial sector, […], does not appear, in itself, to be incompatible with the second indent of Article 2 of Directive 94/19.”

It then added a qualification. “(83) Although the provisions of Directive 94/19 do not, therefore, prevent Member States from extending to shares in recognised cooperatives operating in the financial sector the deposit-guarantee scheme provided for by their national legislation in accordance with those provisions, such an extension must not undermine the practical effectiveness of the deposit-guarantee scheme that that directive requires them to establish […] or infringe the provisions of the FEU Treaty, in particular Articles 107 and 108 TFEU.”

This is because “(84) […] it cannot be ruled out that the practical effectiveness of the deposit-guarantee imposed by EU law is undermined where a Member State considerably encumbered its national deposit-guarantee scheme predominantly with risks not directly related to the purpose of that scheme. The higher the risks to be secured are, the more the deposit guarantee is watered down and the less the deposit-guarantee scheme is able, from the same resources, to contribute towards the attainment of the objective pursued by Directive 94/19, which, as is apparent from recital 1 thereof, is to protect savers in the event of the unavailability of deposits made in credit institutions and of increasing the stability of the banking system”.

This is a sound and pragmatic approach. The Court of Justice leaves it to Member States to decide to whom to extend protection on condition, however, that they do not dilute the effectiveness of their national protection schemes and that they do not contravene EU law including State aid law.

According to the Court of Justice, it was for the Belgian Constitutional Court to determine, whether the extension of the deposit guarantee to shares of financial cooperatives could undermine the practical effectiveness of the deposit guarantee. However, it also instructed the Belgian Constitutional Court to take into account the high number of small shareholders and the fact that they made no contribution to the deposit guarantee fund.

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Question concerning State aid

The second question of the Belgian Constitutional Court was whether the Commission decision infringed Article 107 TFEU and whether the guarantee of shares was new or existing State aid.

The financial cooperatives whose shareholders were granted a state guarantee argued that they did not derive any benefit themselves. The Court of Justice recalled that “(93) […] measures which, whatever their form, are likely directly or indirectly to favour certain undertakings or are to be regarded as an economic advantage which the recipient undertaking would not have obtained under normal market conditions are regarded as aid”.  For the Court there was no doubt that the financial cooperatives benefited from the scheme which protected them from imminent flight of private investors. [Paragraph 94]

Then the Court considered whether the measure was selective. “(98) In that regard, it follows from the Court’s settled case-law that Article 107(1) TFEU requires an assessment of whether, under a particular legal regime, a national measure is such as to favour ‘certain undertakings or the production of certain goods’ in comparison with others which, in the light of the objective pursued by that regime, are in a comparable factual and legal situation”. “(99) […] [T]he Kingdom of Belgium extended the deposit-guarantee scheme provided for by Belgian legislation to shares in recognised cooperatives operating in the financial sector […]. The benefit of that guarantee scheme confers an economic advantage on those cooperatives in relation to other economic operators which offer for sale participations in their ownership in the form of shares without benefiting from such a guarantee scheme.”

This shows that the comparator group for the purposes of determining the treatment of undertakings in “comparable” situation was any other company that offered shares to the public. It was not relevant that the legal form of the cooperatives was different.  “(100) […] [T]he recognised cooperatives operating in the financial sector, […], are, in the light of the objective pursued by the deposit-guarantee scheme and consisting, […], in protecting savers in the event of the unavailability of deposits made in credit institutions and in increasing the stability of the banking system, in a factual and legal situation comparable, despite certain specificities resulting from the legal form of those cooperatives, to that of other economic operators, whether or not they are cooperatives, which offer for sale participations in their ownership in the form of shares, by making available to the public a form of capital investment which is not covered by the deposit-guarantee regime.” “(101) Consequently, the extension of the guarantee scheme provided for by Belgian legislation to shares in cooperatives operating in the financial sector has the effect of conferring an economic advantage on those cooperatives in relation to other economic operators which are, in the light of the objective pursued by that scheme, in a factual and legal situation comparable to that of those cooperatives and, therefore, has a selective character.”

The Court of Justice also examined the other criteria of Article 107(1). With respect to affection of trade, it recalled that “(102) […] for the purpose of categorising a national measure as State aid, it is not necessary to establish that the aid has a real effect on trade between Member States and that competition is actually being distorted, it being necessary only to examine whether that aid is liable to affect such trade and distort competition”.

