Category: Article

Counting other states’ money: some interesting statistics on EU budget

dr. Agne Limante 

Post-Graduate Diploma candidate in EU Law, King’s College London; PhD in EU law, Vilnius University

 

Recently THE GUARDIAN has released an interesting article titled: EU budget: what does the European Union spend and where does the money come from?, accompanied by a curiosity raising table showing the biggest contributors and receivers of EU budget money (See table here: EU27_Money).

Exceeding €122bn, an annual budget of EU is bigger than that of many countries, including its Member States. True, it amounts to around 1/10th of Germany’s budget, 1/9th of annual budget of France and almost 1/7th of that of the UK. On the other hand, its new Member State Romania, for example, lives on almost 4.5 times lower budget.

According to the data, most of the EU’s money comes from contributions of Member States – which amounted to €108.5bn in 2010. Also, considering the amount paid out of the EU budget to its Member States, it’s mainly the bigger and older EU Member States who bear all the costs. No surprise then that Germany is the leading contributor with an annual loss of €8,9bn, second comes the UK loosing €5.4 billion. Negative result is also achieved by France, Italy, the Netherlands, Sweden, Austria, Denmark and Finland.

The best in EU business is Poland gaining €8.5bn a year mostly for agriculture and cohesion (almost all the annual loss of UK). From the new Member States, the nearest competitors are Hungary (€2,8bn) and Czech Republic (€2,1bn), while others, despite the importance of EU funding to their budgets, do not pass the €1bn limit.

Of the old Member States, it is Spain (€4,3bn), Greece (€3,6bn), Belgium (€2,8bn), Portugal (€2,7bn), Luxemburg (€1,3bn) and Ireland (€0,9bn) who have positive results. Spain and Greece are generally making money from agriculture funding while Belgium and Luxemburg hosts many EU institutions receiving administration funds.

For euroskeptics, this graph is a good beginning for criticism. For pro-Europeans, it is a nice example of co-existence, working together and the basis for development of each state. But the numbers here do not show everything. What we do not see is how much each state gains from access to European markets and contracts, as well as economic chances followed by EU existence and its membership. Moreover, the data gives no proper information on how states economy is affected by incoming or outgoing labor force, and, even more importantly, we can evaluate neither the price of peace in Europe, nor the rights and freedoms enjoyed by its citizens.

The Commission unveils the “Almunia package” for the assessment of State support to providers of Services of General Economic Interest

Jose Manuel Panero Rivas, LL.M 

MA in Economics for Competition Law candidate, King’s College London


With some fanfare – for Brussels’ standards – the Commission unveiled in December 2011 its highly anticipated Almunia package for the assessment of State support granted to providers of Services of General Economic Interest (SGEIs)[i].

The new set of rules, named after Competition Commissioner Joaquin Almunia, substitutes the ‘post-Altmark package’ also known as ‘Monti package’ or ‘Monti-Kroes package’. Yes, as seen from the nick-names of the documents, paternity and maternity claims in the field seem to be notoriously high[ii].

Even if the reader is most likely familiar with the basics of EU State aid rules, it is worth recalling that it is considered State aid in the sense of Article 107 of the Treaty on the Functioning of the European Union (TFEU), and in principle prohibited “any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods”[iii]. However, the fact that a measure constitutes a State aid is not the end of the story as it can be declared compatible with the Treaty on the basis of Article 107(2) and (3) TFEU, as well as, in the case of SGEIs, under Article 106(2) TFEU.

The concept of SGEI, an EU law concept – but which is not defined by the Treaties – broadly corresponds with the notion of ‘public service’, and more precisely of a ‘service of an economic nature whose provision to the general public is considered to be essential’[iv]. Classic examples of SGEIs are basic postal services, energy supply or public transport[v].

