Opinion of the Advocate-General
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Mr President,
Members of the Court,
1. In the present application the Italian Government seeks the annulment of Commission Decision 89/661/EEC of 31 May 1989 concerning aid provided by the Italian Government to Alfa Romeo. (1) The contested decision is based on the first subparagraph of Article 93(2) of the Treaty, and is in the following terms:
"Article 1
The aid in the form of capital contributions totalling LIT 615.1 billion awarded by the Italian Government through the public holding companies IRI and Finmeccanica to Alfa Romeo is unlawful and therefore incompatible with the common market within the meaning of Article 92(1) of the EEC Treaty because it was provided in contravention of the rules of procedure laid down in Article 93(3). The aid is also incompatible because it does not satisfy the conditions for exemption provided for in Article 92(3).
Article 2
The Italian Government is hereby required to recover the aid referred to in Article 1 from Finmeccanica within two months from the date of notification of this Decision.
The recovery shall be carried out in accordance with the procedures and provisions of national law including those concerning interest charges on State claims in the event of repayment taking place later than the two months referred to in the preceding paragraph.
Article 3
The Italian government shall inform the Commission, within two months from the date of notification of this decision, of the measures taken to comply herewith.
..."
Pursuant to Article 173 of the EEC Treaty, the Italian Government requests the Court to annul that decision, and puts forward no fewer than 14 pleas. After a review of the factual background (sections 2 to 4) I shall first deal briefly with a number of pleas (the first, sixth, fourth and thirteenth pleas) which have already been raised in a number of previous State aid cases and in respect of which the Court' s case law is clear (sections 5 to 8). I shall then deal in more detail with pleas which deserve closer attention. These are the pleas (the second, third and fifth) concerning the application of the criterion of the private investor in the present case (sections 9 to 14), having regard also to the particular context of the sale of Alfa Romeo' s assets to Fiat (section 15), then the pleas (the seventh, eighth, ninth, tenth, eleventh and twelfth) which relate to justification for the aid (sections 16 to 19) and, finally, the (fourteenth) plea relating to recovery of the aid from a person other than its immediate beneficiary (sections 20 to 24).
Factual background
2. It appears from the contested decision that at the time of the capital contributions which form the subject matter of the decision the Alfa Romeo group, (2) the second largest car manufacturer in Italy had to contend with a very serious crisis. In 1986 only 42% of its production capacity of 400 000 vehicles per year was used, and in 1985 and 1986 the group incurred losses of LIT 465.5 thousand million and 313.3 thousand million respectively. (3) These problems were not of recent origin. Alfa Romeo, which formed part of the Finmeccanica holding company, (4) controlled in its turn by the public holding company IRI (Istituto per la Ricostruzione Industriale, Industrial Restructuring Agency), had already been operating at a loss for 14 years. (5) During the period from 1979 to 1986 the group accumulated losses of LIT 1 484.5 thousand million and fresh capital of LIT 1 387.5 thousand million was contributed by the Italian Government. (6)
In order to reverse the trend and to place Alfa Romeo on a sound footing again, a new ten-year plan (1980-1990) was embarked upon in 1980 involving large-scale investment aimed at increasing production volume and making it more competitive, accompanied by an aggressive marketing policy. (7) Largely because of the considerable surplus production capacity in the European motor vehicle sector which made itself felt acutely in 1983/1984, that ambitious restructuring plan turned out to be too optimistic: the huge increase in production and plant utilization promised by the plan never occurred and no longer appeared realistic. (8) Alfa Romeo then undertook a review of its ten-year plan (1980 to 1990). From the end of 1983 and the beginning of 1984 Alfa Romeo sought under the revised plan to bring about a drastic reduction of production and operating costs and the restructuring of its resources in general. The company now set a much lower break-even level (220 000 instead of 300 000 vehicles a year), completely renewing the production process and optimizing the model range produced, which entailed large cuts in the workforce. (9) It appears from the contested decision that for some of the investments required under the restructuring plan Alfa Romeo received public aid in the form of subsidies, soft loans and interest relief, which were approved by the Commission in November 1983, July 1984 and December 1984. (10)
Under the revised restructuring plan it was decided in 1985 to implement a triennial investment programme (1986 to 1988) which, like the restructuring plan, provided for a reduction in production and overhead costs and the development of new products (11) but which, according to the Commission, did not help to resolve the underlying structural problems of the company, in particular the excessively low rate of capacity utilization. (12) The capital contributions for 1985 and 1986, which form the subject matter of the contested decision and, as is not denied, were used to cover losses and to reduce the debt burden (see below, at section 4), were justified, in the Italian Government' s view, by that investment programme. (13) At no time did the Italian Government notify that contribution of capital to the Commission for approval.
