The Commission decision of 26 June 1996 refusing to authorise part of the aid granted by Germany to the Volkswagen Group for the Mosel and Chemnitz (former Trabant) works complies with Community law.
German reunification in 1990 brought with it the collapse of demand for, and production of Trabant vehicles in Saxony. In order to safeguard the automobile industry in that region, the Volkswagen group entered into negotiations with the Treuhandanstalt, the public law body entrusted with restructuring the businesses of the former German Democratic Republic, which led to an agreement in October 1990.
Amongst other things, that agreement envisaged the reopening and restructuring of the former works at Mosel (Mosel I) and Chemnitz (Chemnitz I) with a view to their temporary operation and, subsequently, the construction of a new automobile works on the Mosel (Mosel II) and Chemnitz (Chemnitz II) sites.
By a first decision of 27 July 1994 (Decision 94/1068/EC), the Commission agreed to the payment of DM 487.3 million in restructuring aid for Mosel I and DM 84.8 million in such aid for Chemnitz I. By a second decision of 26 June 1996 (Decision 96/666/EC), the Commission agreed to the payment of DM 539.1 million in aid by way of compensation for regional handicaps faced by Volkswagen at Mosel II and Chemnitz II. However, it disallowed the balance of the aid envisaged, namely DM 240.7 million, holding that amount to be incompatible with Community law.
On 8 July 1996, the Free State of Saxony (Freistaat Sachsen) nevertheless paid Volkswagen DM 90.7 million in the form of investment grants, even though they had been declared incompatible with the common market. (Part of that aid has since been repaid).
On 26 August and 13 September 1996, the Free State of Saxony and the Volkswagen group brought two actions before the Court of First Instance seeking partial annulment of the second Commission decision, of 26 June 1996, concerning Mosel II and Chemnitz II. Germany has intervened in support of the State of Saxony and Volkswagen, the United Kingdom in support of the Commission.
The Court of First Instance has dismissed those actions.
Article 92(2)(c) of the EC Treaty authorises as compatible with the common market `aid granted to the economy of certain areas of the Federal Republic of Germany affected by the division of Germany, in so far as such aid is required in order to compensate for the economic disadvantages caused by that division'.
In the judgment of the Court of First Instance, that provision does not permit wholesale compensation for the economic backwardness of the new Länder. Such an interpretation would disregard the fact that that provision is in the nature of a derogation and its context and aims. According to the Court, the words `division of Germany' refer, historically, to the partition into two zones carried out in 1948. Therefore, the `economic disadvantages caused by that division' mean only the economic disadvantages caused by the isolation resulting from the establishment or maintenance of that frontier. The differences in development between the old and new Länder are due to causes other than the division of Germany as such, and in particular to the different political and economic systems established in each State. The Commission did not therefore err in law by refusing to apply that derogation to regional aid for new investment projects.
Moreover, under Article 92(3)(b) of the EC Treaty, aid may be considered to be compatible with the common market if it is designed to remedy a serious disturbance in the economy of a Member State.
In the Court's judgment, a `serious disturbance in the economy of a Member State' within the meaning of that provision must affect the whole of the economy of the Member State concerned and not just the economy of one of its regions or parts of its territory. In the application for the annulment of the Commission decision, no reference is made to the state of the economy of the Federal Republic of Germany. Nor have the applicants established that the Commission made an obvious error of assessment in holding that the unfavourable repercussions of German reunification on the German economy, however true, did not in themselves constitute a ground for applying that derogation from the aid system.
The Court also draws attention to the fact that the Commission has a wide discretion in monitoring State aid, which involves complex assessments of an economic and social nature. In this case, it did not make any obvious error in its assessment of the amount of aid which the Volkswagen group might enjoy for the benefit of its investments in Saxony. It took ample account in its decision of the fact that the new Länder constitute `an underdeveloped region' where `the standard of living is low' and there is `extremely high unemployment which continues to grow', and therefore authorised intensive investment aid to facilitate regional economic development.
The Volkswagen group has already received significant aid for its investments at Mosel I and Chemnitz I, which allowed it to benefit from a fully operational automobile construction plant by 1994 at the latest.
The Court also points out that the Commission was entitled to refer to excess production capacity in the automobile industry, and therefore to take the Community interest into account, in disallowing payment of part of the aid in question, in so far as it exceeded compensation for the economic disadvantages affecting the new Länder by comparison with other unaided regions of the Community.
NB: an appeal, limited to points of law, may be brought before the Court of Justice of the European Communities against this decision of the Court of First Instance within two months of its notification.
Unofficial document for the use of the media, for which the Court of First Instance does not undertake responsibility. Full text available in German and French.
For the full text of the judgment, please consult our Internet page www.curia.eu.int at around 1500 hours today.
For further information, please contact Fionnuala Connolly, tel: (352) 4303 3355 fax: (352) 4303 2731.