In the specific field of the compensation by the State of the extra costs incurred by undertakings providing SGEIs there has been some controversy in the past between those who proclaimed the ‘non-aid approach’ (according to which the granting by the State of a compensation limited to the extra cost which an undertakings incurs to provide a SGEI is not a State aid) and the ‘aid-but compatible-approach’ (the support constitutes a State aid but is compatible insofar as it does not exceed the compensation of the extra costs incurred)[vi]. In 2003, the judgment of the Court of Justice of the European Union (CJEU) in the Altmark case[vii] settled the controversy, establishing a kind of ‘third way’ consisting in that when certain strict conditions are fulfilled, the measures adopted by the State cannot be classified as State aid. But these conditions were really strict and it was not that often that all Altmark conditions were fulfilled. In order to close the gap of what happens in these cases and assess the possible conformity with EU law of measures that could be compatible with the Treaties despite not fulfilling all of the Altmark conditions, the Commission issued the original ‘post-Altmark package’, now amended and refined[viii].

The new ‘Almunia package’ is composed of four instruments:

  1. A Commission communication (‘the Communication’)[ix] on the application of State aid rules to compensation granted for the provision of SGEIs. The Communication constitutes an innovation regarding the previous package.  Largely building on the CJEU’s case law, the Communication constitutes a useful reminder on essential elements for the assessment of State aid to SGEIs. However, in my view, the most interesting part of the Communication is its third section, where the Commission clarifies the conditions which would need to be fulfilled for a given State support to successfully pass the Altmark ‘non-aid’ test.
  2. A Commission horizontal decision (‘the Decision’)[x], declaring ex ante compatible with the Treaty under Article 106(2) TFEU the support granted to those undertakings mentioned in its Article 2.1 provided that all conditions established in the Decision are fulfilled. The Decision extends the ex ante compatibility to a larger range of social services than those covered in the previous package (which only included hospitals and social housing) and reduces and simplifies the threshold that, in general for other kinds of SGEI, triggers the notification even if the conditions of the Decision are fulfilled (reduced up to a compensation of EUR 15 million per year)[xi].
  3. A Commission framework (‘the Framework’)[xii] to assess State aid in the form of public service compensation. This provides the necessary conditions that a State aid to a SGEI requires for being declared compatible with the Treaty by the Commission.
  4. A proposal for a de miminis Commission’s Regulation for compensation of the provision of SGEI[xiii]. This is also an innovation of the package vis-à-vis the previous rules, which did not provide for a specific de minimis rule. The Regulation is expected to be adopted in spring and mentions a maximum amount of support of EUR 500,000 during three years for SGEI providers outside certain sectors[xiv].

There are multiple ways of evaluating the package. However, thanks to the relative freedom of format given here – do not forget this is a blog – and for readers’ peace of mind, I will here concentrate my brief remarks on some issues that go beyond what can be more or less easily found going through the text.

First, it is worth noting the extremely reduced – if any – space that has been left by the Commission for the legal basis introduced by the Treaty of Lisbon in the last sentence of Article 14 TFEU. Those who expected a reduction on the Commission’s activism in the field following the amendments on the Article by the Lisbon Treaty could well feel disappointed. Indeed, the new package seems a priori even more aggressive than the previous one in the autonomy enjoyed by Member States when organising their support to SGEI and little room – if any at all– seems to have been left to the – still unknown –  ‘Article 14 Regulations’. Examples of this horror vacui[xv] on the side of the Commission could be in Section 3 of the Communication where it specifies the conditions the Commission considers that the State support should meet for fulfilling the Altmark test, the introduction of claw-back mechanisms in the Communication[xvi], the Decision[xvii] and the Framework[xviii], or the ‘gentle’ reminder on the application of the basic principles of the Treaty in selection of the SGEI provider even when public procurement directives do not apply, which can be found, again, in the Communication[xix], the Decision[xx] and the Framework[xxi].

Secondly, as mentioned above, in the new framework claw-back mechanisms are ‘suggested’ – but perhaps required by the Commission for a measure to be considered compatible aid – all across the board to Member States in order to make Member States themselves – and arguably taxpayers – benefit from a ‘fair share’ of the gains in efficiency obtained by the undertakings when providing the services entrusted.  At first sight this seems like a good idea. The obvious bottom line – that quality should not be reduced – is also clearly stated in the new rules. However, it is not easy to imagine how to effectively measure and test in practice that quality is not degraded during the period of provision of the services, when powerful incentives exist for both the undertakings and Member States in a reduction of undertakings costs.  The design of such claw-back mechanisms, something on which the Commission gives little guidance, would therefore be of utmost importance in order not to create incentives that would hamper the provision of high quality public services.

