Member States May Grant State Aid to Single Beneficiaries

Member States May Grant State Aid to Single Beneficiaries - State Aid Uncovered photos 17

Introduction

The European Court of Justice confirmed, once more, on 30 May 2024, in case C-353/21 P, Ryanair v Commission, that Member States do not have to grant State aid to all undertakings that may be affected by a serious economic disturbance such as a pandemic.2 This is because Member States do not have unlimited resources and because they may want to limit the aid to those undertakings that are most important for their economies.

Ryanair appealed against the judgment of the General Court of 14 April 2021, in case T-388/20, Ryanair v Commission. In that judgment, the General Court dismissed Ryanair’s action for annulment of Commission decision that had authorised State aid in the form of a guarantee granted by Finland to Finnair in May 2020. The purpose of the guarantee was to enable Finnair to obtain a loan of EUR 600 million to cover costs during the closures caused by covid-19 [SA.56809]. The state guarantee covered 90% of the loan and was limited to a maximum duration of three years. The aid was authorised on the basis of Article 107(3)(b) TFEU. The judgment of the General Court was reviewed here on 21 April 2021. It can be accessed at: https://www.lexxion.eu/stateaidpost/individual-aid-measures-to-combat-covid-19/

The present judgment confirms that:

1. Member States may limit the aid beneficiaries for objective reasons.

2. State aid, that is by nature selective and therefore discriminatory, may still be compatible with the internal market.

3. State aid measures must always be necessary and proportionate, regardless of the legal basis on which they are granted.

4. The proportionality of State aid is not assessed according to whether all potential beneficiaries receive appropriate amounts of aid but on whether the actual            beneficiary or beneficiaries receive an amount of aid that does not exceed the minimum necessary.

Limited beneficiaries of the aid

Ryanair argued that the General Court was wrong to find that Article 107(3)(b) did not require every aid measure to be capable, by itself, to remedy the serious economic disturbance in the economy of the granting Member State. The reasoning of the General Court was that the disturbance could be remedied collectively by multiple aid measures.

The Court of Justice, first, pointed out that, “(27) although the derogation from the principle that State aid is incompatible with the internal market, provided for in Article 107(3)(b) TFEU, must be interpreted strictly, the terms used to define that derogation must not, however, be construed in such a way as to restrict its scope unduly or to deprive it of its effects. A derogation must be interpreted in a manner consistent with the objectives which it pursues”.

“(28) It is in no way apparent from the wording of Article 107(3)(b) TFEU, read in the light of the objective of that provision, which is to allow Member States to remedy a serious disturbance in their economy, that aid may only be declared compatible with the internal market on the basis of that provision if it ensures, in itself, that the serious disturbance in the economy of a Member State is remedied. Aid may, as appropriate, be intended to remedy such a serious disturbance in the economy and contribute to achieving the objective expressly referred to in that provision without, however, being sufficient in itself to attain that objective.”

Here the Court is right. It cannot be expected that a single measure can remedy a serious disturbance. It is more likely that a serious disturbance that, by definition, affects many different sectors of the economy, can be remedied by multiple and distinct measures.

“(30) If, in order to be able to seek to apply that provision, the Member States were required to grant aid to all undertakings of particular importance to their economy, in such a way that that aid alone guarantees that the serious disturbance in the economy is remedied, without being able to reserve that aid to a limited number of those undertakings, or even just one, those Member States would often be deterred from granting aid under Article 107(3)(b) TFEU, because of the costs it would involve”.

Here the Court is not right. I have written in more detail elsewhere that the situation described by the Court above may or may not be factually correct. Supposition should not be equated to legal principle. Member States may modulate the amount of aid according to the impact of the serious disturbance on different sectors and undertakings. If the need for aid exceeds the amount of state resources available, Member States can also, on the basis of objective allocation criteria, apportion aid according to need and the importance of the beneficiaries in their sector and in the economy in general.

“(31) It follows that the objective pursued by Article 107(3)(b) TFEU does not mean that a Member State cannot, without that being dictated by a desire to favour one undertaking over its competitors, choose, for objective reasons, to grant only a single undertaking the benefit of a measure adopted under that provision”.

Indeed, the presence of “objective reasons” are the decisive factor for determining who may be eligible to receive State aid.

“(33) The measure at issue was, in view of Finnair’s importance for the Finnish economy, appropriate to remedy a serious disturbance in that economy”.

