Member states will welcome the ruling, which confirms that they will not automatically be held accountable under state aid rules for any public declarations that they make in support of state-owned businesses in financial difficulties.
The CJEU said that the Commission had made a number of errors in its assessment and, in particular, that it had misapplied the "market economy investor principle" (MEIP) test which is used to decide whether public investment measures should be disqualified as state aid.
The CJEU also said that public declarations made by the French government in July 2002, to the effect that that it would support France Telecom if necessary, could not have amounted to state aid.
In 2002, France Télécom was facing financial difficulties, and the French minister for economic affairs made a number of public declarations between July and December to the effect that the French authorities would take whatever decisions were necessary to help the company's recovery. In December France Télécom launched an action plan to strengthen its capital base, in response to which the state offered support and made a shareholder loan offer.
Both the action plan and the loan offer were notified to the Commission. However, France Télécom's close competitor, Bouygues, complained to the Commission that the public declarations that previously had been made by the state granted an unfair advantage to France Télécom and constituted unlawful state aid.
The Commission agreed that it could not assess the measures without also considering these public declarations, and that together this constituted state aid incompatible with the internal market.
The public declarations formed a set of measures that took concrete shape in the action plan and the loan offer, the Commission said. This demonstrated that the state had decided to support France Télécom as early as July 2002 and that that date should be the starting point of the assessment, it said.
The Commission also found that while the measures granted an advantage to France Télécom, the criteria of the MEIP test were not met, and the measures therefore constituted state aid incompatible with the internal market. In the light of the company's difficult financial situation, the overall context of loss of market confidence at the time and the lack of any credible and realistic debt-reduction plan until December 2002, it was unlikely that a private investor would have made declarations similar to those made by the French government and would have granted a shareholder loan, the Commission said.
The decision was the object of two rounds of appeals. The first one lead to General Court annulling the decision and to the CJEU referring the case back to the General Court for it to give a ruling on arguments that it had not dealt with in its first judgment.
In 2015, the General Court once again annulled the Commission’s decision on the grounds that the Commission had not correctly applied the MEIP test. On appeal from the Commission, the Court of Justice upheld the judgment of the General Court and definitely annulled the Commission's decision.
Assessing state aid
Under EU state aid rules, member states must obtain approval from the Commission for any plans to grant or alter state aid before implementing the measures. There are only two exceptions to this rule: when the aid measure meets the criteria of de minimis regulation or the criteria of general block exemption regulation.
For a measure to constitute state aid, four elements are needed: that aid is granted by a member state or through state resources; that it is granted to a certain undertaking or for the production of certain goods; that it is conferring a selective advantage on the recipient; and that the aid distorts or threatens to distort competition and trade between member states.
A measure confers an "advantage" if it leads to an improvement in the economic or financial position of the beneficiary.
Economic transactions by public bodies as investors are not deemed to confer an advantage, and therefore not to constitute state aid, if they are carried out in line with normal market conditions, and the MEIP test is designed to assess this.
The test involves a hypothetical assessment of a transaction to determine whether, in similar circumstances, a private investor of a comparable size operating under normal market economy conditions could have been prompted to make the investment in question.
The test is based on the assumption that a market economy investor is motivated solely by the possibility of making profits or a return on investment and ignores all other objectives, no matter how worthy they are. Therefore, a hypothetical market economy investor would not provide an advantage to a certain undertaking without demanding compensation for the value that its actions generated for the beneficiary. As such, the test requires a public body investor to behave in the same way as a market economy investor, motivated solely by the possibility of making profits and not by wider social issues.
According to settled case law, the MEIP analysis must be conducted in relation to the information that was available at the time when the decision was taken to make the investment. The financial measure or investment is not assessed with the benefit of hindsight and it is irrelevant if the investment subsequently turns out to be profitable if at the outset there was no realistic benefit involved for the public body.
In the France Télécom case, the main issue was the date when the MEIP analysis should begin.
The Commission paid particular attention to declarations made by the French minister for economic affairs and finance in an interview published in a national financial newspaper in July 2002. The French minister declared that "the state shareholder will behave like a prudent investor and if France Télécom were to face any difficulties, then we would take appropriate steps".
The Commission considered that these declarations and their impact on the market came from the state and showed that the state had decided to support the company as early as July 2002. This had a "contaminating" effect on the market situation and should therefore be used as the starting point of the MEIP analysis.
As the Commission considered that the July 2002 declarations did not satisfy the MEIP criterion it was able to claim that the loan offer was not made under circumstances corresponding to normal market conditions.
The CJEU has now said that the Commission chose the wrong evidence on which to apply the MEIP test.
Although these declarations had an impact on the market, they did not create legal obligations on the state, the CJEU said. They were open-ended, imprecise and conditional as regard the nature, scope and conditions of any state intervention in favour of France Télécom, it said. When considered in context they could not conclusively be interpreted as a concrete and firm commitment by the state to provide specific support to France Télécom. The authorities were simply seeking to quickly reassure financial markets, without specifying what the proposed support might be. Therefore, they did not confer an advantage, the CJEU said.
According to case law, the Commission must apply the MEIP test when the state measure is adopted. Therefore, the Commission should have applied the MEIP test to the announcement on December 2002 when the action plan was launched and the loan offer made, the court said.
The Commission was entitled to include the declarations from July 2002 in its analysis as earlier facts or events, but those earlier events could not be regarded as decisively constituting, in themselves, the relevant reference point for applying the MEIP.
It is settled case law that the MEIP analysis must be conducted in relation to the information that was available at the time when the decision to make the investment was taken, and that factors arising after the measure is adopted cannot be taken into account. The time when the decision to make the investment is taken and the time when the measure is granted will not necessarily be the same, given that the decision could be taken well before the measure is granted.
The decision to provide France Télécom with financial support through the shareholder loan offer was taken in early December 2002. Taking July 2002 as the date for the MEIP test would have excluded relevant factors about later events from that assessment, the CJEU said.
The decision will be welcomed by the market, which will be reassured that states can take the necessary steps to support large state owned businesses when they fall into financial difficulties that these measures will be assessed under the state rules in their own rights and in the context that they are made, and that they will not be held accountable automatically for any public statements of potential financial support that they may make.
Caroline Janssens is a state aid expert with Pinsent Masons, the law firm behind Out-Law.com.