Thirdly, it is interesting – and in my view to be welcomed – to note that, in the Decision and the Framework, the Commission has adopted the criterion that the relevant costs that could be compensated by the State are those net costs (costs less income) which could be avoided by the undertaking if the SGEI was not provided (the so-called ‘net avoidable costs methodology’). However, exceptions could be allowed under certain circumstances. Nevertheless, one can expect that discussions on how to assign joint and common costs (and thus to define which of these would be avoided if the SGEI was not provided) would remain, and these controversies will need to be resolved on a case-by-case basis.

Fourthly, the remark in paragraph 33 of the Communication, mentioning that ‘the granting without tendering, of licences to occupy or use public domain, or other special or exclusive rights having an economic value, may imply a waiver of State resources and create and advantage for undertakings’, is rather interesting. This mention, which the Commission understands comes from the CJEU’s case law in Connect Austria[xxii], reinforces a very interesting link between Article 106(1) TFEU and State aid rules.  According to this theory, the exclusive right might be in itself, and besides its consideration as contrary to Article 106(1) in connection with other Treaty provisions (Articles 101,102, 49, 56…), a State aid, something that entails very different consequences.

Finally, and again even if this is not an absolute innovation, it seems that the Commission is fighting back after Preussen Elektra[xxiii] and trying to fill any possible empty space left by the judgement as regards the question of when State resources are engaged. Indeed, in line with its most recent practice – as well as the old examples provided in the Communication – the Commission considers that all compulsory contributions imposed on private parties by the State and that are managed according to State legislation – irrespective of who manages the funds – would constitute engagement of State resources in the sense of State aid rules.  This is possibly in conflict with what the CJEU said in Preussen Elektra, but this could well be the subject of another post.

 

[ii] The post-Almark package was composed of three instruments: Commission Decision 2005/842/EC on the application of Article 86(2) of the EC Treaty to State aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest [2005] OJ L 312, p 67; Community Framework for State aid in the form of public service compensation [2005] OJ N C297 p 4 and Commission Directive 2005/81/EC amending Directive 80/73EEC on the transparency of financial relations between Member States and their public undertakings as well as on financial transparency within certain undertakings [2005] OJ L 312 p 47.

[iii] More precisely, for a measure to be classified as State aid, four cumulative conditions are required: (i) transfer of State resources, (ii) the existence of an economic advantage, (iii) that the measure is selective, favouring certain undertakings or productions, and (iv) the existence of a distortion of competition and effect on trade between EU Member States.

[iv] JL Buendia, ‘Finding the Right Balance: State Aid and Services of General Economic Interest’, in Kluwer, EC State Aid Law: Liber Amicorum Francisco Santaolalla (2008).

[v] For further indications on what can constitute a SGEI see the Communication and, in particular, paras 45 et seq.

[vi] A general overview of the situation can be found in Opinion of AG Jääskinen, paras 34 et seq in Case C-399/08, Commission v Deutsche Post AG [2011] ECR I-0000,. For the ‘non-aid approach’ see Case 240/83, Procureur de la République v ADBHU [1985] ECR  531 and Case C-53/00, Ferring [2001] ECR I-9067. For the ‘aid approach’ see   Case C-387/92, Banco Exterior de España v Ayuntamiento de Valencia, [1994] ECR I-877 and Case C-332/98, France v Commission [2000] ECR I-4833.

[vii] Case C-280/00, Altmark [2003] ECR I-7747.

[viii] For an excellent evaluation of the precedent legal situation as well as the different interests at stake in the area see JL Buendia ‘Finding the Right Balance: State Aid and Services of General Economic Interest’, in Kluwer, EC State Aid Law: Liber Amicorum Francisco Santaolalla (2008).

[ix] Communication from the Commission on the application of the European Union State aid rules to compensation granted for the provision of services of general economic interest [2012] OJ C8 p 4.

[x] Commission Decision of 20 December on the application of Article 106(2) of the Treaty on the Functioning of the European Union to State aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest [2012] OJ L7 p 3.

[xi] Also the threshold – based on average annual traffic of passengers – for ex ante exempted support to SGEI as regards airports has been reduced.