3. The revised restructuring plan of 1983/1984 certainly did not lead to Alfa Romeo' s recovery; on the contrary, the situation of the group deteriorated yet further. The expected improvements in labour productivity and product quality were not achieved, the rate of capacity utilization remained low (14) and the financial results worsened dramatically. (15) In 1983 the Alfa Romeo group suffered losses of LIT 121.7 thousand million, in 1984 LIT 210.9 thousand million, in 1985 LIT 465.5 thousand million and in 1986 LIT 313.3 thousand million. (16) Against that background studies were carried out by Finmeccanica and IRI and also by the appropriate government and parliamentary bodies to determine future strategy. Those assessments showed that Alfa Romeo could not become profitable as an independent producer and that the only possible solution was its takeover by (or merger with) a large motor vehicle manufacturer which would be prepared to make massive investments. (17) The contested decision shows that at the beginning of 1986 the world' s leading automobile manufacturers were approached to find out whether they were interested in taking over Alfa Romeo, either wholly or in part. (18)
Of the motor manufacturers approached with a view to a takeover, only Ford and Fiat made concrete proposals. Negotiations with Ford were begun in May 1986 and with Fiat in October 1986. On 6 November 1986 Finmeccanica' s management board decided to accept the Fiat offer. (19) At the beginning of December 1986 Alfa Romeo SpA and Alfa Romeo Auto - the holding company and the manufacturing company, respectively, of the Alfa Romeo group - transferred to Fiat the assets to which the sales agreement between Finmeccanica and Fiat related. That transfer was effected at book value, subsequently defined on the basis of audited balance sheets at LIT 1 024.6 thousand million. (20)
In May 1987, Alfa Romeo SpA and Alfa Romeo Auto changed their names to Finmilano and Sofinpar respectively. In June 1987 those companies were sold to Banco di Roma and Credito Italiano respectively for a total of LIT 198.9 thousand million. Prior to that sale, the remaining assets and liabilities of Finmilano and Sofinpar were transferred to Finmeccanica, except for certain financial credits which those companies had obtained from Finmeccanica. (21)
The contested decision states that according to information supplied by the Italian Government by letter of 21 July 1988 Finmilano went into liquidation on 31 December 1987. (22)
4. Alarmed by press reports that Alfa Romeo had received aid in 1985 in the form of a capital injection of LIT 209 thousand million, on 1 October 1986 the Commission requested further information from the Italian Government. By a letter dated 21 November 1986 the Italian Government confirmed that new capital in the amount of LIT 206.2 thousand million had been allocated to Alfa Romeo SpA, through Finmeccanica and IRI, in order to cover losses. (23) During the written procedure before the Court, the Italian Government stated that that capital contribution was linked to the decision to proceed with the triennial investment programme (1986 to 1988) mentioned above. (24)
Meanwhile, Finmeccanica had accepted Fiat' s offer to take over Alfa Romeo. On the basis of information which it had, however, the Commission was concerned that by choosing the offer made by Fiat in preference to the one made by Ford, Finmeccanica had sold Alfa Romeo' s assets at a price lower than that offered by Ford, and that the Italian Government had thereby indirectly granted aid to Fiat. Upon the Commission' s request, the Italian Government supplied more detailed information on 30 January, 27 March and 2 July 1987. On 29 July 1987, the Commission decided to initiate the procedure provided for in Article 93(2) of the EEC Treaty in respect of the injection of capital amounting to LIT 206.2 thousand million into Alfa Romeo in 1985 and in respect of an alleged subsidy included in the terms on which Fiat acquired Alfa Romeo' s assets. (25)
In the course of that procedure it came to light that in 1986 a second capital injection of LIT 408.9 thousand million had been made, this time in favour of Alfa Romeo Auto. On 10 May 1988, the procedure initiated in July 1987 was extended to that second capital injection. (26) According to the contested decision, the Italian Government explained that that capital contribution was made in order to reduce the net financial debt of the Alfa Romeo group. Alfa Romeo Auto used the money provided to repay debts to Alfa Romeo SpA, which itself paid back loans with that money. (27) The Italian Government also explained that the second capital injection was made in the context of the triennial investment programme (1986 to 1988) mentioned above and that it was linked to the need for the undertaking to maintain a sound financial position in the light of the strategic choices that had to be made in order to find a radical solution to its structural crisis. (28)
After a thorough examination of the conditions of sale, the Commission found that the acceptance of Fiat' s offer contained no aid element as compared to Ford' s offer (29) and that the price paid by Fiat (although less than the net book value) was a fair reflection of the value of the assets acquired, taking into account the operating losses which could be expected and the significant investment necessary to restore profitability. (30) However, in the decision contested by the Italian Government in these proceedings, the Commission concluded that the capital contributions in 1985 and 1986 totalling LIT 615.1 thousand million were incompatible with the common market within the meaning of Article 92(1) of the EEC Treaty. (31) It therefore required the Italian Government to recover the aid granted from Finmeccanica. (32)
5. As already stated, the Italian Government raises a number of pleas in support of its application for a the annulment of the contested decision which, in the light of the Court' s case law and the factual situation, are manifestly unfounded. I shall deal with these arguments first. In my Opinion of 11 October 1990 in Case 303/88 I have already dealt with a number of those pleas. (33)
Aid provided by the State or aid publicly funded in any way
6. As its first plea the Italian Government argues that the capital injections in 1985 and 1986 did not constitute State aid within the meaning of Article 92(1) because those contributions were not the result of decisions taken by the public authorities but were autonomous corporate decisions taken by the directors of IRI and/or Finmeccanica. Moreover, the public funds were not specifically earmarked for the contributions in question.
It is sufficient to point out that the capital of IRI and Finmeccanica is completely controlled by the Italian public authorities; that all the members of the management bodies of IRI and Finmeccanica are appointed by the Italian government; and finally that IRI and Finmeccanica operate within the framework of directives issued by an interministerial committee (Interministerial Committee for Economic Planning). On the basis of these factors, which are not disputed by the parties, the Commission concluded, in my view rightly, that contrary to the Italian Government' s assertion the decisions of IRI and Finmeccanica were not adopted autonomously and independently of the Italian government. In accordance with the Court' s case law, in particular the judgment in Joined Cases 67, 68 and 70/85 Van der Kooy, the abovementioned factors are sufficient to support the conclusion that the contributions are attributable to the Italian State, thus bringing them within the concept of aid granted by a Member State within the meaning of Article 92(1) of the EEC Treaty. (34)
Although it is impossible to point to any specific earmarking of public funds for capital contributions, it can hardly be denied that the contributions were carried out with funds originating directly or indirectly from the State. (35) Moreover, it should be observed that no such specific earmarking is required in order for there to be State aid. (36) If there were such a requirement the Treaty provisions on State aid could easily be circumvented.
Aid which distorts or threatens to distort competition and/or affects trade between Member States
7. The Italian Government further submits that the capital contributions made to Alfa Romeo in 1985 and 1986 did not constitute State aid within the meaning of Article 92(1) because they did not distort or threaten to distort competition and did not affect trade between Member States (sixth plea). It points out that Alfa Romeo' s share of the European market amounted to only 1.6% and that the aid did not cause a reduction in the market share held by Alfa Romeo' s competitors.
It is implicit but clear from the judgment in Case 102/87 (37) (38)that where a recipient of aid is active in a market in which there is competition amongst producers from various Member States - which is certainly the case here - the Commission is entitled to assume that the condition of an "effect on trade between Member States" is satisfied, even if the undertaking does not itself export to other Member States. Although the market share of competitors did not diminish as a result of the aid granted to Alfa Romeo, the artificial continuation in business of Alfa Romeo (which held 14.6% of the Italian car market) did prevent them from increasing their market share. In a sector characterized by over-capacity aid is certainly capable of distorting competition and affecting trade between Member States in that way.
