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C 22/6 EN Official Journal of the European Communities 27.1.

1999

STATE AID
C 68/98 (ex NØ326/98)
Greece

(1999/C 22/05)

(Articles 92 to 94 of the Treaty establishing the European Community)

Commission communication pursuant to Article 93(2) of the EC Treaty to other Member States
and interested parties concerning aids which Greece has the intention to grant to young farmers
and new entrants to cover short-term loan costs

By the following letter, the Commission informed the cover costs linked short-term loans by young farmers
Greek Government of its decision to open the procedure. and new entrants.

‘The Commission wishes to inform Greece that, having 2. Description


examined the information supplied by your authorities
on the aid referred to above, it has decided to initiate the The purpose of the notification is to enable Greece to
procedure laid down in Article 93(2) of the EC Treaty. cover part of the expenditure incurred by young and
newcomer farmers linked to short-term loans. Greece
By letter of 2 June 1998, registered on 3 June 1998, the intends to apply this measure until 1 January 2001.
Permanent representation of Greece to the European
Union notified the Commission pursuant to Article 93(3) Loans must have a maximum duration of one year.
of the Treaty the abovementioned aid measures. Aid rates would be the following:

70Ø% to exclusive successors of an agricultural


By letters of 30 July 1998 and 15 October 1998, holding in mountain or less favoured areas;
registered respectively on 3 August 1998 and 20 October
1998, the Permanent representation of Greece to the 50Ø% to exclusive successors of an agricultural
European Union transmitted to the Commission the holding in other areas;
additional information required by the Commission
service’s letters dated 18 June 1998 and 7 September 60Ø% to farmers creating their holding from parts of
1998. other holdings in mountains or less favoured areas;

40Ø% to farmers creating their holding from parts of


1. Background other holdings in other areas.

The Greek authorities estimate that the maximum


In the end of 1997, the Greek Government has trans- number of beneficiaries would be 120Ø000 (most likely
mitted to the Commission a draft interministerial 70Ø000). The estimated annual expenditure level
decree concerning several measures in favour of would be GRD 21 billion.
young farmers. These provisions included both
measures to be cofinanced by EAGGF in the
framework of Regulation (EC) No 950/97Ø(Î) and
3. Assessment
measures to be assessed under State aid rules.

When examining State aid subsidising the interest


The Commission cleared both schemes by its Decision rates for short-term loans in agriculture to see
C(98) 153 of 12 March 1998 and by its Decision whether it complies with Articles 92 and 93 of the
relating to State aid N 86/98Ø(Ï). During the Treaty, the guidelines on national aid in the form of
assessment of the abovementioned State aid package, short-term loans in agriculture must be appliedØ(Ð).
several operating aids to young farmers were elim-
inated from the original notification.
The guidelines state that:
The present scheme envisages to complement the
previously approved aid package by including aid to A.ÙThe Commission recognises that agriculture in the
Community may, for reasons inherent in the
nature of farming and related activities, in
(Î)ÙOJ L 142, 2.6.1997, p. 1.
(Ï)ÙCommission’s letter to the Greek authorities SG(98) D/4415
of 4 June 1998. (Ð)ÙOJ C 44, 16.2.1996, p. 2.
27.1.1999 EN Official Journal of the European Communities C 22/7

