(a)

As you know, the French Government raises three objections to the decision of 6 July 1968, which first comes into question. It says that the Commission has judged a monetary policy measure which falls within the exclusive jurisdiction of the Member States. Further, the measure in question was a general and not a specific one affecting matters solely within the coal and steel sector. Finally Article 67 of the ECSC Treaty, on which the decision is based, provides at most a power of recommendation for the Commission for such situations.

As far as the first observation is concerned adjustments of the rediscount rate appertain without doubt to the sphere of monetary policy that is within the range of powers which, as appears from Articles 26 and 71 of the ECSC Treaty, are basically reserved to the Member States. This however in no way means that the Community has no competence in this sphere. The Commission rightly refers to the fact that preferential rediscount rates for foreign transactions may constitute aids to exports if the general definition of subsidies given by the Court in Case 30/59 is taken as a basis. If it is a question of a specific measure conceived for the coal and steel industry, the prohibition in Article 4(c) of the ECSC Treaty may apply. But in that case (where there are exceptional circumstances) a special authorization by the Commission comes into question, which naturally is given in the form of a decision and which may be subject to conditions.

If one looks at Article 67 of the ECSC Treaty, on which, as is known, the decision of 6 July rests, then one finds (in the second subparagraph of paragraph (2)) that the Commission has the power to authorize aid. When the French Government objects that it should relate only to aid specifically intended for the coal and steel industry and that its own measures in the matter of rediscount rates were, however, of general application, this objection, in the context of the summary examination which has to be undertaken at the moment, could be met by pointing out that not only did the French Government take part in July 1968 in the relevant consultations with the Council without reservations, but that it also notified its agreement with the Commission's measures, that is, it accepted the legal basis of the second subparagraph of Article 67(2), in which such ‘agreement’ is required.

Further, what the Commission has said in support of its (point of view may appear reasonable, that is, it was a question on 6 July 1968 of the authorization of measures specifically intended for the steel industry. The Commission's argument is as follows: first, the French measures were taken unilaterally under Articles 104 to 109 of the EEC Treaty and therefore were only temporarily valid. It could not be ruled out that the Council would order their amendment, suspension or abolition under Article 109(3) (if the mutual assistance recommended by the Commission had proved sufficient) and it was also conceivable that subsequent authorization by the Commission of the special rate under Article 108 would be subject to more stringent conditions than it was for the less affected coal and steel industry for which it was first conceived. The French Government had itself declared that the preferential rediscount rate was of less importance for export transactions relating to the coal and steel industry in view of their short-term nature. Looked at in this light, that is, because, having regard to the special characteristics of Articles 108 and 109 of the EEC Treaty, the general applicability of the measures taken by the French Government on 6 July was uncertain, it could be assumed that at that time measures intended specifically for the coal and steel industry were authorized. Thus even so far as the second subparagraph of Article 67(2) of the ECSC Treaty is concerned, there is obviously no reason to speak of any violation of rules concerning jurisdiction.

This is also true in respect of the provisions of Article 67 according to which in certain circumstances only the making of recommendations is provided for. It seems to me decisive here that the Commission did not take the view that the prerequisites for the operation of these provisions existed but based its decision on the increase in production costs as a consequence of wage rises, that is, it stressed the criteria in the second paragraph of Article 67(2). The French Government, let me say once again, was in agreement with this at the time and, in view of this, it is certainly out of place now to speak of an obvious infringement of Article 67.

None of the observations made by the French Government therefore compels the finding that the decision of 6 July 1968 reveals such serious defects that there could be any justification for disregarding it in the absence of its express annulment.

(b)

As far as the decision of 23 July 1968 is concerned a similar brief examination gives us the following picture.