The belated initiation of the procedure and the failure to notify the aid
8. It is clear - contrary to the Italian Government' s assertion (fourth plea) - that the Commission cannot be criticized for the belated initiation of the procedure provided for in Article 93(2). It is true that the procedure was initiated only in July 1987 and that the contested decision was made in May 1989, while the aid was granted in 1985 and 1986 and the Commission requested information for the first time in October 1986. However, it is apparent from the contested decision that responsibility for the belated initiation of the procedure lies entirely with the Italian Government, first because it did not give prior notification of the aid and secondly because it supplied the information requested by the Commission only bit by bit and at the latter' s insistence. (39)
The Italian Government also states (thirteenth submission) that the capital contributions did not have to be notified because they did not constitute State aid and the Commission already knew or ought to have known of the Italian Government' s intention to inject fresh capital into undertakings in the automobile sector, (40) but had raised no objection. Specific notification of the capital contributions to Alfa Romeo was thus not necessary. I am not persuaded by those arguments. In view of the decision-making process and communications by the Commission to the Member States, the Court' s case law and the terms of Article 93(3) of the EEC Treaty, there could be no doubt that the capital contributions could be deemed to be State aid, and that they were therefore subject to prior notification to the Commission.
In that context it should also be stated that the Commission found the capital contributions in question to be incompatible with the common market on the basis inter alia of an infringement of the duty of notification contained in Article 93(3) of the EEC Treaty, and that the Italian Government has disputed this reasoning (thirteenth plea). In the judgment in Case 301/87 (the Boussac case), which was delivered after the contested decision, the Court clearly stated that breach of the duty of notification was not in itself sufficient to justify a decision that aid is incompatible with the common market. (41) The Commission conceded this point during the written procedure. It is therefore no longer at issue in the present case.
The criterion of the "reasonable investor" and equality of treatment as between private and public undertakings
9. I shall now turn to a number of submissions which merit closer attention. In support of its application for annulment the Italian Government maintains that the Commission relied on insufficient and incorrect arguments to show that the 1985 and 1986 capital injections would have been unacceptable for a private shareholder or investor (second plea). That is indeed the criterion which the Court has consistently applied in order to assess whether capital holdings may constitute State aid. (42) In applying that criterion in this specific case, the Italian Government argues, the Commission took no (or insufficient) account of a number of special circumstances such as:
(1) the fact that in the car industry investments come to fruition only after several years and that it could not be inferred from the absence of immediate results that the investments would not bring about the recovery of the undertaking; (43)
(2) the size of undertakings in the car industry and the size and financial capacity of IRI and Finmeccanica; (44)
(3) the fact that private undertakings such as Ford and Fiat were prepared to buy Alfa Romeo and to invest very considerable sums; (45)
(4) the final total proceeds received by Finmeccanica; (46)
(5) the existence of the triennial investment programme (1986 to 1988) to which the capital contributions were linked and which could reasonably be expected to result in Alfa Romeo' s ultimate recovery; (47) and finally,
(6) the adverse consequences for Finmeccanica were Alfa Romeo to become insolvent, in particular the difficulty of selling it on favourable conditions, (48) the increase in Finmeccanica' s liability as parent company for the debts of the Alfa Romeo companies, (49) the negative impact on its "credit rating" (50) and the costs incurred as a result of the dismissal of Alfa Romeo' s workers. (51)
According to the Italian Government a "private investor" would also have proceeded with the contested capital contributions, notwithstanding Alfa Romeo' s unfavourable situation, having regard to the factors mentioned above. It points out that the decisions by Finmeccanica and IRI to inject fresh funds into the company were taken in accordance with normal criteria of profitability and that a private shareholder would not have acted differently. By not recognizing that fact, the Commission is in breach of Article 222 of the EEC Treaty (third plea).
10. For its part, the Commission backs up its assessment that a "private investor" would not have made any fresh capital contribution by referring to the rapid increase in losses since 1983, the considerable increase in Alfa Romeo' s debt burden, its negative cash flow and the lack of any reasonable return on the capital injected. (52) As has already been mentioned, (53) the injection of LIT 206.2 thousand million in 1985 was intended, as the Italian Government acknowledges, to cover the losses suffered by Alfa Romeo SpA in 1984 and during the first quarter of 1985, while the contribution of LIT 408.9 thousand million in 1986 was intended to recapitalize Alfa Romeo Auto, since otherwise that company would have had to be liquidated. Alfa Romeo Auto used the funds made available to it to repay its debts to Alfa Romeo SpA, whereby the latter was enabled to reduce its own debt burden. In other words, the capital injections were exclusively intended to reduce the net financial liabilities of the Alfa Romeo group (54) and were not intended to help finance the implementation of an investment programme.
11. Before stating my views on this dispute, I should like to dwell for a moment on the criterion of the private investor, to which both parties refer and which is based on the Commission' s settled practice and the Court' s case law. That criterion is based, in the words of the Court, "on the opportunities open to the undertaking of acquiring the amounts in question on the capital market". (55)
What private investor is contemplated here? It appears from the case law that the Court is contemplating first of all an "ordinary" private investor, that is to say, not a company which already has a shareholding significant enough to influence the management of the undertaking in receipt of aid, or seeks to acquire such a holding. That is apparent from the Court' s judgments in which the "private shareholder" is defined as a shareholder who "in similar circumstances ... having regard to the foreseeability of obtaining a return and leaving aside all social, regional-policy and sectoral considerations, would have subscribed the capital in question." (56)
In addition to this category of "ordinary" investors there is, however, another category of investors made up of holding companies which, as mentioned above, either possess shareholdings large enough to influence the management of the undertaking in receipt of aid or wish to acquire such holdings, and which themselves or through that undertaking are closely concerned in economic development and employment in a given region or sector. This second category of investors includes both private and public holding companies. As responsible investors they must also be guided by considerations of profitability, but over a longer period than ordinary investors. Since they are directly responsible for the company' s productivity, these "stable" investors do have regard - and rightly so - to considerations of employment and economic development. (57)
12. It seems to me that the criterion of the "private" investor must take into account both categories of investors and must consequently be understood as referring to a "reasonable" investor, whether private or public in nature. In that way the criterion may be used in order to assess the conduct of both a private and a public investor, and the submission with regard to the unequal treatment of private and public undertakings must therefore fail.
