Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.5.1.3:3.5.1.3 Council assessment in exceptional circumstances

Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.5.1.3

3.5.1.3 Council assessment in exceptional circumstances

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If justified by exceptional circumstances, the Council may also decide, on application by a Member State and acting unanimously, that aid which that State is granting or intends to grant shall be considered to be compatible with the internal market, in derogation from the provisions of Article 107 TFEU or from the regulations provided for in Article 109 TFEU. If, regarding the aid in question, the Commission has already initiated its assessment, the fact that the State concerned has made its application to the Council has the effect of suspending that procedure until the Council has made its attitude known. If the Council has not made its attitude known within three months of the said application being made, the Commission may give its decision on the case.1

Gray and De Cecco mention this possibility for Member States to request the Council to decide on the compatibility of State aid as a reason for the Commission to not adopt a too rigid interpretation of the State aid rules during the GFC. If the Council had made use of its power to override a Commission State aid decision, this would have led to undermining the normative authority of State aid control.2

The case-law of the EU Courts gives the Council an extensive margin of discretion in deciding whether or not exceptional circumstances exist. Nevertheless, the procedure is exceptional, and it must not be abused by the Council. In particular, the Council cannot intervene after the Commission has adopted a final decision that the aid concerned is incompatible with the internal market. Nor can the Council seek to neutralize the effects of a recovery decision by declaring a new aid to be compatible with the internal market. Council decisions are rare, because of the difficulty of reaching unanimity.3

The Council has, for example, used this power on request of the authorities of the Republic of Latvia to authorise aid for the purchase of agricultural land.4 Another example is the use of this power on request of the Government of Portugal to authorise the provision of aid to Portuguese pig farmers. The decision by the Council was, however, annulled by the ECJ on request of the Commission.5 In September 2008, French President Sarkozy put forward the proposal to make use of Article 108(2) TFEU in relation to the award of crisis aid to the banking sector. However, the unanimity requirement was not met.6

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