Here, too, we are confronted first with the view of the French Government that changes in the rediscount rate are, as measures of monetary policy under Article 104 of the EEC Treaty, exclusively a matter for the Member States and that all the Member States have is the duty under Artcle 105 to co-ordinate their monetary policies. In my view the fact that the French Government itself in taking its measures relied on Article 109 in conjunction with Article 108 of the EEC Treaty shows that this is not completely right. The Commission, too, can act under Article 108, that is, authorize the State which is in difficulties to take protective measures in the event of the mutual assistance recommended by it not being granted or being insufficient. The Commission therefore does have power to take decisions in the sphere which concerns us now and thereby to lay down certain conditions with which the authorized protective measures must comply. This finding suffices in the context of the present brief examination. On the other hand, it is irrelevant whether protective measures authorized by the Commission under Article 108 accord with those taken unilaterally by the affected Member State under Article 109 and whether indeed on 23 July 1968 what was concerned was not only the authorization of a particular alteration of the special rate but also of its very existence (as the Commission referring to the application of the French Government of 12 June 1968 in my opinion has plausibly demonstrated).

In the second place the French Government argues that authorization by the Commission was not necessary because the measures taken are not to be regarded as aid. In saying this it relies on the special criteria which are contained in Article 92 of the EEC Treaty. Let us see, therefore, what is the truth of the matter.

First of all Article 92 requires that ‘certain undertakings or the production of certain goods’ be favoured. Like the Commission I take it however that this does not mean only aid to individual sectors or geographical areas but also a measure which does not apply to all the undertakings in a Member State which is doubtless the case with aids to exports in relation to many undertakings which produce exclusively for domestic market. Then Article 92 provides that there must be a distortion or threat of distortion. The French Government's view on this point does not seem to me convincing either, in so far as it declares that there is no competition between products which are intended for export and products which are for domestic consumption. At least, as the Commission stresses, there must be said to be potential competition, for it is obvious that when export conditions deteriorate products intended for export come on to the domestic market. As far as competition with foreign undertakings is concerned, there can certainly be distortion by aids to exports of the kind with which we are concerned here, if the undertakings in the other Member States are not protected in the same way against the risk of an increase in the discount rate, as is in fact the case. This alone is relevant, in drawing comparisons and not, as the French Government thinks, all the production cost factors. Finally it appears also significant, and this is an ultimate criterion, that export subsidies may affect ‘trade between Member States’. For this the deciding factor is the intention to promote exports and that trade relations would develop differently without this influence. Actual trade figures as given by the French Government are not therefore decisive. Therefore the Commission's power of authorization, in the context of the Treaty's provisions on aids, is not in principle to be rejected out of hand (particulars of the application of Article 92 are not now relevant). To summarize, this means that it is just as impossible to say that the decision of 23 July is so obviously defective that it can be disregarded without annulment by the Court as it is to say this of the decision of 6 July.

(a)

A preliminary argument will not detain us long in this connexion. It is to the effect that since the Commission does not have jurisdiction in the sphere of monetary policy neither does it have the power to implement decisions which have been taken illegally in this sphere. Apart from the fact that this complaint was made for the first time in the reply and could therefore be rejected under Article 42 of the Rules of Procedure, it probably suffices to refer to the legal nature and basis of the decision of 18 December 1968. Article 88 of the Treaty alone is decisive here. According to this it sufficies to find the existence of a valid decision and a failure to comply with it in order to set the proceedings in motion (the Commission, moreover, according to the case-law of the Court, has even a duty in this respect). On the other hand the legal nature of the decision, the disregard of which is in question, is irrelevant in these proceedings.

(b)

In the second place the French Government seems to take the view that the Commission, instead of taking a decision under Article 88 should have made a recommendation under Article 67 in order to put an end to the repercussions of the French measures on the steel undertakings of other Member States. It is clear that this view is not convincing either. Where parallel powers exist no complaint can be made against the Commission for using those which appear more effective to it. In the present case this was doubtless the implementation of the decision of 6 July in which there are provisions for the abolition of the preferential rediscount rates. Further it may be said that the power of recommendation referred to by the French Government is designed to meet a situation which the Commission apparently did not have in mind at all.

