By: Phedon Nicolaides
Compensation for damage suffered by undertakings as a result of a natural disaster constitutes State aid.
The compensation is compatible with the internal market only if, first, there is a causal relationship between the natural disaster and the damage and, second, the amount of compensation does not exceed the amount of the damage.
Financial assistance in the form of compensation provided to undertakings harmed by a natural disaster is State aid if it satisfies all the criteria of Article 107(1) TFEU. It is irrelevant that such assistance is intended to make good the damage caused by the disaster. However, such compensation is declared by Article 107(2)(b) TFEU to be compatible with the internal market if it does not exceed the amount of the damage.
On 19 October 2022, the General Court delivered two judgments on the link between natural disasters and State aid: T-850/19, Greece v European Commission and T-347/20, Soja Ellas v European Commission. Both cases concern appeals against Commission decision 2020/394 which had found state aid granted by Greece to undertakings affected by large fires in the summer of 2007 to be incompatible with the internal market. Since the judgments are very similar, this article reviews only the judgment in case T-850/19.
In August 2007, in response to large fires that caused extensive damage estimated at EUR 2 billion, the Greek government declared a state of emergency and granted financial assistance to affected undertakings, mainly farmers. The assistance was in the form of subsidised loans and state guarantees for on those loans.
Some time after receiving a complaint in 2014, the Commission opened the formal investigation procedure which was eventually concluded with a negative decision. The Commission found that the financial assistance constituted State aid that was incompatible with the internal market on the basis of Article 107(2)(b). The reason was that the aid was not limited to the amount of the damage suffered by beneficiary undertakings. The aid had been granted to undertakings located in the affected regions regardless of whether they had actually suffered damage. In other words, for the sake of administrative simplification, they were presumed to have been damaged. Moreover, undertakings that had in fact suffered damage received aid that was not necessarily proportional to that damage…