(3) of the EEC Treaty lists those aids which may be compatible with the common market. Compatibility with the Treaty must be determined in the context of the Community as a whole and not of a single Member State.
In order to safeguard the proper functioning of the common market and taking into account the principles of Article 3 (f), the derogations from the principle of Article 92 (1), as set out in Article 92 (3), must be construed narrowly when an aid scheme or any individual aid measure is scrutinized.
In particular, they may be applied only when the Commission is satisfied that the free play of market forces alone, without the aid, would not induce the prospective aid recipient to adopt a course of action contributing to the attainment of one of the said objectives.
With regard to the exceptions provided for in Article 92 (3) (a) and (c) for aid that promotes or facilitates the
development of certain areas, the application of the aid measure cannot benefit from the exceptions provided for in the abovementioned derogations. Although some of Alfa Romeo's production plants are located in regional assisted areas, the aid measures under consideration constitute rescue aid, which caused serious distortion of competition in the Community car industry since they were not linked to a restructuring plan which would solve the structural problems of the company and restore its viability. Therefore, they cannot be considered to have contributed to the long-term economic development of the regions since they did not secure the long-term viability of employment and were not linked to the regional economy and thus do not qualify as acceptable regional aid. The Commission has followed this approach in previous cases relating to rescue aid for companies operating in such regions. This was confirmed by the Commission's communication on the method for the application of Article 92 (3) (a) and (c) to regional aid (13). Moreover, the Italian Government has not in fact attempted to justify the aid on regional grounds.
As regards the exceptions provided for in Article 92 (3) (b), it results from the foregoing that the aid in question was not intended or designed to promote the execution of an important project of common European interest or to remedy a serious disturbance in the Italian economy. Furthermore, the Italian Government has not invoked this derogation.
With regard to the exception provided for in Article 93 (3) (c) in respect of 'aid to facilitate the development of certain economic activities', the Commission may consider certain sectoral aids to be compatible with the common market if two principles of Article 92 (3) (c) are met, i.e. the aid must be necessary for the development of the sector from a Community standpoint, and must not alter trading conditions to an extent contrary to the common interest (14). These principles were systematically verified in order to assess the compatibility of the two capital injections referred to above.
X
As regards the Lit 206,2 billion capital injection provided in 1985 and the Lit 408,9 billion provided in 1986, the analysis of Alfa Romeo's financial situation in 1985 and 1986 as described in section VI demonstrates that without the capital injection which improved the net worth of the company, Alfa Romeo would have had to face serious financial difficulties with its creditors. Moreover, there was no reasonable prospect of a return on capital invested. Therefore,
the capital injections which restored the finances of the Group constitute rescue aid which can only be regarded as compatible with the common market if it fulfils the conditions set out in the Commission's communication to the Member States of 24 January 1979:
- it must consist of cash aid in the form of loan guarantees or loans bearing normal commercial interest rates,
- it must be paid only for the time needed, generally not exceeding six months, to draw up the necessary and feasible recovery measures,
- it must not have any adverse effects on the industrial situation in other Member States,
- it must be notified to the Commission in advance in significant individual cases.
In view of the fact that the aids were not notified in advance, were used to compensate losses and reduce financial debt, were not linked to a restructering programme, were not paid in the form of loans, and had an adverse effect on the industrial situation in other Member States by enabling the company to continue to compete on an artificially improved financial basis, the capital injections are not compatible with the common market.
Moreover, it is clear from the Judgments of the Court of Justice in Cases 234/84, Meura and 40/85, Boch, that rescue aid will not qualify for one of the derogations under Article 92 where it does not help to restore a company to health, that is to say where the company cannot be expected to be operating on a viable basis without further assistance in a reasonable time, particularly where there is excess production capacity in the industry concerned in the Community. In the present case, it was clear from the late 1970s onwards, after considerable capital injections had been made for the purpose of covering losses during the period 1979 to 1983, that the Alfa Romeo Group would continue to rely heavily on State resources and public funds. This expectation was confirmed by events until December 1986 when State participation in this sector was finally terminated.
As explained in Section VII, without the capital injections of 1985 and 1986 the Alfa Romeo Group would, under normal market economy conditions, have gone into liquidation. Therefore, both capital contributions of Lit 206,2 billion and Lit 408,9 billion constitute rescue aid as they artificially enabled Alfa Romeo to remain in business. This rescue aid does not comply with the abovementioned criteria established in the Commission's letter to the Member States of 24 January 1979.