(c)

Further the French Government argues that the monetary crisis, which arose in November 1968, created a new situation which necessarily invalidated the agreement which it had previously given to the Commission's measures. The Commission was notified of this on 5 November and 13 December; its decision of 18 December was accordingly at least a rejection of a corresponding application. On this point, too, the French Government knew that on 6 July 1968 the Commission had taken a decision on measures of monetary policy with French consent. If in the French Government's view, as a result of new circumstances arising, the decision could not continue to exist in the form in which it had originally been conceived, then the unilateral retraction of the agreement previously given was certainly not the right way to dispose of the decision. It would have been much more appropriate to endeavour to have it amended in agreement with the Commission. In view of the laconic nature of its statements there is nothng to indicate that the French Government acted in this way on 5 November and 13 December. Thus for this reason particularly, it cannot be said that the Commission in its decision of 18 December rejected a corresponding French request (a request which, moreover, the application, as distinct from the reply, expressly says was never made).

(d)

The fourth argument or the French Government states that the necessary increase in the special rate after the decision of 6 July would have meant dearer credit for the French undertakings and therefore ultimately caused discrimination in relaton to foreign competitors. As regards this argument it must be said, following the Commission on this point, that the reduction of a discriminatory advantage can hardly be regarded as discrimination against those previously favoured. Apart from this there is certainly no question in the present context of its being essential to make a comparison of all cost factors. If only the rediscount rates are considered then according to the figures stated in the proceedings there was on 1 November 1968 no reason to fear that the level of these rates would substantially differ in other countries since only an increase from 2 % to 3 % had to be made.

The French Government seems to overlook this when it says that the complete alignment of the special rate with the general rate would have brought the danger of a serious disturbance of economic life and thereby infringed Article 2 of the Treaty. Moreover, in my opinion it is inconceivable that it would have meant serious prejudice to the French undertakings because it has repeatedly been stated that the preferential rediscount rate had little significance for the coal and steel industry and because the French Government apparently saw no cause to maintain the other much more effective measures of aid, which were likewise authorized in the decision of 6 July, beyond the time limit provided for. The argument which I have just examined can therefore certainly not justify the failure to comply with the decision of 6 July.

(e)

Finally the French Government submits that in view of the monetary crisis which erupted in November 1968 it had the right under Article 109 of the EEC Treaty to take protective measures unilaterally and on this basis to maintain the preferential rediscount rate for export transactions at its original level notwithstanding the earlier decisions of the Commission. I shall deal with this argument in detail in considering the application brought under Article 169. In the present connexion, however, the view of the Commission must be followed and the argument rejected as being out of time. It appears for the first time in the French Government's reply whereas in the application all that is said is that the said monetary crisis nullified the French Government's agreement to the Commission's decision taken under Article 67 of the ECSC Treaty. Since this position can scarcely be said to be an admissible development of submissions already formulated in the application, Article 42 of the Rules of Procedure must indeed apply.

Thus it is that none of the arguments brought against the decision of 18 December 1968 helps the application.

(a)

Referring to the fact that in this respect, too, what is concerned is a question of monetary policy, the French Government denies in the first place the Commission's power to deliver its reasoned opinion of 18 December. In the present case this argument can, however, certainly have no other significance than in the proceedings under Article 88 of the ECSC Treaty. What was done on 18 December 1968 does not in fact represent a decision which gave rise to any new obligation but simply a declaratory measure, which was intended only to prepare the way for a subsequent application to the Court. For the purposes of delivering its opinion it was sufficient that a valid decision of the Commission was already in existence and was not complied with at a particular time. On the other hand the nature of the decision, whose terms were thus recalled in the opinion, has no influence on the prosecution of proceedings for failure to comply with it.