In shifting the emphasis from the "private" to the "reasonable" investor, I am not suggesting that the requirement of profitability may be left out of account. The reasonable investor or holding company (whether from the private or public sector) must, in order to act responsibly, secure a normal return on its investments, even if in so doing it may have regard to a wider social and economic context and over a longer timespan. It is above all in the case of public holdings that the profitability requirement must be underlined, since they are under less pressure than private holding companies to make profits for shareholders who (directly or indirectly) are "ordinary" private investors, given that the risk capital of public holding companies is directly or indirectly financed by public funds. (58)
13. I have examined in greater detail the criterion of the private investor - or rather, the reasonable investor - in order to dispel any misunderstanding with regard to inequality of treatment as between private and public undertakings. In concrete terms, however, this discussion is of less relevance, because the "reasonable" investor criterion, whether it is applied to one of the categories of investors or the other, means that a contribution of risk capital to a loss-making undertaking which is heavily in debt and has insufficient cash-flow may be deemed to be reasonable only where the undertaking can put forward a general restructuring plan which is sufficiently detailed, credible and realistic. Only on the basis of such a plan may a "reasonable investor" be persuaded that the undertaking in difficulties has a real chance of recovery and that a fresh injection of capital will be effective.
As I have already stated, the Italian Government claims that the 1986 contribution, and even that made in 1985, were made in the context of such a plan, namely the triennial investment programme (1986 to 1988). That programme had a three-fold objective: a reduction in production costs, a reduction in overheads and the development of new products. (59)
For its part, the Commission observes that that investment plan, which gave effect to the 1983/84 revision of the 1980 ten-year plan (see section 2 above), did not serve to resolve the fundamental structural problems of the undertaking. The newly procured resources were exclusively intended to cover losses and to improve the financial situation of the Alfa Romeo group. It therefore considers that they did not assist in reducing the considerable surplus production capacity, unlike, for example, the aid which the Commission authorized the French Government to provide to the Renault group or the United Kingdom Government to the Rover group. (60)
14. I share the Commission' s view that the Italian Government has not shown in what way the funds injected into the company in 1985 and 1986 formed part of a new general restructuring plan. Following the failure of the 1980 ten-year plan, even after its revision in 1983/84, there was a clear need for a new investment policy aimed at a complete restructuring of the undertaking. By that I do not mean to say that the earlier efforts produced no results, but that it was already apparent in 1985 and 1986 that the earlier plans were inadequate. The assessments made in 1985 and 1986 by Finmeccanica, IRI and the competent public bodies showed that Alfa Romeo could not be made profitable unless it was taken over by a large automobile manufacturer which would provide it with massive support (see section 3 above). The injection of the new funds in question thus appears to be one of many attempts to ensure the group' s survival. A capital injection intended to absorb accumulated losses and to alleviate the debt burden is of course an essential element of any restructuring plan. However, this is not sufficient unless other aspects of the plan provide for a drastic reduction in costs and major investments in order to rationalize production capacity and improve labour productivity. That is certainly true in a sector faced with a problem of considerable surplus capacity.
In that regard the present case may be distinguished, in my view, from the Renault and Rover cases mentioned by the Commission. In the case of Renault, the restructuring plan provided for significant capacity reductions by means, inter alia, of substantial reductions in the workforce, the closure of production units and assembly lines, the reorientation of investments, the sale of assets, etc, as may be seen from the decision of 19 March 1988. (61) In the case of Rover, too, according to the terms of the decision of 13 July 1988, (62) the restructuring plan submitted to the Commission made provision not only for major investments and restructuring costs but also for a reduction in assembly and component production capacity in order to increase productivity and capacity utilization. (63) The Commission nevertheless decided even in those cases that the aid granted was inconsistent with Article 92, although the aid was partially authorized on the basis of Article 92(3)(c) (see section 18 below). I therefore come to the conclusion that the Commission was entitled to form the view that the 1985 and 1986 capital injections would not have been made by a private investor and that those contributions therefore constitute aid within the meaning of Article 92(1) of the Treaty.
Aid granted with a view to the takeover of the undertaking
15. In the course of the written procedure before the Court, the Italian Government argued that the contested aid measures were justified because they were intended to protect the undertaking from possible liquidation pending its sale (second plea) or the successful outcome of a restructuring plan (fifth plea).
Since, as has been seen, no convincing restructuring plan was in existence in 1985 and 1986, that argument cannot be upheld in so far as it refers to the successful outcome of such a restructuring plan. Nor can it carry conviction with regard to the drawing up of any such plan. In the contested decision, the Commission rightly observed (64) that such "rescue aid" can be accepted only under restrictive conditions, with regard to the (brief) period, for example six months, during which a new restructuring plan is actually drawn up. In the present case, those conditions were not met.
In so far as that argument relates to the subsequent takeover by Fiat and the fundamental restructuring carried out by it, it is far from clear whether the aid measures in question can in fact be linked to it. It is not sufficient to refer in general terms to the need to maintain certain assets of the undertaking - put in those terms that argument could be made at any time - if there is no prospect of a sale giving rise to that necessity. It may be inferred from the grounds for the decision, and the Italian Government also admits that there was no specific link between the capital contribution made in 1986 (and thus a fortiori the contribution made in 1985) and the subsequent decision to sell, although the Italian Government asserts that the capital injection was made in order to provide a "radical solution" to the structural crisis affecting Alfa Romeo. (65)
Moreover, even if the capital contribution was made with a view to a takeover and restructuring by a specific purchaser, it must be determined whether a reasonable investor in those circumstances would have been prepared to make a further capital contribution. It seems to me that that can only be the case where a prospective purchaser has tabled a clear and concrete proposal a condition of which is that existing shareholders are to make a complementary effort. Only in those circumstances are the shareholders in a position to calculate whether, taking account of the price offered and the other takeover conditions (in particular the transfer of liabilities), it is more advantageous for them to make the additional investment asked of them or to run the risk of seeing the value of their shares collapse as a result of the inevitable liquidation should the takeover not proceed.