[xii] Communication from the Commission, European Union framework for State aid in the form of public service compensation [2012] OJ C8p 15.

[xiii] Draft Commission Regulation on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid granted to undertakings providing services of general economic interest [2012] OJ C8 p 23.

[xiv] This amount refers to direct subsidies. Special rules apply in cases of non-transparent aid

[xv] In visual art, horror vacui, from Latin “fear of empty space” is the filling of the entire surface of an artwork with detail.

[xvi] Para. 67 of the Communication.

[xvii] Article 5(6) of the Decision.

[xviii] Paras 39 et seq of the Framework.

[xix] Para. 63 of the Communication.

[xx]  Para. 29 of the Decision.

[xxi] Para. 19 of the Framework.

[xxii] Case C-462/99 Connect Austria Gesellschaft für Telekommunikation GmbH v Telekom-Control-Kommission and Mobilkom Austria AG [2003] ECR I-5197 (CJ).

[xxiii] Case C-379/98 PreussenElektra AG v Schhleswag AG [2001] ECR I-2099.

 

Draft Agreement on the Accession of the EU to the ECHR: fitting Cinderella’s shoes for Gulliver

dr. Agne Limante 

Post-Graduate Diploma candidate in EU Law, King’s College London; PhD in EU Law, Vilnius University


On 14th October 2011, the Steering Committee for Human Rights of the Council of Europe published the draft agreement on the Accession of the EU to the European Convention on Human Rights (“Draft Agreement”)[1]. The document is a result of intensive and hot debates that were revolving around the question of EU accession to the European Convention for the Protection of Human Rights and Fundamental Freedoms (“ECHR”) for already several decades. This topic attracted a lot of attention not only because of its significance for the development of ECHR and evolution of EU law, but also due to many practical questions which arose trying to fit the system that was created having in mind states, for EU as a phenomena of international cooperation.

Glancing back at the historical developments, one can see  that the idea that EU should accede to the ECHR had been circulating for a while. It was proposed by the Commission already in 1979[2], and repeated eleven years later[3]. On 30 November 1994, the Council referred this question to the Court of Justice of European Union (CJEU), which issued its Opinion 2/94. Herein the CJEU held that EU accession to the ECHR was not possible – the Community law as it existed at the time, provided no legal basis for such accession[4]. The Lisbon Treaty rectified the situation by establishing in Article 6(2) Treaty on European Union (TEU) that EU shall accede to the ECHR[5] and Protocol 8 to the Lisbon Treaty setting the guidelines of such participation.

The factual procedure for bringing about its accession had begun in 2010 when the Steering Committee for Human Rights (CDDH) of the Council of Europe and the European Commission were given mandates to prepare the necessary legal instrument and the wheels of accession were put in motion[6]. The two core difficulties that were at issue were related to the fact that EU is not a state, but a supranational organization of states and that EU is not going to become a party to the Council of Europe. Nevertheless, all the negotiations saw as their target the idea that EU should be treated same like other High Contracting Parties to the ECHR as far as this is possible due to the different nature of EU. The analysis below tries to look at how this idea is embodied in the text of the Draft Agreement[7].

Technical issues of EU participation

When working on the draft, two institutional issues caused discussion: how to apply the one judge per high contracting party rule (Article 20 ECHR) and, secondly, how EU should take part in the work of the Committee of Ministers of the Council of Europe.

As to the judge from EU side, the Draft Agreement provides for no exceptions for EU. EU will be appointing one judge to the European Court of Human Rights (“ECtHR”) having same term of office, equal status as the other judges and on equal basis taking part in the work of the Court. This means, that contrary to what was suggested, the EU judge will participate in all the cases, not only the ones related to EU law. To have the EU judge elected, EU will have to provide the Parliamentary Assembly with a list of three candidates (similarly to states, contracting parties to ECHR) for election[8]. It is interesting to note, that since all EU Member States are parties to the ECHR and the EU judge will most probably have a nationality of at least one EU Member State, this is likely lead to the situation that two of the judges in the ECtHR will have the same nationality. Accordingly, this might encourage the Court to revise its internal procedures in order to avoid such a situation where two judges from the same state sit in the same case.