particular seasonally of production and structure conditions under B and C are fulfilled, these
of farm businesses, be at a relative disadvantage to measures may also be applied to operators
operators elsewhere in the economy both in terms involved in processing and marketing agricultural
of their need for, and ability to finance, short-term products.
loans. However, any aid destined to reduce the
cost of such loans is evidently State aid of an
operating nature that fulfils the conditions of
Article 92(1) of the Treaty. Consequently, such aid
must be subject to appropriate rules governing its By letter SG(97) D/5093 of 4 July 1997 the
grant. Commission notified Member States that it had
decided to suspend application of the guidelines on
subsidised short-term loans in agriculture, since
problems of interpretation had arisen during the
application, by some Member States, of point C.
B. The Commission considers it necessary to ensure
that these subsidised loans are not used to aid
selectively specific sectors or operators in agri-
culture on grounds not solely related to the above-
mentioned difficulties. By letter SG(97) D/10801 of 19 December 1997 the
Commission notified Member States that the
guidelines would apply again from 30 June 1998 and
that their present wording did not need to be
The Commission will however accept national aid changed.
for such loans excluding certain activities and/or
certain operators, provided that Member States are
able to demonstrate that all such instances of
exclusion are justified on the grounds that the By that letter, the Commission pointed out to
problems of obtaining short-term loans faced by Member States that the only possible interpretation of
those excluded are inherently less significant than point C was the one that was immediately apparent
in the rest of the agricultural economy. from a literal reading. Consequently, a subsidy from
public funds for a short-term loan in agriculture must
not exceed the differential between the interest rate
paid by a typical agricultural operator and the interest
C. The element of aid under any programme must be rate paid in the rest of the economy of the Member
limited to that which is strictly necessary to State concerned for short-term loans of a similar
compensate for the disadvantages referred to amount per operator, not linked with investments.
under A. A Member State wishing to apply
subsidised loans under B must quantify the
financing disadvantages under A, using the
method which it considers appropriate but always In that same letter, the Commission stated that it
remaining within the limits of the gap between the would undertake an appraisal, under Articles 92 and
interest rate paid by a typical agricultural operator 93 of the Treaty, of aid which would come into or
and the interest rate paid in the rest of the remain in force after 30 June 1998 based on the inter-
economy of the Member State concerned for pretation given of point C. Should such aid fail to
short-term loans of a similar amount per operator, comply with the conditions set out in the guidelines,
not linked with investments. This quantification as interpreted in that letter, the Commission would be
and methodology must be communicated to the obliged to institute proceedings.
Commission so that they can be taken into
account when the compatibility of the aid under
Articles 92 and 93 of the Treaty is being assessed.
The amount of subsidised loans to any beneficiary
must not exceed the cash flow requirements Given that the aid measure was notified on 2 June
arising from the fact that production costs are 1998 and that the scheme would be in force until 1
incurred before income from output sales is January 2001, the notified measures were examined in
received. The amount may be fixed on a flat-rate the light of the provisions referred to above.
basis. In no case may the aid be linked to
particular marketing or production operations.

The Commission noted that the duration of the


short-term loans is limited to the maximum period
D. The Commission has maintained all other aspects allowed by the current guidelines (one year). The
of its policy in this area, namely that the duration Commission noted however that, being a measure
of the subsidised loans must be a maximum of one targeted in a specific group of operators (young
year (renewable for each beneficiary). If the farmers and new entrants), the measures did not seem
C 22/8 EN Official Journal of the European Communities 27.1.1999

to respect the general conditions of point B of the setting-up of young farmers. The Commission would
guidelines requiring the aids to be nonspecific in normally consider that all costs linked to the
terms of sectors or operators. starting-up for young farmers would be covered by
both aid packages, compensating eventual disad-
vantages by young farmers in relation to short-term
operating loans.
The Greek authorities supply the following arguments
to justify focussing the measure in young farmers and
new entrants:
In what concerns point C of the guidelines, the
Commission noted that the interest rate subsidies
—Ùyoung farmers and newcomers have no capital of range between 40Ø% and 70Ø%, according to the type
their own and are totally dependent on of region and according to the types of farms.
borrowing,