Therefore, a well-designed measure may allocate the aid to those undertakings that can make the most significant or substantial contribution to the achievement of the purpose of the measure.

Weighing the benefits and harm of the aid

Ryanair contended that the General Court was wrong to hold that the Commission was not obliged by Article 107(3)(b) TFEU to weigh the beneficial effects of the aid against its adverse effects on trade and competition.

“(40) In that regard, it should be noted that, in paragraph 20 of the judgment of 22 September 2020, Austria v Commission (C-594/18 P, EU:C:2020:742), the Court of Justice highlighted the differences between the wording of Article 107(3)(b) TFEU and Article 107(3)(c) TFEU, and noted, in particular, that only the first of those provisions laid down the condition that the aid at issue must pursue an objective of common interest. The Court concluded from this that Article 107(3)(c) TFEU did not make the compatibility of aid subject to such a condition.”

“(41) For a similar reason based on a comparison of the wording of the provisions concerned, as the General Court held, […], in the absence of any reference in Article 107(3)(b) TFEU to demonstrating that there was no effect on trading conditions to an extent contrary to the common interest and, therefore, to the need to weigh up the beneficial effects and the adverse effects of the aid, that provision cannot be interpreted, unlike Article 107(3)(c) TFEU, as requiring the Commission to carry out such a balancing exercise for the purposes of assessing the compatibility of the measure at issue with the internal market”.

“(42) That difference in the assessment of the compatibility with the internal market of the aid referred to in Article 107(3)(b) TFEU and the aid referred to in Article 107(3)(c) TFEU can be explained by the particular nature of the aid referred to in Article 107(3)(b) TFEU, which pursues objectives of an exceptional nature and of particular weight consisting either in promoting the execution of an important project of common European interest or in remedying a serious disturbance in the economy of a Member State. Aid measures which contribute to one of those objectives, provided that they are necessary and proportionate, may therefore be considered to ensure a fair balance between their beneficial effects and their adverse effects on the internal market and are therefore in the common interest of the European Union”.

“(43) Therefore, since Article 107(3)(b) TFEU reflects the balancing of the effects of State aid referred to in that provision carried out by the authors of the Treaty, the Commission is not required to carry out a new balancing of those effects when it examines the compatibility of aid which is envisaged to be granted on the basis of that provision”.

This explanation is debatable. With the exception of sub-paragraph (c), no other sub-paragraph in Article 107(3) requires balancing of the effects of State aid. Does that mean that the Commission is wrong, as it routinely does, to balance the positive and negative effects of

State aid, for example, to support regional development under Article 107(3)(a) or promote culture under Article 107(3)(d)? More broadly, if State aid is incompatible with the internal market because it affects trade and distorts competition, then it follows that the compatibility of aid under Article 107(3) should be dependent, among other things, on whether the positive effects of the aid outweigh its negative effects on trade and competition. I do not believe that in interpreting the derogations in the second and third paragraph of Article 107 TFEU, the Court should confine itself only to the wording of those two paragraphs. It should examine them in the context of the whole Article 107. As itself stated in paragraph 27 of the present judgment, “a derogation must be interpreted in a manner consistent with the objectives which it pursues”. This means that if, according to Article 107(1), State aid is any measure that causes a distortion of competition, then the derogations should be understood to allow aid for the achievement of the objectives they define but with the least possible distortion of competition. One may also ask why, then, there is an explicit reference to avoidance of adverse trade effects only Article 107(3)(c) and not in the other derogations. I believe the reason is that Article 107(3)(c) is too general. Unlike the other derogations, Article 107(3)(c) has a very wide scope and allows aid for the development of any economic activity. Its wider scope has to be counter-balanced with a more explicit safeguard to prevent potentially greater distortion of competition.

Discriminatory treatment

Ryanair claimed that the Finnish measure was discriminatory. Since a selective measure necessarily distinguishes or discriminates between similar undertakings, the Court of Justice began its analysis by examining the concept of selectivity.

“(59) The requirement of selectivity arising from Article 107(1) TFEU presupposes that, where the Commission intends to classify a given measure as State aid, it will establish that the economic advantage, understood in the broad sense, arising directly or indirectly from that measure specifically benefits one or more undertakings. It falls to the Commission to show, in particular, that the measure in question creates differences between undertakings which, with regard to the objective of the measure, are in a comparable situation. It is necessary therefore that the advantage be granted selectively and that it be liable to place certain undertakings in a more favourable situation than that of others”.