As the Committee of Ministers of the Council of Europe has powers such as  execution of judgments and friendly settlements rendered by the Court, the question on EU participation in its work has also attracted attention. The solution suggested by the Draft Agreement is that EU is granted a right to participate in the Committee of Ministers (with voting rights), when decisions related to the ECHR are taken. Again, some precautions are taken to insure “effective exercise” of the Committee’s of Ministers supervisory functions. Firstly, to avoid the possibility that the EU Member States, together having a majority in the Council of Europe, block decisions related to the supervision of the execution of judgments and friendly settlements in cases involving the EU, the Draft Agreement requires to modify the rules of procedure of the Committee of Ministers. Secondly, the Draft Agreement states that the EU is precluded from voting in cases where the Committee of Ministers supervises the fulfilment of obligations by one of the EU Member States.

Though it was taken as self evident, it is worth noting that EU agreed to contribute to the expenditure relating to the functioning ECHR.  The contribution is fixed at 34% of the highest contribution made in the previous year by any State to the budget of the Council of Europe. Counting the data for this year, that would be about a bit over €9 million out of EU budget exceeding €140 billion, not a considerable amount considering a fact that recently European Parliament voted to spend €2 million on homeopathy for animals.

Substantial issues of EU participation

Following the worries expressed by several of its Member States, EU will not accede to all protocols of ECHR. According to the Draft Agreement, EU accedes only to the ECHR and Protocol No.1 (peaceful enjoyment of one’s possessions, the right to education and the right to vote) and, quite symbolically, to the Protocol No. 6 (abolition of the death penalty). Those are the protocols that have already been ratified by all of EU Member States. Therefore, no objections to EU participation in them were brought.

Concerns had also been expressed with respect to the fact that the ECtHR might involve in review of primary law of the EU. Quite surprisingly, the Draft Agreement does not exclude that. One might notice that EU Member States may become co-respondents in cases, where an application before the ECtHR raises a question whether the provision of the EU Treaties is compatible with the ECHR.

As to the future of the so-called Bosphorus (equivalent protection) test (established in Bosphorus v Ireland)[9], the Draft Agreement sheds no light: it is not clear if and how this test will be applied in the future, and whether it should apply to all EU-related cases, including the ones against the EU. From one side, keeping the equivalent protection test would mean the continuity of the ECtHR practice and bilateral respect to the decision making procedures in EU, from the other side it would favour the EU contradicting to the idea of EU participation in the ECHR on the equal footing with the other High Contracting States.

Procedural questions

Some procedural questions of EU participation arose as a result of division of competences between the EU and its Member States and duty of Member States to implement EU law.

In EU law related cases, when private party seeks to challenge a national measure implementing EU law there might be a problem in identifying an appropriate addressee. This was remembered when drafting EU Protocol no. 8, which requires that the accession agreement to include the necessary mechanisms ensuring that proceedings by non-Member States and individual applications are correctly addressed to Member States and/ or the Union as appropriate.

Here, the ECHR system applied for states was unsuitable and some new formula was needed. The Draft Agreement offers a solution by suggesting co-respondent, or co-defendant, mechanism[10]. According to it, EU member states and EU may ask to be involved in cases before the ECtHR as co-respondent party[11]. Two scenarios are possible in this regard: (i) one or more EU Member States are main respondents and EU is involved as co-respondent; or (ii) the EU is the main respondent and one or more EU Member States are co-respondents. Under the first scenario, EU may become a co-respondent if it appears that the alleged violation of the ECHR calls into question the compatibility with the Convention rights at issue of a provision of EU law, and where that violation could have been avoided only by disregarding an obligation under EU law. The second scenario might arise and EU Member States can become co-respondents where a provision of EU primary law is allegedly in breach of the ECHR.

It is interesting to note that the Draft Agreement specifically addresses situations where EU would be involved in a case as a co-respondent and CJEU has not yet had the opportunity to give its decision on the compatibility of EU law provision in question with the ECHR. Here, privileging the CJEU to national constitutional courts, the Draft Agreement provides for the possibility for the CJEU to make an assessment “quickly”, so that the proceedings before the ECtHR are not unduly delayed [12].