Furthermore, the argument put forward by the Italian authorities that the capital injection of Lit 408,9 billion was linked to an investment programme to be implemented
between 1986 and 1988, and should therefore be regarded as fully compatible with Community competition rules, cannot be accepted by the Commission. The Commission considers that the capital injection of Lit 408,9 billion in 1986 formed part of the total financial resources of the Alfa Romeo Group in 1986 amounting to Lit 1 129,5 billion, from which not only Lit 382,5 billion of investments were financed, but also losses for an amount of Lit 313,3 billion and net debts amounting to Lit 433,7 billion. Moreover, the Italian authorities were unable to prove that these investments served restructuring purposes linked to a reduction in the unutilized assembly capacity of 56 %. Indeed, the strategic plan of 1985 sets out the following three areas of investment in the period 1986 to 1988: reduction of production costs, reduction of overhead costs and development of new products and markets. Thus, the plan did not help to resolve the underlying structural problems of the company.
As market integration progresses as part of the process of creating a single market without internal frontiers by 1992, distortions of competition caused by granting aid are felt more and more keenly by competitors not receiving any aid. This fact has also to be taken into account by the Commission in its appreciation of aid cases. In this respect, the Commission considers that all manufacturers are entitled to a consistent approach compatible with the Treaty. Therefore, the Commission can approve rescue and restructuring aid only in exceptional circumstances. The aid must be linked to a satisfactory restructuring plan, and may be granted only where it can be demonstrated that the Community interest is best served by keeping a manufacturer in business and by re-establishing its viability. In particular, it is necessary for the Commission to ensure that the aid will not enable a beneficiary to increase its market share at the expense of its unaided competitors. In cases where certain companies still have excess capacity, the Commission may require reductions in capacity in order to ensure that the aid contributes to the overall recovery of the sector. In this context, it must be noted that in 1985 and 1986, the years during which Alfa Romeo was rescued through the two capital injectons, there was a significant over-capacity in the Community car industry of some 20 %.
The Commission has applied this policy consistently in the past. In the motor vehicle industry, which the Commission regards as a particularly sensitive sector, the Commission laid down in 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 (15), that rescue or restructuring aid may be regarded as compatible with the common market only if they are linked to a restructuring plan involving significant capacity reductions in proportion to the aid amount. The same principle was applied by the Commission in 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 (16), in connection with its sale to British Aerospace.
It has already been stressed that, contrary to the principle established in the abovementioned Decisions, the strategic plan of Alfa Romeo did not provide for a reduction in Alfa Romeo's considerable surplus capacity.
In view of these considerations, it must be concluded that rescue aid granted to Alfa Romeo enabled it to remain in business artificially by avoiding liquidation, the natural consequence of allowing the free play of market forces, and prevented other competitors from increasing their share of the market.
Consequently, the aid granted to Alfa Romeo in the form of capital injections of Lit 206,2 billion in 1985 and of Lit 408,9 billion in 1986 is not compatible with the common market because it does not fulfil the conditions of Article 92 (3) of the EEC Treaty.
XI
As pointed out in Section VIII, the Commission can in such cases require Member States to recover aid granted illegally from recipients.
To this end, it is necessary to withdraw the incompatible aid awarded to the Alfa Romeo Group in the form of capital injections of Lit 206,2 billion in 1985 and Lit 408,9 billion in 1986. In principle, the aid should be repaid by the beneficiary, i.e. Alfa Romeo. However, according to information supplied by the Italian Government by letter dated 21 July 1988, Alfa Romeo SpA went into liquidation on 31 December 1987 and transferred all its remaining assets and liabilities to Finmeccanica (see Section V). Thus, whilst it is no longer possible to recover the total amount of the aid of Lit 615,1 billion from the Alfa Romeo Group, the Commission would stress that the situation is the result of an infringement of Article 93 (3) of the EEC Treaty by the Italian Government. Because the aid was not notified in advance at the planning stage, the Commission was unable to initiate the administrative procedure provided for in Article 93 (2) in good time and was able to define its position only recently, i.e. after the sale of the Alfa Romeo Group.
It has to be considered that Fiat did not acquire the totality of Alfa Romeo's assets and restricted its financial liability towards Alfa Romeo's net financial debts to not more than Lit 700 billion. Therefore, Fiat is not liable for the repayment of the aid, given also the fact that it paid a fair price for the acquired assets of Alfa Romeo.
In view of the very special circumstances, therefore, the aid should be recovered from the legal entity which is liable for all the debts of the former Alfa Romeo group exceeding the Lit 700 billion taken over by Fiat, the owner of the Alfa Romeo Group, and which acted as vendor of that Group, i.e. Finmeccanica. Moreover, Finmeccanica is the sole beneficiary of all the revenue generated by the sale of the assets of the former Alfa Romeo Group, i.e. Lit 1 223,5 billion, of which Lit 1 024,6 billion was received from Fiat and Lit 198,9 billion from Credito Italiano and Banco di Roma. The Italian Government should therefore be required to order Finmeccanica to repay the aid in question within two months from the date of this Decision.
The aid should be recovered in accordance with the procedures and provisions of national law including those concerning interest charges on State claims if Finmeccanica does not repay the aid within the two months referred to above,
HAS ADOPTED THIS DECISION:
