3.3.2.1 Market economy investor principle

This was, for example, the case in relation to a capital injection by the Austrian State in Hypo Steiermark. This injection was held not to be aid where private investors subscribed to 75% of the capital increase.3

In the case of ING, it was in debate whether the amendment to the repayment terms of the capital injection by the Netherlands constituted State aid. The Commission decided that the amendment constituted State aid, because it would result in an additional advantage for ING. The Netherlands and ING brought actions against this decision before the GC. The GC held in a judgment of 2 March 2012 that the Commission cannot evade its obligation to assess the economic rationality of the amendment to the repayment terms in the light of the private investor test solely on the ground that the capital injection subject to repayment itself already constituted State aid.5 The Commission appealed the judgment before the ECJ, but also took a new decision in which it concluded that a market economy private investor would not have agreed to those new terms. It therefore decided, again, that the amendment constituted State aid.6 The ECJ upheld the judgment of the GC. It assessed that an economic advantage must be assessed in the light of the private investor test, if it appears that the Member State concerned has conferred that advantage in its capacity as shareholder of the undertaking belonging to it. Where it appears that the private investor test may be applicable, the Commission is under a duty to ask the Member State concerned to provide it with all relevant information enabling it to determine whether the conditions governing the applicability and the application of the test are met. It furthermore considers that any holder of securities in whatever amount and of whatever nature may wish or agree to renegotiate the conditions of their redemption. It is, consequently, meaningful to compare the behaviour of the State in that regard with that of a hypothetical private investor in a comparable position. What is decisive in the context of that comparison is whether the amendment to the repayment terms of the capital injection has satisfied an economic rationality test, so that a private investor might also be in a position to accept such an amendment, in particular by increasing the prospects of obtaining the repayment of that injection.7

Another example of the application of the market economy investor principle is the participation of the State and private investors in Dexia. In this case, the Commission decided, albeit that the State and private investors participated on the same terms, that these terms were accepted at the height of the financial crisis under entire ly abnormal conditions. The Commission subsequently considered that the market economy investor principle only applies under normal market conditions and considered the participation of the State to be State aid.8 This approach has however been criticized in literature.9

Another – more recent – example concerns the Italian securitization scheme designed to assist Italian banks to move NPLs off their balance sheets. The Commission assessed that this scheme did not qualify as State aid, since the pricing structure provided was in line with market conditions. The risk taken by the State by guaranteeing the senior notes issued by the securitization vehicle buying the non-performing loans was remunerated at a level which a market operator would require, including a strong link between the risk taken and the composition of the benchmark basket as well as be tween the time during which that risk was retained and the remuneration paid.10