—Ùin order to obtain loans, young farmers have to The methodology supplied by the Greek authorities
offer banks considerable collateral, usually in concerns a cost comparison between the costs born by
tangible form, which young farmers very rarely young farmers and young craftsmen in order to
have, produce goods to the value of GRD 10 million. The
method takes account of the amount of loan required
—Ùyoung farmers lack start-up capital, (GRD 4,96 million for farmers and GRD 3,72 million
for the craftsmen), the duration of loans (10 months
in farming and four months in other activities), loan
—Ùyoung farmers do not have a steady flow of interest (19Ø% in farming and 18Ø% for other
takings in the first year they are setting-up, activities), and the cost of providing collateral
securities (GRD 74Ø400 for farmers and GRD 9Ø300
—Ùyoung and new entrant farmers often wish to take for craftsmen). The cost difference, reimbursed to the
part in higher vocational training in order to farming sector, would be equivalent of an interest
qualify for the larger incentives offered to young subsidy level of 72,66Ø%.
farmers. This participation represents an extra
financial burden to them.
On the basis of the information provided by the
Greek authorities, it does not appear that the
The Commission noted that the Greek authorities proposed level of subsidies complies with the
failed to provide objective elements supporting their conditions set out in the relevant Community
assertions, particularly in quantifying the influence of guidelines as interpreted by the Commission letter of
these factors in terms of additional interest rates for 19 December 1997. Indeed, the agricultural sector’s
young farmers and new entrants. disadvantages compared with other sectors are
demonstrated on the basis of the amount of loan
required, the relative length of time for which capital
is immobilised, and the cost of providing securities
Equally, the Commission took account of the fact and not just on the basis of interest rates.
that some arguments are not specific to young farmers
(irregular flow of takings and vocational training).
The level of securities required by banks does not
seem to affect interest rates to a significant extent, The Commission noted that the subsidy level is not
since the young farmers should dispose of land and limited to the gap between the interest rate paid by a
buildings to start their farming activity. Consequently, typical agricultural operator and the interest rate paid
all the specific problems of this particular group can in the rest of the economy of the Member State
be summarised to young farmers’ lack of start-up concerned for short-term loans of a similar amount
capital. per operator, not linked with investments.

Equally, the Commission took in consideration the


In what concerns start-up difficulties for young-
basic principle required by the guidelines to calculate
farmers, these are recognised by the Community
the disadvantage of the agricultural sector is not
structural policy (Regulation (EC) No 950/97). To
respected, i.e., in the Greek methodology the loans
this purpose, the Commission should refer to its
are not of a similar amount per operator.
recent approval of a State aid scheme for young
farmers — Aid N 86/98 — as well as an EAGGF
cofinanced aid package under Regulation (EC) No
950/97. In total, these measures allowed full use of Furthermore, in what concerns the difference between
the financing possibilities under the EAGGF the loan amounts, the difference between the average
cofinanced measures and State aid policy for length of production cycles and the difference in the
27.1.1999 EN Official Journal of the European Communities C 22/9

cost to provide collateral securities, the Commission with the same capital invested in other areas.
had already taken the view in December 1997 and in Notwithstanding the fact that less favoured areas
a precedent case (C 53/98Ø(Ñ)) that the final result of handicaps are recognised by Community legislation
the calculation is inevitably influenced by a number of (Title IX of Regulation (EC) No 950/97), the
methodological options which lend themselves to purpose of the Community guidelines is to
arbitrary application (Why a different loan amount compensate for agriculture’s disadvantage in terms of
for farmers or for craftsmen? Why ten months for access to short-term loans and not to enable farmers
agriculture in all cases? And why four months for in certain regions to receive national aid to make up
other sectors?) Solely based on the values selected for for the difference in returns. Furthermore, the 20Ø%
these factors, the rate of subsidy could theoretically top-up for exclusive successors of farms does not
range from 0Ø% to 100Ø%. For instance, even if a appear to be justified as an handicap in terms of
difference between the duration of production cycles access from these farmers to short-term loans in
could be demonstrated statistically, it should be relation to other farmers.
considered that in the 10 month period of the agri-
cultural cycle, the ‘‘non-agricultural’’ operator whose
production cycle is four months would need 2,5 loans
and not just one. In these conditions, the duration of
the production cycle does not seem to be a relevant 4. Conclusion
factor in measuring the agricultural sector handicap.