For example, that kind of assessment took place, as is apparent from the grounds of the Commission decision of 13 July 1988, (66) on the grant of aid in the form of a fresh capital injection by the United Kingdom Government to the Rover group in connection with the sale of the group' s remaining car and jeep divisions to British Aerospace. The aid granted also formed part of a comprehensive restructuring of Rover by the new shareholder. In the present case, Fiat also conducted a major restructuring of Alfa Romeo after its acquisition, with the help, moreover, of State aid, (67) but there is nothing to indicate that the capital contributions made in 1985 and 1986 which are at issue in the present case formed part of any such comprehensive investment and restructuring plan agreed with the prospective purchaser. In those circumstances, judged at the time when they were made, those capital contributions may be regarded only as aid measures intended to prolong the life of undertakings within the Alfa Romeo group, which a reasonable investor would no longer have made.
The grounds relied on to justify the aid and the obligation to provide a statement of reasons
16. The Italian Government submits a number of pleas relating to possible grounds on which the aid granted might be justified. With reference to Article 92(3)(a) and (c) of the EEC Treaty, it points out that the aid was intended to maintain employment in areas of the Mezzogiorno (eighth plea) and that it sought to promote the development of certain forms of economic activity or certain regional economies under the conditions laid down by the Commission in its abovementioned decision in the Rover case (68) (eleventh plea). It further points out that the grant of the aid may also be justified in the context of the ECSC Treaty as conversion aid in areas where there is considerable unemployment as a result of the crisis in the steel industry (ninth plea). In assessing the interests at stake, the Commission, moreover, failed to take account of the positive compensatory effects of the aid on the development of specific regions or activities (seventh plea). In any event, in the present case the Commission adopted a less accommodating attitude than in other cases, such as Daimler Benz, (69) or Renault (70) (tenth plea). The reasoning upon which the decision is based is inadequate, particularly with regard to the link between the aid and the restructuring of Alfa Romeo at which that aid was directed (twelfth plea).
The Commission replies to these submissions by pointing out that the contested aid is purely and simply rescue aid and not investment aid linked to a comprehensive and credible restructuring plan, and that the aid measures were not therefore capable of making a permanent contribution to the development of certain activities or regions or to the maintenance of employment. That is the feature which distinguishes this case from the cases in which the Commission deemed aid to the car industry to be acceptable. In the present case, the aid was intended artificially to maintain an unprofitable undertaking, which entailed distortions in competition and in intra-Community trade. Nor, according to the Commission, does the contested aid satisfy the conditions laid down by it for regional aid, and it was certainly not granted in compliance with the procedural rules applicable to ECSC conversion aid.
17. With regard to the plea relating to the ECSC Treaty, I share the Commission' s view that there is nothing to indicate that the aid at issue was granted in conformity with the applicable provisions (see Article 56 of the ECSC Treaty). All the other pleas once again come down to the question whether the two capital contributions formed part of a restructuring plan aimed at the complete reorganization of Alfa Romeo which, if it were successful, would contribute to lasting prosperity and stable employment in the sector and region concerned. Only in such a case is it possible to speak of "aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious under-employment" (Article 92(3)(a)) or of "aid to facilitate the development of certain economic activities or of certain economic areas" (Article 92(3)(c)). Aid which does not envisage any lasting effect does not fall within those provisions and in sectors where intra-Community trade is intense it is likely merely to affect trading conditions in a manner harmful to Community interests.
The existence of a comprehensive and credible restructuring plan is thus of decisive significance not only in the classification of a capital contribution as an aid measure within the meaning of Article 92(1) of the EEC Treaty, where it is necessary to determine whether a reasonable investor would make such a contribution (see section 14 above). It is also decisive in assessing the justification of a measure which must be deemed in principle to be an aid measure, in relation to a large undertaking which in view of its importance is in a position to influence sectoral or regional development. (71) In the case of an undertaking of that size, the restructuring and the reorganization of the undertaking will also lead to a lasting improvement in the economic development and employment in the sector or region.
18. The Commission has a wide discretion in assessing the circumstances under which an aid measure may exceptionally be authorized on the basis of Article 92(3). In the exercise of that discretion, it sets out in detail in Part X of the contested decision the reasons for which the measures examined by it do not accord with its policy. In that connection, it attaches great importance to the lack of a restructuring plan containing measures to reduce unused production capacity. It points out that in a sector which in 1985 and 1986 had considerable excess production capacity in the Community, only recovery measures capable of assisting in resolving that problem may be deemed to assist in the recovery of that sector. (72) It emphasizes that it has consistently adopted that attitude in similar cases such as the grant of aid to Renault and Rover. (73)
I have already said that in my opinion the Commission was entitled to take the view that the capital contributions in 1985 and 1986 did not form part of a restructuring and investment plan intended to ensure Alfa Romeo' s complete recovery; nor has it been shown that that was required by the prospective purchaser as a condition of the takeover (see above, sections 14 and 15). With regard to the latter point, it has not been shown, as is required by the Court' s case law, (74) that in the absence of those aid measures the buyer would not have made the investments contemplated. Since it has also been shown that the aid is such as to affect intra-Community trade (see section 7 above), I am of the view that the Commission did not exceed the limits of its discretion.
