UK: Commission Gives With One Hand But Takes With The Other

Last Updated: 21 August 2006
Article by Fernando Albino

The saga of state aid granted by the Greek Government to Olympic Airways over recent years continues unabated and becomes even more complex.

There are currently three separate procedures ongoing in relation to different tranches of aid: 1998 - 2002; 2002 - onwards; and 9/11 exceptional circumstances aid.

The aid granted between 1998 and 2002 was adjudged by the Commission to be unlawful state aid capable of distorting competition in the civil aviation sector. The Commission ruled that most of the objectives of the Olympic Airways restructuring plan were not achieved and that the exceptional conditions imposed on the provision of assistance by the Greek Government (estimated to be worth €41 million) had not been met. The Commission found additional aid (in the region of €120 million) had been granted consisting essentially of acquiescence by the Greek Government to non-payment of social security contributions, VAT, airport rents and charges and departure tax. The Commission finally brought an action in the European Court of Justice (ECJ) given Greece’s reluctance to obtain the recovery of the aid from Olympic Airways.

The ECJ decided in May 2005 that the transfer of assets from Olympic Airways to Olympic Airlines created an obstacle to the effective implementation of the Commission’s decision and to the recovery of the unlawful aid. The Court rejected the legal, political and practical difficulties alleged by Greece to explain its inability to recover the aid in question, holding that the only defence available to a Member State in opposing an application by the Commission for a declaration that it failed to fulfil its Treaty obligations, is to plead that it was "absolutely impossible" to implement the recovery of unlawful aid.

On 4 April 2006, the Commission sent a reasoned opinion to Greece concerning Greece’s inability to recover unlawful state aid in the amount of €161 million from Olympic Airways.

In respect of aid granted from 2002 onwards, the European Commission referred Greece to the European Court of Justice at the end of April 2006 in light of its noncompliance with an earlier Commission decision of 14 September 2005 which asked the Greek Government to advise of the steps taken to recover aid previously deemed by the Commission to be incompatible with the EC Treaty. That aid related to various tax breaks and financing restructuring subsidies granted since December 2002 arising out of the transformation of Olympic Airways into Olympic Airlines. Although not fully quantified, the Commission indicates that the amount of unlawful aid is in excess of €150 million. In the meantime, Olympic Airways has applied to the European Court of Justice to have the 14 September 2005 decision annulled on the basis that the Commission did not provide sufficient reasons in its decision, wrongly calculated the amount of the supposed benefit and applied deficient reasoning as to what constitutes an infringement of Article 87(1) of the EC treaty - the provision which forbids state aid capable of distorting competition.

On the positive side, at least for Greek observers, the European Commission decided on 26 April 2006 to authorise as lawful state aid part of the measures taken by Greece to compensate airline operators for losses arising out of the closure of US, Canadian and Israeli airspaces following the September 11 terrorist attacks. The total amount of aid was approximately €5 million and was provided to Olympic Airways as well as Aegean Cronus Airlines. The Commission accepted around €2 million as exceptional aid under Article 87(2) (b) of the EC Treaty which permits state aid "to make good the damage caused by natural disasters or exceptional circumstances" and has ordered Greece to recover the remaining balance.

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