“(60) Where, as in the present case, the measure concerned is envisaged as individual aid, the identification of the economic advantage is, in principle, sufficient to support the presumption that it is selective”.

“(61) It follows that the General Court did not err in law by stating in essence […] that, by its nature, individual aid introduces a difference in treatment, if not discrimination, between the undertaking receiving that aid and all other undertakings which, in the light of the objective pursued, are in a comparable situation. […] EU law allows Member States to grant such aid, ‘provided that all the conditions laid down in Article 107 TFEU are met’”.

“(63) Accordingly, State aid granted for the purposes of, and in accordance with, the conditions laid down by those derogating provisions, notwithstanding the fact that it has the

characteristics and produces the effects [as those defined in Article 107(1) TFEU] is compatible with, or is capable of being declared compatible with, the internal market.”

“(64) It follows that, unless those derogating provisions [in Article 107(2) & (3)] are to be deprived of all practical effect, State aid which is granted in accordance with those requirements, that is to say, for the purposes of an objective recognised therein and within the limits of what is necessary and proportionate to the achievement of that objective, cannot be held to be incompatible with the internal market having regard solely to the characteristics or effects, […], which are inherent in any State aid, that is to say, inter alia, for reasons relating to whether the aid is selective or distorts competition”.

“(65) That said, as regards the second limb of the second ground of appeal, by which Ryanair claims that the General Court erred in law in not applying, […], the principle of non-discrimination on grounds of nationality laid down in Article 18 TFEU, but examined the measure at issue in the light of Article 107(3)(b) TFEU, it should be recalled that it is clear from the case-law of the Court of Justice that the procedure provided for in Article 108 TFEU must never produce a result that is contrary to the specific provisions of the FEU Treaty. Accordingly, State aid which, as such or by reason of some modalities thereof, contravenes provisions or general principles of EU law cannot be declared compatible with the internal market”.

“(66) However, as regards Article 18 TFEU specifically, it is settled case-law that that article is intended to apply independently only to situations governed by EU law in respect of which the FEU Treaty lays down no specific prohibition of discrimination”.

“(67) Since, […], Article 107(2) and (3) TFEU provides for derogations from the principle, referred to in paragraph 1 of that article, that State aid is incompatible with the internal market, and thus allows, in particular, differences in treatment between undertakings, subject to fulfilment of the requirements laid down by those derogations, those derogations must be regarded as ‘special provisions’ provided for in the Treaties, within the meaning of the first paragraph of Article 18 TFEU”.

“(68) It follows that the General Court did not err in law in finding, […], that Article 107(3)(b) TFEU constituted such a specific provision and that it was necessary only to examine whether the difference in treatment brought about by the measure at issue was permitted under that provision.”

Proportionality of the aid

In response to a claim by Ryanair that the aid granted to Finnair was disproportionate, the Court of Justice responded that “(77) aid granted under a derogation provided for in Article 107(2) and (3) cannot be held to be disproportionate, and thus incompatible with the internal market, merely because it benefits a single undertaking”.

“(78) It follows that, by holding […] that the Commission was not required to examine, in order to assess the proportionality of the measure at issue, whether the circle of beneficiaries of that measure should have been extended beyond Finnair, the General Court did not err in

law. In addition, […], the General Court, […], correctly applied the proportionality test in that it examined whether the grant of the State guarantee only to Finnair did not exceed the limits of what was appropriate and necessary in order to attain the legitimate objectives pursued by the Republic of Finland. Thus, the General Court cannot be criticised for a failure to assess properly whether Finnair’s survival could not be guaranteed with an amount of aid lower than that which was granted to it.”

Ryanair also argued that the measure in question infringed the principles of the freedom to provide services and freedom of establishment. In paragraphs 86-96 of the judgment, the Court rejected that argument. Since, however, it does not concern directly the concept of State aid, it is not further reviewed in this article.

Conclusions

This judgment confirms that:

5. Member States may limit the aid beneficiaries for objective reasons.
6. State aid, that is by nature selective and therefore discriminatory, may still be compatible with the internal market.
7. State aid measures must always be necessary and proportionate, regardless of the legal basis on which they are granted.
8. The proportionality of State aid is not assessed according to whether all potential beneficiaries receive appropriate amounts of aid but on whether the actual            beneficiary or beneficiaries receive an amount of aid that does not exceed the minimum necessary amount.

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About

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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