Additional question might arise on how the exhaustion of domestic remedies rule would be applied in cases involving EU law. Since the usual admissibility requirements would continue to apply, in cases where individual would be challenging EU legal acts, this would go through annulment procedure (Article 263 Treaty of the Functioning of EU), Court of Justice being the last instance case (appeal from the General Court). However, in cases where individual would question legality of national law, implementing EU law, exhausting domestic remedies would only require  climbing the ladder of national courts (they could decide to refer the case for a preliminary ruling).

So did the Draft Agreement succeed in fitting EU into the ECHR system designed for states? Probably yes, but by modifying the system and by not always staying with the idea of equal footing.

 

[1] The Draft Agreement, if the text would be finally approved, would enter into force three months after ratification by all Council of Europe member states and by the European Union.

[2] Memorandum on the accession of the European Communities to the Convention for the Protection of Human Rights and Fundamental Freedoms. COM (79) 210 final, 2 May 1979. Bulletin of the European Communities, Supplement 2/79.

[3] Commission Communication on Community accession to the European Convention for the Protection of Human Rights and Fundamental Freedoms and some of its Protocols. SEC (90) 2087 final, 19 November 1990.

[4] For more detailed historical perspective see, for example,

Martin Kuijer. “The accession of the European Union to the ECHR”. (2011) 3(4) Amsterdam Law Forum <http://ojs.ubvu.vu.nl/alf/article/view/240/428>  accessed 7 December 2011; See also Leonard Besselink, “The EU and the European Convention of Human Rights after Lisbon: From ‘Bosphorus’ Sovereign Immunity to Full Scrutiny?” < http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1132788>  accessed 7 December 2011;

[5] On the Council of Europe side, it was the entry into force of Protocol 14 to the ECHR in June 2010 that established a legal basis for EU accession.

[6] For all the relevant documents see the website of CDDH <http://www.coe.int/t/dghl/standardsetting/hrpolicy/CDDH-UE/CDDH-UE_documents_en.asp>

[7] This is just a short overview. For an extensive analysis of the draft see Xavier Groussot, Tobias Lock, and Laurent Pech, “EU Accession to the European Convention on Human Rights: a Legal Assessment of the Draft Accession Agreement of 14th October 2011”. Robert Schuman Foundation, Policy papers, European issues No 218. < http://www.robert-schuman.eu/doc/questions_europe/qe-218-en.pdf > accessed 9 December 2011.

[8] Since the EU is not going to become a party to the Council of Europe, it cannot take part in the Parliamentary Assembly, which is, inter alias, electing the judges. To put EU in the similar situation as the other parties to the ECHR, the Draft Agreement offers EU to be represented in PACE when it is electing judges. European Parliament will be sending a group of MEPs, whose number should be equal to the number of representatives sent to the PACE by the largest states (now it is 18).

[9] Here having in mind the EU, the ECtHR established that as long as the international organisation “is considered to protect fundamental rights… in a manner which can be considered at least equivalent to that for which the Convention provides” the ECtHR will presume that a State has acted in compliance with the Convention, where the state had no discretion in implementing the legal obligations flowing from its membership of the organisation. For analysis of the case, see for example, Cathryn Costello, “The Bosphorus Ruling of the European Court of Human Rights: Fundamental Rights and Blurred Boundaries in Europe”. Human Rights Law Review. 2006, 6(1), pp. 87–130; Sionaidh Douglas−Scott, “Case Comment on Bosphorus Hava Yollari Turizm Ve Ticaret Anonim Sirketi v. Ireland”, (2006) CMLR, pp. 243-254.

[10] However, such a co-responded mechanism is not likely to become very popular. Rather, it will be used quite exceptionally (like in such cases such as Matthews v. UK or Bosphorus v Ireland).

[11] Traditionally, state could join the case as third intervening party under Article 36 ECHR.

[12] This would require for the accelerated procedure in the CJEU and, respectively, amending of CJEU Rules of Procedure. See also Joint Statement of the Presidents of CJEU and ECtHR. <http://www.echr.coe.int/NR/rdonlyres/02164A4C-0B63-44C3-80C7-FC594EE16297/0/2011Communication_CEDHCJUE_EN.pdf>

 

By Agne Limante 

Post-Graduate Diploma candidate in EU Law, King’s College London