In view of the above, the Commission considers that


According to the information supplied by the Greek the measure notified does not appear to comply with
authoritiesØ(Ò), the average interest rate for short-term the Community guidelines on subsidised short-term
loans in the agricultural sector during 1997 was 19Ø%. loans in agriculture.
The equivalent rate for other sectors of the Greek
economy was 18Ø% in the same period. Therefore, the
maximum aid intensity that could be allowed would
be about 5Ø% rebate in the interest rate applicable to The Commission must ordinarily regard the aid in
agricultureØ(Ó). question as operating aid contrary to its practices in
applying Articles 92 to 94 of the Treaty and not
contributing, in essence, to the development of the
sector or region concernedØ(Ô). The proposed
Furthermore, taking in consideration the structure measures directly favour the improvement of agri-
proposed to grant interest subsidy, farmers in cultural production conditions for producers in the
mountain and less favoured areas would receive a Greece compared with those for other EU businesses
top-up of 20Ø% in relation to the standard subsidy not receiving any comparable aid. In the light of the
rate in other areas. Equally, exclusive successors to above, the aid examined would appear to fall under
farms would also receive a top-up of 20Ø% in relation Article 92(1) of the Treaty. However, on the basis of
to other farmers. The Greek authorities indicate that the information available so far, the Commission
the regional difference is due to the lower produc- takes the view that the aid does not qualify for any of
tivity stemming from higher production costs in the exemptions provided for in Article 92(2) and (3)
mountain and less favoured areas. They also indicate of the Treaty.
that universal successors find it financially easier to
set up a holding than it is the case for those putting
together a farm from parts of other holdings.
Consequently, the Commission has decided to initiate
the procedure provided for in Article 93(2) of the
Treaty in respect of the notified measures.
The Commission considers that introducing a factor
to compensate for the difference in return on capital
in less favoured areas and in the non-agricultural
sector is not covered by the Community guidelines on In the light of the foregoing considerations, the
short-term loans. This potential ‘‘penalty factor’’ for Commission, acting under the procedure laid down in
the less favoured agricultural area, which is in no Article 93(2) of the EC Treaty, requests Greece to
way linked to the conditions of access to short-term submit its comments and to furnish all such
loans, would in some way express the smaller return information as may help to evaluate the aid measure,
on the capital invested in an agricultural production within one month following the date of receipt of this
process in these areas, by comparison letter. It requests your authorities to forward

(Ñ)ÙOJ C 309, 9.10.1998, p. 2. (Ô)ÙJudgement of the Court of First Instance in Case T-459/93
(Ò)ÙStatistical Bulletin of the Bank of Greece. Siemens SA v. Commission of the European Communities
(Ó)Ù(19Ø% — 18Ø%) 18Ø%. [1995] ECR II-1675.
C 22/10 EN Official Journal of the European Communities 27.1.1999

a copy of this letter to the potential recipient of the Commission within fifteen working days from the
aid immediately. date of receipt. If the Commission does not receive a
reasoned request by the stipulated deadline, you will
The Commission wishes to remind Greece that Article be deemed to agree to publication of the full text of
93(3) of the EC Treaty has suspensory effect, and this letter. Your request specifying the relevant
would draw your attention to the letter sent to all information should be sent by registered letter or fax
Member States on 22 February 1995, stating that all to:
aids granted unlawfully could be recovered from the
recipient and/or that expenditure on national European Commission,
measures directly affecting Community measures Directorate-General for Agriculture,
might not be eligible for cover by the EAGGF budget, Directorate Agro-economic legislation,
depending on the relevant provisions of national law; Rue de la Loi/Wetstraat 200,
the amounts thus recovered will include interest B-1049 Brussels,
calculated on the basis of the reference rates used to
calculate the grant-equivalent for the purposes of Fax (32-2) 296Ø21Ø51.’
regional aids, running from the date on which the aid
was payable to the recipient(s) until the date of actual The Commission hereby gives the other Member States
recovery. and interested parties notice to submit their comments on
the measures in question within one month from the date
The Commission warns Greece that it will inform of the publication of this notice to:
interested parties by publishing this letter in the
Official Journal of the European Communities. All such European Commission,
interested parties will be invited to submit their Rue de la Loi/Wetstraat 200,
comments within one month following the date of B-1049 Brussels.
such publication.

If this letter contains confidential information that The comments will be communicated to the Greek
should not be published, please inform the Government.