Market economy investor

Author Definition

Definition

Article 107(1) TFEU prohibits the grant of state aid from Member States to undertakings. For a measure to be state aid, six cumulative conditions need to be fulfilled, i.e. the conferral of an advantage to the undertaking(s) through the state measure, said measure must be imputable to the State, State resources must be employed, the measure needs to be selective, and it must also (at the very least) threaten to distort competition and affect inter-State trade. The Market Economy Operator Principle (“MEOP”) mandates that transactions carried out by Member States do not confer an advantage on undertakings, and therefore do not constitute state aid, if they are carried out in line with normal market conditions.

Commentary

The MEOP, and its corresponding test, the MEOT (Market Economy Operator Test), are essentially a way of identifying whether an advantage has been conferred in the context of a transaction between a Member State (or public body, or public undertakings) and an undertaking. An advantage is defined, in settled CJEU case law, as an economic benefit – of any form whatsoever – that the recipient undertaking would not have obtained under normal market conditions. In order to ascertain whether the recipient undertaking would have obtained it under normal market conditions, one needs to compare and contrast the actions of the State (the alleged aid measure) with those that a market economy operator would have made in a similar situation. If a market economy operator would have acted in a similar manner, no advantage has been conferred. If not, and the action or its conditions or terms, is any way different from that which would have been agreed on by a market economy operator, and they are, also, more favourable to the recipient undertaking, an advantage has been conferred. If all other state aid conditions are also fulfilled, state aid has been granted.

The MEOP is the main point of entry of economic analysis in state aid law. Contrary to the rest of competition law, economic analysis does not play any real role in the definition of market shares or the distortion of competition and effect on trade conditions. However, it features prominently in the MEOP analysis. The reason is evident: one needs to employ economic tools in order to determine whether a market economy operator (also sometimes called a “private” operator) would have taken the same route with regard to a certain transaction. For example: would a private bank have granted a loan to this undertaking under the same terms as the loan issued by the State? Would a private proprietor have sold a particular building for the price it was sold at by the State, or would they have asked for more? To answer these questions, economic analysis is indispensable.

What is irrelevant, in principle, are considerations that a market economy operator would not take into account, thus not including them in their decision-making process. For instance, a private economy investor would, in principle, not make an investment that would be loss-making, simply because the investment would benefit the local economy and/or the environment, or boost employment. On the contrary, they would focus on the profitability of the future investment and take into account factors that would influence it.

There are various versions/iterations of the market economy operator principle, depending on the capacity in which the Member State is acting and the kind of transaction it is engaged in. For example, building on the previous example, to establish whether a State’s investment State aid, it is necessary to determine whether a private investor of a comparable size operating in normal market economy conditions would have made the investment in question. When the State grants a loan, the comparison will be with a private creditor (usually a commercial bank). When the State makes a sale, the comparison will be with a private vendor, and the test will examine whether a private vendor might have gotten the same or better price under normal market conditions. A similar test would apply to the acquisition of assets or any other transaction that could be undertaken by a private party, e.g. a lease.

The considerations that need to be taken into account are those existing at the time of the transaction and not later on (ex ante assessment). For instance, if, with the available data at hand, a certain investment made business sense, the measure will not confer an advantage, even if it later proves to be a disastrous investment. However, the opposite is also true. An investment, by the State, in a certain company that made no business sense and would not have been undertaken by a private investor, will still qualify as state aid, even if, by chance, it ended up being highly profitable. Therefore, it is important for a Member State to carry out its own ex ante assessment of financial prospects of a project (e.g. a business plan), and not rely on ex post expert reports. Finally, it is worth noting that the fact that the measure was a fiscal (tax) measure does not rule out the possibility of it complying with the MEOP.

Case references

Case C-211/20P Valencia EU:C:2022:862

Case C-331/20P Volotea EU:C:2022:886

Case C-124/10P Commission v EDF EU:C:2012:318

Case C-280/00 Altmark EU:C:2003:415

Case C-142/87 Belgium v Commission (Tubemeuse) EU:C:1990:125

Bibliography

Commission Notice on the notion of State aid as referred to in Article 107(1) of the Treaty on the Functioning of the European Union (2016/C 262/01), section 4.2

Conor Quigley QC, European State Aid Law and Policy (and UK Subsidy Control), (4th edn, Hart Publishing 2022), Chapter 4

Leigh Hancher, Tom Ottervanger & Piet Jan Slot, EU State Aids (6th edn, Sweet and Maxwell 2021), Chapter 1

Institution Definition

The Market Economy Investor Principle or MEIP has been a cornerstone of state aid control since at least 1984 when the Commission published its communication on Government Capital Injections. It remains a key test of whether actions by public authorities represent state aid in the sense of Article 87(1) of the EC Treaty. (...) The essence of the MEIP is that when a public authority invests in an enterprise on terms and in conditions which would be acceptable to a private investor operating under normal market economy conditions, the investment is not a state aid. One first point to note is that the 1984 communication does not in fact identify, of the various criteria which a measure must meet in order to qualify as state aid, which is not met by a state investment respecting the MEIP. It seems clear, however, that the criterion which is not met is that of advantage: the enterprise gains no particular benefit since it could have obtained the same financing in the markets (...). © European Commission