In this particular case, the financial cooperatives were able to maintain their market share and did not suffer from capital outflows. Given that it is well-established that when aid strengthens the position of recipient undertakings in comparison to other undertakings competing in trade between Member States, the Court stressed that “(104) […] that undertaking must be regarded as affected by that aid. […] In that regard, it is not necessary that the beneficiary undertaking itself be involved in trade between Member States. Where a Member State grants aid to an undertaking, internal activity may be maintained or increased as a result, so that the opportunities for undertakings established in other Member States to penetrate the market in that Member State are thereby reduced”.

The cooperatives argued that the value of the shares held by individual investors was low and that, as a result, it did not affect trade or distort competition. The Court of Justice rejected this argument. “(107) The effects of the guarantee scheme […] on trade between Member States must be assessed by reference to all of the shares of recognised cooperatives operating in the financial sector which it covers and not by reference to the protected capital of an individual private member of a cooperative. In any event, according to the Court’s case-law, the relatively small amount of aid or the relatively small size of the undertaking which receives it does not as such exclude the possibility that trade between Member States might be affected”.

On these grounds the Court of Justice concluded that nothing was detected that could cast doubt on the validity of Commission decision 2014/686.

The Court also observed that the guarantee of the shares of financial cooperatives was put in effect without prior notification to the Commission. The fact that the Commission was subsequently informed did not remedy ex post the infringement of Article 108(3) TFEU. “(124) A notification made at such a late stage cannot be regarded as being ‘in sufficient time’ within the meaning of Article 108(3) TFEU.” The Court also added that the date that mattered was the date that the shareholders, i.e. the direct beneficiaries, were granted protection.

What should we learn from this case?

At least two lessons can be drawn from this judgment. First, national courts cannot question a Commission decision. A Commission decision is EU law that is binding on national courts. However, when national courts are uncertain as to how to interpret Commission decisions they can always ask the Court of Justice for guidance.

Second, the concept of selectivity is tricky. A measure is selective when it favours some undertakings over others which are in a comparable situation in view of the objectives of the legal regime in which the measure is embedded. In this case, the Belgian measure extended protection to shareholders of financial cooperatives. There are three possible groups of comparable companies: cooperatives, financial institutions, and companies with shareholders. Financial cooperatives were favoured in relation to non-financial cooperatives and in relation to other companies with shareholders. Hence, the measure was selective in relation to those two groups.

However, one may argue that selectivity should be determined in relation to the objective of the measure itself; i.e. protection of shareholders of financial cooperatives. Apparently, no financial cooperative was left out of the scope of this measure. So it covered all undertakings which could be classified as financial cooperatives. But this argument is false. If it were valid, no subsidy would ever be found to be selective. A well-targeted subsidy would never fall within the scope of Article 107(1) TEFU.

Selectivity must be determined in reference to a “particular legal regime”, as the Court of Justice said. But which legal regime? This is the source of the difficulty in determining whether a measure is selective. There is no guidance in the case law on this crucial point. I believe the reason that there is no elaboration of the relevant legal regime is rather simple. Any applicable legal regime can be the relevant regime. In the Belgian case, an applicable regime was the regime that applied to all companies with shareholders. Another applicable regime was the regime that applied to all cooperatives.

It is always more useful in order to determine the presence of selectivity to ask whether any of the features of a public measure can apply to other companies. If the answer is yes, the measure is probably selective. Take, for example, a measure that aims to subsidise the cost of investing in the acquisition of lorries by SMEs in less developed regions. This measure is selective in three respects: it differentiates between companies in different regions, between companies of different sizes and between different types of investment. The third kind of selectivity, however, is a bit tricky. The relevant legal regime here is the regime that applies to investments. Some companies, by their very nature [e.g. a barber or a self-employed financial advisor], would never invest in a lorry. Because the measure does not support their investments, it is selective on these grounds too.


[1] The full text of the ruling can be accessed at:

[2] The text of the Commission decision can be accessed at:



Phedon Nicolaides

Dr. Nicolaides was educated in the United States, the Netherlands and the United Kingdom. He has a PhD in Economics and a PhD in Law. He is professor at the University of Maastricht and the University of Nicosia. He has published extensively on European integration, competition policy and State aid. He is also on the editorial boards of several journals. Dr. Nicolaides has organised seminars and workshops in many different Member States, and has acted as consultant to several public authorities.

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