19. In relation to the statement of the reasons on which the decision is based, I should like to make a further general observation. It appears from a reading of decisions in similar cases, such as Renault and Rover, and from a comparison of them with the present decision, that the statement of reasons in the former decisions is more specific and more detailed. In those cases the aid measures were notified to the Commission beforehand and/or were discussed with the Commission under the "Article 93(2)" procedure on the basis of detailed information. Where a Member State' s failure to notify aid measures and the inadequacy of the information supplied by it hampers the administrative investigation and affects the reasoning on which the decision taken is based, responsibility for that situation lies solely with the Member State concerned. It may, moreover, be inferred from the Court' s case law that the legality of a contested decision must be assessed on the basis of the information available to the Commission at the time when it took its decision. (75)
Recovery of the aid
20. Article 2 of the contested decision provides that the Italian Government must recover the aid referred to in Article 1 from Finmeccanica within a period of two months. The Italian Government alleges that that recovery requirement is not justified (fourteenth plea). First of all, it observes that the EEC Treaty provides for the abolition or alteration of aid measures, and not recovery of aid granted. It goes on to argue that even if recovery of aid may, nevertheless, be required, such requirement does not follow automatically from the illegality of the aid. Recovery may be required by the Commission only when that is necessary in order to bring an end to the distortion of competition caused by the aid and such a decision must contain an explicit statement of reasons, which the Commission did not provide. Moreover, the recovery of the aid from Finmeccanica cannot bring an end to distortion of competition in the motor vehicle sector - on the supposition that any distortion remains following the sale of the main assets to Fiat - since Finmeccanica is not itself active in that sector. The recovery from Finmeccanica of the aid must therefore be regarded as a penalty which is not provided for by the Treaty. Finmeccanica should be liable only for Alfa Romeo' s old debts and hidden liabilities, and cannot be liable to any penalties.
21. As regards the observations concerning the possibility of recovering aid and the reasoning requirement, it is sufficient to refer to the Court' s case law. As early as 1973, in its judgment in Case 70/72, the Court held that in order for the abolition or alteration (as provided for in Article 93(2)) of an aid measure to be effective, it may be accompanied by an obligation to repay the aid found to be contrary to the Treaty. (76) Recovery, the judgment in Case C-142/87 adds, is the "logical consequence" of a finding of invalidity, (77) which, it may be inferred, thus requires no specific reasoning.
Similarly, in the contested decision, the Commission requires the Italian Government to recover the aid not from the actual recipient, the Alfa Romeo group, but from Finmeccanica. It seems to me that in this respect specific reasoning is required on the Commission' s part, and that is provided in the contested decision. The Commission points to the particular circumstances of the case. First of all, as a result of the failure of the Italian Government to notify the aid, the Commission was able to initiate the "Article 93(2)" procedure only belatedly, that is to say after the sale of Alfa Romeo' s assets. Secondly, when Fiat took over the main assets, paying a proper price for them, it limited its financial liability for Alfa Romeo' s debts to LIT 700 thousand million. (78) In view of those factors, the Commission is of the view that Finmeccanica is liable to pay back the aid, as the party liable for the remaining liabilities of Alfa Romeo not taken over by Fiat and the sole beneficiary of all the proceeds of the sale of Alfa Romeo' s assets. (79)
22. It seems to me correct that recovery may in no event be required of Fiat, since that undertaking took over only certain specified assets of Alfa Romeo for a price found by the Commission to be appropriate, and restricted its financial liability for Alfa Romeo' s debts on the takeover to LIT 700 thousand million (indeed, the acquirer of specific assets would not normally have any such liability). On the other hand, it appears from the contested decision that all debts not taken over by Fiat - and the remaining assets except for certain credits - were transferred to Finmeccanica (80) (see section 3 above, in fine). Moreover, the Italian Government does not deny (81) that Finmeccanica is liable for Alfa Romeo' s remaining debts (with the exception, it says, of liability to repay the aid granted on the ground that such repayment amounts to a penalty for which there is no liability).
In those circumstances, I consider that the Commission was entitled to order recovery of the aid from Finmeccanica. During the administrative procedure and subsequently in the written observations submitted to the Court, the Italian Government in fact considered Finmeccanica' s liability to be established under national law. (82) It seems to me that in stating reasons for the recovery obligation the Commission may take account of relevant provisions of national law and the existence of agreements validly entered into under national law.
In that connection, I should observe that the repayment of aid granted illegally is not a sanction but a civil law liability arising out of the unlawful and thus undue payment of aid (to Alfa Romeo), and as such may be transferred (to Finmeccanica). It is thus of no significance, in my view, that, as the Italian Government reiterates, the distortion of competition and of intra-Community trade occasioned by the aid can no longer be remedied by recovery, or that the aid granted can no longer have any effect on the motor vehicle sector. As the Court has held, recovery of the aid is the logical consequence of the finding that the grant of the aid is unlawful, (83) irrespective, it seems, of the consequences of recovery or non-recovery. If the Court nevertheless wishes to take account of those consequences, it must also take account of the fact that if the unlawfully granted aid is not recovered it may (help to) cause distortions in sectors in which Finmeccanica is involved other than the motor vehicle sector.
23. It may be seen from the foregoing that it is a general rule applicable to the recovery of unlawfully paid aid that the aid must be recovered from the beneficiary or the party which has taken over liability for repayment from the beneficiary. In the present case, that is Finmeccanica to which all Alfa Romeo' s remaining liabilities (and assets) were transferred. If that transfer had not occurred, the repayment obligation would have remained with the original Alfa Romeo companies, the beneficiaries of the aid, even if, meanwhile, the shares in those companies had passed into other hands. If, on that hypothesis, those companies had been placed in liquidation, it would have been for the liquidators, under their personal responsibility to make provision for repayment of the aid.
Having regard to the foregoing, I consider that in the specific circumstances of this case the Commission stated sufficient reasons for the order that the aid be recovered from Finmeccanica.
Conclusion
24. I propose that the Court dismiss the action for the annulment of the contested decision and order the Italian Government to pay the costs.
(*) Original language: Dutch.
(1) OJ L 394, p. 9.
(2) The structure of the Alfa Romeo group after the capital contributions which form the subject of the contested decision is described in the first paragraph of Part VI of the decision.
(3) Third paragraph of Part VI of the contested decision. In 1985 the net financial liabilities of Alfa Romeo amounted to LIT 1 427.7 thousand million.
(4) First paragraph of Part VI of the contested decision.
(5) First paragraph of Part V of the contested decision.
(6) Second paragraph of Part VII of the contested decision.