Case Comments

Alain Ronzano Annulment: The General Court of the European Union annuls the Commission’s decision validating Romanian aid to Timișoara International Airport on the grounds of errors of law concerning the selective and advantageous nature of those measures, finding that the European Commission relied on evidence established ex post (Carpatair)

On February 8, 2023, the General Court of the European Union issued a judgment in case T-522/20 (Carpatair v. European Commission). In it, he pronounces the annulment of the decision of the Commission of 24 February 2020, concerning State aid implemented by Romania for Timișoara (...)

Jacques Derenne, Ana Alvarez Vidal Airport fees: The General Court of the European Union annuls the Commission’s decision allowing Romania to grant aid to Timișoara International Airport and an airline insofar as it concludes that airport charges and agreements between the airport and the airline do not constitute State aid (Carpatair)

The Romanian airline Carpatair, the applicant, established its base of operations at Timișoara International Airport in 2000. The airport is operated by Societăţii Naţionale "Aeroportul Internaţional Timişoara - Traian Vuia" (hereinafter, "AITTV"), a company in which the Romanian State holds (...)

Alain Ronzano Private operator in a market economy: The Court of Justice of the European Union annuls both the judgment of the Court of First Instance of the European Union confirming the unlawfulness of the measures in favour of the development of air transport in Sardinia and the decision of the European Commission recalling the role and the conditions of implementation of the principle of the private operator in a market economy in the field of State aid (Volotea ; easyJet Airline)

On November 17, 2022, the Court of Justice of the European Union issued a judgment in joined cases C-331/20 (Volotea v. European Commission) and C-343/20 (easyJet Airline v. European Commission). In order to reduce the seasonality of air routes by increasing the frequency of flights during (...)

Bruno Stromsky Private operator in the market economy: The Court of Justice of the European Union annuls two judgments of the Court of First Instance of the European Union and a decision of the European Commission which qualified the commercial agreements concluded between the Sardinian airports and the airlines serving Sardinia as State aid, with the financial support of the Region, with a view to improve the island’s air service and ensuring its promotion as a tourist destination (Volotea ; easyJet)

The judgment of November 17, 2022 overturns two judgments of the General Court (TFEU, May 13, 2020, Volotea, T-607/17, EU:T:2020:180; Germanwings, T-716/17, easyJet, T-8/18, EU:T:2020:182; see Concurrences 3-2020) and a decision of the Commission. It changes our understanding of the private (...)

Bill Batchelor, Frederic Depoortere, Aurora Luoma, Giorgio Motta, Ingrid Vandenborre, Niels Baeten, Angelos Vlazakis The EU Parliament steps up enforcement against foreign state-backed companies

If you (i) receive some form of financial support from foreign (non-EU) governments, and (ii) have activities or are planning to acquire a business in the EU, then you will want to read on. Following political agreement among legislators, the European Union (EU) Foreign Subsidies Regulation (...)

Alain Ronzano Private operator: The General Court of the European Union dismissed the aid beneficiary’s action, holding that the European Commission had sufficient reliable and consistent evidence to consider that the guarantee premium was not in line with a market price in that a reasonable private creditor would not have provided guarantees on those terms (Larko)

It is recalled that in a judgment issued on March 26, 2020 in case C-244/18 (Larko Geniki Metalleftiki kai Metallourgiki AE v. European Commission) the European Court of Justice reminded the European Court of First Instance that, when applying the private operator principle, the Commission (...)

Raphaël Vuitton Illegal and incompatible aid: The General Court of the European Union confirms that the decision of the European Commission finding that a loan guarantee granted to a Greek public company active in the mining sector constituted State aid (Larko)

With the judgment under the heading, the saga of the Larko cases - well known to the readers of this column (see, ECJ, 9 November 2017, Commission v. Greece, C-481/16, comm. R Vuitton, Concurrences No. 1-2018, pp. 134-136. 136 ; GCEU, 1 February 2018, Larko v. Commission, T-412/24, (...)

Alain Ronzano Illegal aid: The Advocate General Ćapeta calls on the Court of Justice of the European Union to set aside the judgment of the General Court of the European Union confirming the unlawfulness of the measures to promote the development of air transport in Sardinia by proposing his own interpretation of the applicability of the private operator test in a market economy (Volotea ; EasyJet Airline)

On April 7, 2022, Advocate General Tamara Ćapeta presented her conclusions in Joined Cases C-331/20 (Volotea v. European Commission) and C-343/20 (easyJet Airline v. European Commission). In order to reduce the seasonality of air routes by increasing the frequency of flights during the (...)

