Public funding of failing banks in the European Union (LBF vol. 19) 2020/6.3.2:6.3.2 Compliance with intrinsically linked provisions of the resolution framework

Public funding of failing banks in the European Union (LBF vol. 19) 2020/6.3.2

6.3.2 Compliance with intrinsically linked provisions of the resolution framework

Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.

With the introduction of the resolution framework, the Commission started to assess in its State aid decisions whether aid measures granted to the banking sector violate ‘intrinsically linked provisions of the BRRD and SRMR’. It is not indicated in the resolution framework which provisions qualify as ‘intrinsically linked’.1 In its decisions in relation to aid measures awarded to banks after the introduction of the resolution regime, the Commission considers that to ascertain whether a violation of a provision of Union law is indissolubly linked to the object of the aid, a relation of necessity has to be established. It means that the State aid measure has to be connected with a national measure in a way that necessarily breaches a specific provision of Union law which is relevant for the compatibility analysis under paragraphs 2 and 3 of Article 107 TFEU.2

Before the introduction of the resolution regime, the interaction between State aid rules and the resolution framework was already highlighted by the Commission’s assessment of the compatibility of State aid with the BRRD.3 For example, in the case of Panellinia Bank, the Commission assessed the compliance of measures with intrinsically linked provisions of the BRRD, although Greece had not yet transposed the BRRD into national law at that time.4

The obligation of the Commission to assess whether an aid measure violates intrinsically linked provisions of the resolution framework is in line with the jurisprudence of the EU Courts.

In a judgment of 15 June 1993 in the case of Matra v Commission5 the ECJ held that:

“41. It must be noted in this respect that while the procedure provided for in Articles 92 and 93 leaves a wide discretion to the Commission, and under certain conditions to the Council, in coming to a decision on the compatibility of a system of State aid with the requirements of the common market, it is clear from the general scheme of the Treaty that that procedure must never produce a result which is contrary to the specific provisions of the Treaty (judgment in Case 73/79 Commission v Italy [1980] ECR 1533, paragraph 11). The Court has also held that those aspects of aid which contravene specific provisions of the Treaty other than Articles 92 and 93 may be so indissolubly linked to the object of the aid that it is impossible to evaluate them separately (judgment in Case 74/76 Iannelli v Meroni [1977] ECR 557).

42. That obligation on the part of the Commission to ensure that Articles 92 and 93 are applied consistently with other provisions of the Treaty is all the more necessary where those other provisions also pursue, as in the present case, the objective of undistorted competition in the common market.”

In a judgment of 12 February 2008, the GC considered in relation to this obligation of the Commission that:

“[…] while that obligation is the expression of a general principle that every application of Community law must be made in conformity with the higher rules of law, it does not mean that the Commission is required, in a procedure relating to aid, to apply the rules specially laid down for review of the application of other provisions of the Treaty or to adopt one or more decisions producing combined legal effects. Under that obligation, the Commission is required to make an assessment by reference to the relevant provisions which are not, strictly speaking, covered by the law on aid only where certain aspects of the aid in issue are so closely linked to its object that any failure on their part to comply with those provisions would necessarily affect the compatibility of the aid with the common market.”6

In a judgment of 12 November 19927, the ECJ had to answer the question from a national court whether a decision by the Commission authorizing State aid could also authorize the Greek State to maintain in force provision of a law contrary to the Second Company Law Directive. The ECJ held that the discretion conferred on the Commission by Article 93 of the Treaty (Article 107 TFEU) in the field of State aid does not permit the Commission to authorize Member States to derogate from provisions of Community law (Union law) other than those relating to the application of Article 92(1) of the Treaty (Article 107(1) TFEU). 8

In a judgment of 2 May 2019, the ECJ had to assess, further to a request for a preliminary ruling from a Dutch court of appeal, whether a German investment company could request for a refund of dividend tax withheld at the source in the Netherlands. The investment company argued that refusing this refund was an infringement of free movement of capital. However, granting the refund would constitute illegal State aid. The ECJ assessed:9

“By contrast, the arrangements of an aid may be so indissolubly linked to the object of the aid that it is impossible to evaluate them separately so that their effect on the compatibility or incompatibility of the aid viewed as a whole must therefore of necessity be determined in the light of the procedure prescribed in Article 108 TFEU.

(…)

It does not therefore appear to be possible to separate such a condition, which is necessary for the attainment of the objective and functioning of that aid scheme, without adversely affecting the division of competences between the Commission and the national courts in the matter of State aid.

Consequently, it must be held that EU law precludes a national court from assessing whether a residence condition, such as that at issue in the main proceedings, complies with the free movement of capital, where the scheme for the refund of dividend tax concerned constitutes an aid scheme.”

The following elements can be derived from the case-law of the EU Courts:

a)

the Commission’s assessment of State aid awards may never produce a result which is contrary to the specific provisions of the EU Treaties;

b)

those aspects of aid which contravene specific provisions of the EU Treaties, other than Article 107 and 108 TFEU, may be so indissolubly linked to the object of the aid that it is impossible to evaluate them separately;

c)

the obligation of the Commission to ensure that Articles 107 and 108 TFEU are applied consistently with other provisions of the EU Treaties, is all the more necessary where those other provisions also pursue the objective of undistorted competition in the internal market;

d)

this does however not mean that the Commission is required, in a procedure relating to aid, to apply the rules specially laid down for review of the application of other provisions of the Treaty or to adopt one or more decisions producing combined legal effects.10 The Commission is required to make an assessment by reference to the relevant provisions which are not, strictly speaking, covered by the law on aid, only where certain aspects of the aid in issue are so closely linked to its object that any failure on their part to comply with those provisions would necessarily affect the compatibility of the aid with the internal market; and

e)

the discretion conferred on the Commission by Article 107 TFEU in the field of State aid does, in any event, not permit the Commission to authorise Member States to derogate from provisions of Union law.

The assessment on compatibility with intrinsically linked provisions of the resolution framework in relation to aid granted in and outside of resolution is further discussed in the next sections.

Deze functie is alleen te gebruiken als je bent ingelogd.