(7) The principal aspects of the new production plan, which was aimed at a break-even point of approximately 300 000 vehicles a year, were: (1) renewal of the model range and shortening of the production life of models; (2) an agreement with the Fiat group for the production of common components; and (3) a joint venture with the Japanese firm Nissan for the production of a new light car (Arna) for which Alfa Romeo would supply the same engines as those used in the Alfasud (third paragraph of Part V of the contested decision).
(8) Third paragraph of Part V of the contested decision.
(9) Fourth paragraph of Part V of the contested decision.
(10) Fifth paragraph of Part V of the contested decision.
(11) Fifth paragraph of Part X of the contested decision; and see also the application, at p. 6, third paragraph. In the contested decision the Commission states that the investment plan (1986 to 1988) was also aimed at the development of new markets, but that was contested by the Italian government during the written procedure (application, p. 49, first paragraph).
(12) Fifth paragraph of Part X of the contested decision.
(13) With regard to the capital contribution for 1986, see the fifth paragraph of Part X of the contested decision; with regard to the capital contribution for 1985 see the application, at p. 6, third paragraph.
(14) In 1986, production capacity was still 400 000 vehicles per year with a rate of utilization of 42% (second paragraph of Part VI of the contested decision).
(15) Sixth paragraph of Part V and second paragraph of Part VI of the contested decision.
(16) Second paragraph of Part VII of the contested decision.
(17) Seventh paragraph of Part V of the contested decision. In the contested decision the Commission does not discuss the conclusions of those assessments in detail owing to their "confidential" nature. In the course of the written procedure, the Commission stated that an assessment by the First Boston Corporation showed inter alia that Alfa Romeo would incur losses until 1996, and that the group required massive investments (LIT 4 000 thousand million according to Ford and LIT 5 000 thousand million according to Fiat) which, owing to the limited levels of production, could not offer an appropriate return on investment (ROI).
(18) Eighth paragraph of Part V of the contested decision.
(19) Twelfth paragraph of Part V of the contested decision.
(20) Thirteenth and fourteenth paragraphs of Part V of the contested decision. Fiat also took over LIT 700 thousand million of the net financial liabilities of the Alfa Romeo group (fourteenth paragraph of Part V of the contested decision).
(21) Fifteenth paragraph of Part V of the contested decision. Finmilano and Sofinpar retained the possibility of utilizing tax credits accumulated through the losses, which was the main reason for the acquisition by the two banks.
(22) Second paragraph of Part XI of the contested decision. The decision speaks of the liquidation of "Alfa Romeo SpA", which had however changed its name to "Finmilano" in May 1987.
(23) Second paragraph of Part I of the contested decision. There is little specific information on this capital injection. The decision states that it was a capital contribution made by two legal persons, namely Finmeccanica and IRI; it is not known in what proportion. It also appears that following this capital increase Alfa Romeo SpA was owned as to 84% by Finmeccanica and as to 16% by IRI. The capital contributed is said to have been provided by the Italian state (see below, footnote 35). The money was used by Alfa Romeo to cover losses suffered during the 1984 financial year and the first half of 1985 (losses which amounted to LIT 98 thousand million and LIT 111 thousand million respectively), from which I infer that a reduction in capital of LIT 209 thousand million occurred immediately after the increase in capital.
(24) Application, p. 6, third paragraph, and p. 22, last paragraph.
(25) Third, fourth, fifth, sixth and seventh paragraphs of Part I of the contested decision.
(26) Parts II and III of the contested decision. It appears from the decision that in 1986 Alfa Romeo Auto had to reduce its capital by LIT 316.4 thousand million in order to cover losses suffered in 1985 and in the first quarter of 1986, following which the company' s capital was no more than LIT 20.2 thousand million. After the contribution of LIT 408.9 thousand million made by Finmeccanica and its subsidiary Saiga, Alfa Romeo Auto was owned as to 49% by Finmeccanica, as to 33.4% by Alfa Romeo SpA, and as to 17.6% by Saiga (the shareholding of Alfa Romeo SpA resulting from a contribution of LIT 200 thousand million which, if I understand the matter correctly, was made at the same time as the abovementioned contributions: see the second paragraph of Part VII). The LIT 408.9 thousand million injected into the company came from IRI, which financed that contribution by means of a loan on which the interest was paid by the Italian state (see footnote 35).
(27) First paragraph of Part III of the contested decision; see also the eleventh and twelfth paragraphs of Part VII of the contested decision.
(28) Second paragraph of Part IV of the contested decision.
(29) Although the two offers were not identical and were therefore difficult to compare, the Commission found that the offer made by Ford was on average a little more favourable but in contrast to Fiat' s offer entailed future commercial risks for Finmeccanica. That justified Finmeccanica in opting in favour of Fiat (seventeenth paragraph of Part VII of the contested decision).
(30) Last paragraph of Part VII of the contested decision.
(31) Article 1 of the contested decision.
(32) Article 2 of the contested decision.
(33) Case 303/88 Italy v Commission [1991] ECR I-1433.
(34) Judgment in Joined Cases 67, 68 and 70/85 Van der Kooy v Commission [1988] ECR 219, paragraphs 35 to 38. See also the judgment in Case 290/83 Commission v France [1985] ECR 439, paragraph 15, and my Opinion cited in footnote 33 above, at paragraphs 6 and 7.
(35) The 1985 capital injection was made with part of IRI' s funds which it obtained under Article 14 of the 1985 Italian budget for the recapitalization and stabilization of undertakings, in particular in the automobile sector. Finmeccanica, which itself did not have the necessary funds available, obtained the capital which it contributed from IRI. For the 1986 capital injection Finmeccanica, which again in that year did not itself have the necessary funds once more received from IRI the capital contributed by it (and by its subsidiary, Saige). IRI raised the funds by making use of the possibility provided for in Decree Law No 547/85 of 19 October 1985 and the 1986 budget of taking out loans on which the interest was paid by the State.
(36) No such formal connection was present in the Van der Kooy case (footnote 34), for example, in which the aid was not in fact borne by the exchequer.
(37) France v Commission [1988] ECR 4067, paragraph 19.
(38) See in more detail on that point my Opinion of 11 October 1990 in Case 303/88, cited above in footnote 33, at paragraph 19.
(39) Contested decision, Parts I to III.