Alain Ronzano Incompatible aid: The General Court of the European Union, following a correct application of the private investor test, confirms the European Commission’s decision to classify the financing of an airport located in Poland as State aid incompatible with the internal market (Gmina Miasto Gdynia, Port Lotniczy Gdynia Kosakowo)

On 21 December 2021, the General Court of the European Union delivered two judgments in the case T-209/15 (Gmina Kosakowo v European Commission) and, on referral, incase T-263/15 RENV (Gmina Miasto Gdynia and Port Lotniczy Gdynia Kosakowo v European Commission). By those two judgments, the (...)

Bruno Stromsky Market economy operator: The General Court of the European Union confirms that an investment in a small airport whose long-term profitability is not established does not meet the test of a private operator in a market economy (Gmina Miasto Gdynia, Port Lotniczy Gdynia Kosakowo)

Two Polish municipalities have set up a wholly-owned company with the aim of converting the military airport of Gdynia-Oksywie in Pomerania, mainly for use by low-cost airlines. In financing this conversion, the municipalities claimed to have acted as private investors and provided studies to (...)

Phedon Nicolaides The EU Court of Justice applies the market economy investor principle when assessing whether commercial transactions between public authorities and undertakings are free of State aid (Autostrada Wielkopolska)

First Case of a “Private Debtor” Test?* A public authority acting as a “private debtor” tries to minimise the amount that it has to pay. Introduction In assessing whether commercial transactions between public authorities and undertakings are free of State aid, the European Commission (...)

Jacques Derenne, Dimitris Vallindas Market economy investor: The Court of Justice of the European Union confirms the existence of overcompensation of a freeway concessionaire following the elimination of the double taxation of heavy goods vehicles (Autostrada Wielkopolska)

On November 11, 2021, the Court of Justice dismissed the appeal of the concessionary undertaking for a section of the A2 freeway in Poland [Autostrada Wielkopolska, hereinafter "AW"] against the judgment delivered on October 24, 2019 by the General Court in Case T-778/17(Autostrada (...)

Articles

Alain Alexis Foreign subsidy controls: The new European Commission proposal

Responding to the requests from the European Parliament and the European Council, the Commission has proposed an ambitious regulation to control foreign subsidies distorting the internal market. The challenge is to find a balance between the positive effects of foreign investments in Europe, (...)

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Some scholars have argued that the phenomenon known as common ownership, particularly by large investment managers, is anticompetitive and prohibited by the U.S. antitrust laws. These proponents call for the divestiture of trillions of dollars of equities. We believe the argument for antitrust (...)

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Despite the fact that investments backed by venture capital funds have reached $ 164 billion globally, this figure hides a grimmer reality: Competition is weakening everywhere. Innovation thus does not result in as much business success as it did in the past and, conversely, the lack of (...)

Stéphane Rodrigues Research Handbook on European State Aid Law

This timely new Handbook reflects on current issues that confront State aid law and policy in the EU. State aid was a neglected area of competition law until attempts to modernise it became central to the Lisbon process 2000 where the aim was to encourage ‘intelligent’ State aid by reducing (...)

Laurence Idot Focus on "mutations" of State aid law

State aid policy, a specificity of European Union law, is at the heart of the current financial and economic crisis. Although such an evolution could not have been foreseen, the review of this policy, in the context of the Lisbon strategy, has been at the heart of the EU Competition Policy (...)

Beligh Nabli Aides d’Etat

The book that caught our attention is soberly entitled "State Aid". It is the result of an international colloquium organised on 13 October 2004 by the Institute of European Studies of the Université libre de Bruxelles in collaboration with the Permanent Representation of Belgium to the EU. (...)

Events

Lise Damelet, Christof Schoser, Jérôme Vidal, Victoria Godefrood-Berra Foreign Subsidies: Towards Enactment of the EU Regulation

The “Foreign Subsidies: Towards Enactment of the EU Regulation” webinar organised by Concurrences, in partnership with FTPA, with Lise Damelet (Partner, FTPA, Paris), Victoria Godefrood-Berra (Deputy Head of Competition & State aids Sector, Secrétariat Général des Affaires Européennes) and Christof Schoser (Head of Task Force Third-Country Subsidies, DG COMP).

Alec J. Burnside, Alexander Lunshof, Amandine Jacquemot, Anneleen Straetemans, Birthe Panhans, Eleni Gouliou, Elizabeth Kraus, Emmanuel Frot, Esther Bitton, Étienne Chantrel, Guillaume Gournay, Helene Millenaar, Isabelle De Silva, James Mancini, Laurence Bary, Laurent Flochel, Mélanie Thill-Tayara, Michael L. Weiner, Paul T. Denis 6th Global Merger Control Conference

This 6th edition of the Global Merger Control half-day conference was organized by Concurrences Review and Dechert, in partnership with Analysis Group, Compass Lexecon and CRA.

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