(b)

When the French Government, for the purpose of having the Commission's conclusions dismissed, goes on to refer, in this connexion too, to the new situation which arose in November 1968 in France, it must be said again that such reference cannot of itself free it from compliance with a decision which was previously validly taken. It could only have successfully refuted the complaint that it had infringed the Treaty if it had been able in good time to have this decision amended. As we have seen it did not, however, take any steps in this direction, since its communications of 5 November 1968 and 13 December 1968, which contain only general comments could not be regarded as requests for the amendment of the Commission's decision. Furthermore, with reference to the case-law of the Court (Cases 2 and 3/62), I would join with the Commission in stressing that the submission of a request does not in itself suffice to legalize an infringement of the Treaty which has been committed.

(c)

In truth the French Government is seeking to justify its conduct above all by arguing that the monetary crisis of October to November 1968, in which the increase of the general rate to 6 % was necessary, created a situaton which gave the French Government under Article 109 of the EEC Treaty the right to take protective measures unilaterally and thereby to exempt itself from obligations which had in principle to be fulfilled on 1 November. In these circumstances it was not open to the Commission to insist on the implementation of its decision; there was only power for the Council under Article 109(3) to decide whether the protective measures should be amended, suspended or abolished. There is no doubt that here we have an argument which could destroy the basis of the Commission's application. It therefore requires specially careful examination. Since the French Government relies on an exception, naturally a stringent investigation is called for and the burden is on the French Government to prove that the conditions in Article 109 obtained. Let us therefore look at the picture presented by the written and oral observations of the parties.

First of all the Commission points out that the French Government did not observe essential procedural provisions contained in Article 109, in that it neglected to inform the Commission and the other Member States not later than when the protective measures entered into force. Since this was done in other cases of the application of Article 109 (for example, on 25 November), whereas in the present case reference to Article 109 was made for the first time in the statement of defence, the conclusion does appear justified that on 1 November 1968 the French Government did not have in mind the application of this provision. Further, however, the Commission also disputes that the material conditions for the application of Article 109 obtained, that is, it says that the monetary crisis had not prior to 1 November revealed dimensions which could justify the immediate issue of protective measures (and the failure to comply with the decision of 23 July). The figures given by the Commission in this connexion, and not disputed by the French Government, on the weekly and daily outflow of exchange in the relevant period might, it must be admitted, indeed appear to justify the doubts expressed by the Commission. If, however, we are reluctant to go so far, we must at least find illuminating the Commission's reference to the fact that effective measures against speculative exchange losses were not taken until later (namely on 12 November and on 24 November). Moreover a comparison with similar situations, such as those in May and June 1969, is significant. The French exchange losses were greater on these occasions than at the end of October and beginning of November 1968. This however did not prevent the French Government from increasing the preferential rediscount rate for short-term claims for liquidation abroad twice, on each occasion by 1 point, so as to bring it to 5 %. In view of this fact it may be rightly questioned whether keeping down the preferential rediscount rate in November 1968 was really intended as a protective measure within the frame-fork of decisions on monetary policy. Finally there are in addition serious doubts on the appropriateness of this instrument in overcoming crises in the balance of payments of the nature which concern us here. It appears to me at least significant that when the rediscount transaction is carried out in a certain way (that is when foreign claims are not assigned to the Central Bank absolutely but only by way of security) a lower rediscount rate can lead to exchange earned abroad being left there in anticipation of a change in parities with the result that an improvement in the balance of payments is not directly achieved. This appears to be confirmed by the weekly balances of the Banque de France for the period in question referred to by the Commission for they show an increase in export credits, that is to say, in the holdings of bills for short-term credits, which bears no relationship to the increase in exports. All these findings and considerations taken together certainly warrant considerable doubts whether the French Government could justify its refusal to raise the preferential rediscount rate on 1 November 1968 by relying on the protective clause in Article 109. In view of these circumstances the burden however was on the French Government to adduce proof that the conditions for the application of Article 109 were met. Since this has not been done, all we can do is reject the argument based on Article 109 as not valid.