(40) That, it says, is particularly true of the 1985 capital contribution. According to the Italian Government the intention to provide "aid" was apparent from the 1985 budget, Law No 887/84, cited above in footnote 35, which was published in the Italian official gazette and was thus presumed to be known by all (and therefore also by the Commission).
(41) Case 301/87 France v Commission [1990] ECR I-307, at paragraphs 19 to 24.
(42) See, for example, the judgment in Joined Cases 296 and 318/82 Netherlands and Leeuwarder Papierwarenfabriek v Commission [1985] ECR 809, at paragraph 20; the judgment in Case 234/84 Belgium v Commission (Meura) [1986] ECR 2263, at paragraphs 14 and 15; the judgment in Case 40/85 Belgium v Commission (Boch II) [1986] ECR 2321, paragraphs 13 and 14; the France v Commission judgment cited in footnote 41 above and the judgment in Case C-142/87 Belgium v Commission (Tubemeuse) [1990] ECR I-959, paragraphs 26 and 29.
(43) Application, p. 18.
(44) Application, pp. 18 and 19.
(45) Application, p. 19, point 3.
(46) Application, p. 20, point 4. According to the contested decision, Finmeccanica ultimately received LIT 1 223.5 thousand million for the sale of Alfa Romeo (LIT 1 024.6 thousand million from Fiat and LIT 198.9 thousand million from the Banco di Roma and Credito Italiano), which, according to the Italian Government, is much more than the amount of the capital contributions in 1985 and 1986. The Commission, however, observes that the amount to be paid by Fiat was spread over five years beginning on 2 January 1993 and consequently, discounted to 1 January 1987, amounted only to LIT 389.9 thousand million (contested decision, Part VII, eighteenth paragraph and footnote).
(47) Application, p. 6 and pp. 22 to 23.
(48) Application, pp. 20 to 23.
(49) Application, p. 24.
(50) Application, p. 24.
(51) Application, p. 25.
(52) Contested decision, Part VII, ninth paragraph.
(53) See footnotes 23 and 26 above.
(54) See section 4 above and the reference there to the contested decision.
(55) See the judgments already cited above in footnotes 41 and 42, Case 234/84 Belgium v Commission (Meura), at paragraph 14, Case 40/85 Belgium v Commission (Boch II), at paragraph 13, Case 301/87 France v Commission (Boussac), at paragraph 39, and Case C-142/87 Belgium v Commission (Tubemeuse), at paragraph 26.
(56) See the judgments in Case 234/84 (Meura), at paragraph 14, and Case 40/85 (Boch II), at paragraph 13, already cited in footnote 42.
(57) See my Opinion cited in footnote 33, at paragraph 14.
(58) At the hearing the agent of the Italian Government referred to a number of private groups whose component companies had for a long period suffered losses. Such comparisons must be treated with caution. They were often small parts or subsidiary companies of groups which were profitable as a whole. The loss-making nature of a company in a group is influenced by a whole series of factors (not least those of a fiscal nature) which can lead to a situation in which as a result of "transfer pricing" or other income transfers, profits or losses within the group are concentrated at one point or another. There is no evidence that such transfers within IRI or Finmeccanica might have contributed to Alfa Romeo' s losses; quite the contrary.
(59) See the references to the contested decision in footnotes 24, 28 and 13.
(60) Contested decision, Part X, seventh paragraph.
(61) Commission decision 88/454/EEC of 29 March 1988 concerning aid provided by the French Government to the Renault group, an undertaking chiefly producing motor vehicles (OJ L 220, p 30).
(62) Commission decision 89/58/EEC of 13 July 1988 concerning aid provided by the United Kingdom Government to the Rover group, an undertaking producing motor vehicles (OJ 1989 L 25, p 92).
(63) Italy also refers to the Daimler Benz case, in which the Commission terminated the Article 93 procedure (Sixteenth Report on Competition Policy 1986, point 230). According to the Commission, that case also involved productive investments.
(64) Contested decision, Part X, first paragraph.
(65) Contested decision, Part IV, second paragraph.
(66) Cited above in footnote 62.
(67) Contested decision, Part V, sixteenth paragraph.
(68) Cited above in footnote 62.
(69) See footnote 63.
(70) Cited above in footnote 61.
(71) See the Boussac judgment cited above in footnote 41, at paragraph 54.
(72) Contested decision, Part X, sixth paragraph.
(73) Contested decision, Part X, seventh paragraph.
(74) Judgment in Case 730/79 Philip Morris v Commission [1980] ECR 2671, at paragraphs 16 and 17.
(75) See, for example, the Meura judgment cited in footnote 42 above, at paragraph 16.
(76) Judgment in Case 70/72 Commission v Germany [1973] ECR 813, paragraph 13.
(77) See the Tubemeuse judgment cited above in footnote 42, and the judgment in Case 310/85 Deufil v Commission [1987] ECR 901, at paragraph 24.
(78) Contested decision, Part XI, second and third paragraphs.
(79) Contested decision, Part XI, fourth paragraph.
(80) Contested decision, Part V, fifteenth paragraph.
(81) In the Italian Government' s application, it is stated at page 54: "Moreover, Finmeccanica in fact merely took over previous debts and unforeseen liabilities of Alfa Romeo" ( but with the exception, it goes on, of what it calls penalties). To justify recovery of the aid from Finmeccanica the Commission refers, on page 20 of its defence, to "the liability of Finmeccanica (which held more than 99% of Alfa Romeo' s capital), for the totality of Alfa Romeo' s debts in accordance with Article 2362 of the Italian Civil Code." In its reply, the Italian Government does not dispute that obligation. It merely asserts that "in fact, it is not relevant to argue that, under Italian law, Finmeccanica is liable for Alfa Romeo' s debts ...".
(82) It is not clear whether that liability is based on Article 2362 of the Civil Code, as the Commission states in its defence, cited above in footnote 81, or whether it stems from a commitment freely entered into by Finmeccanica or for which it is otherwise liable, whether or not in the context or as a result of the liquidation of the Alfa Romeo companies (see contested decision, Part XI, second paragraph).
(83) See the Tubemeuse judgment cited above in footnote 42, at paragraph 66.
Translation
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