This Week and Last Week in Luxembourg

The Grand Chamber (Judge Juhász) reaffirmed that in competition law the actual facts on the ground are all that matter, regardless of anyone’s intentions. In this case, both the lawyers and the Austrian Kartellgericht said that the cartel in question was permitted, but that does not prevent the Austrian authorities from fining them anyway 15 years later. Bundeswettbewerbsbehörde and Bundeskartellanwalt v. Schenker et al. Cf. European Law Blog

The Grand Chamber (Judge Ó Caoimh) also gave the Czech Republic a € 250.000 lump sum fine for failure to comply with an – otherwise boring – infringement judgment. Commission v. Czech Republic

Guillermo Cañas’s attempt to marshal the forces of EU competition law against the world anti-doping agency WADA and against the ATP failed before the Court of Justice (Judge Bay Larsen) as it had before the Commission and the General Court. The problem continues to be that the applicant, having retired, no longer has an interest in fact in the dispute. Cañas v. Commission (FR)

In Impacto Azul Lda v. BPSA 9 et al., the Court (Judge Lõhmus) held that art. 49 TFEU allows national legislation that “excludes the application of the principle of the joint and several liability of parent companies vis-à-vis the creditors of their subsidiaries to parent companies having their seat in the territory of another Member State”, because the parent can easily contract around this.

The Court (Judge Rosas) agreed with AG Mengozzi that Luxembourg had discriminated impermissibly against foreign students in its system for financial aid. However, the way it got there was quite different. Giersch et al. v. Luxembourg Cf. Eutopia Law blog

Now that all the easy cases on mutual recognition of professional qualifications are dealt with, it’s time to move on to more difficult situations. In Nasiopoulos v. Ipourgos Igias kai Pronoias we have a German-trained Greek medical masseur-hydrotherapist (‘Masseur und medizinischer Bademeister’) who wants to work as a physiotherapist in Greece. While the Court (Judge Levits) agrees that that is a bit of a stretch, it thinks he should at least be allowed to practice that part of the profession that he is actually qualified for.

In the joined cases VG Wort v. Kyocera et al. and Fujitsu and HP v. VG Wort, the Court (Judge Malenovský) gave some guidance on art. 5(2)(b) and 6 of Directive 2001/29, the copyrights directive. As it turns out, printer manufacturers can be sued for some of the total “fair compensation” owed for all those naughty internet users printing off books in their attics, but not all of it.

The Court (Judge Jarašiūnas) signed off on a Maltese excise duty on mobile telephone use, concluding that neither art. 12 nor art. 13 of the Authorisation Directive applied to such a “consumption tax”. Vodafone Malta et al. v. Avukat Ġenerali et al.

AG Jääskinen, quoting pre-Supreme Court Louis Brandeis, argued that there is no general “right to be forgotten” under existing EU data protection law. The defendants wanted an allegedly incorrect search result deleted from Google. Google v. Agencia Española de Protección de Datos (AEPD) and Mario Costeja González Cf. UK Human Rights Blog and European Law Blog

AG Mengozzi has a state aid case in national court, where Deutsche Lufthansa complained about alleged state aid from Frankfurt-Hahn airport to Ryanair. As a result of this litigation, the Commission decided to get interested, with the result that the standstill clause of art. 108(3) TFEU came into effect. Given that the German court doesn’t necessarily agree that there is unlawful state aid here – the case was initially rejected by the Landgericht – the question is what the distribution of responsibilities and obligations is between the Commission, the national court and, potentially, the ECJ. Deutsche Lufthansa v. Flughafen Frankfurt-Hahn (NL, DE, FR)

For whatever reason, they let AG Kokott near one of those classic legal basis & common commercial policy cases. (Cf. my LL.M. thesis, long ago, here.) The case is about this Council of Europe convention. The Commission wants the EU to ratify it based on the normal rules of the common commercial policy under art. 207 TFEU, while the Council prefers a mixed agreement based on art. 114 TFEU. Curiously, the AG argues – correctly – that art. 3(2) TFEU codifies the ERTA doctrine, but then uses that to conclude that the EU’s competence in this area is not only exclusive, but also based on art. 207 TFEU. Commission v. Council

The General Court rejected two action for annulment in the Aluminium Fluoride cartel case. Most creatively, one of the applicants – ICF from Tunisia – tried to plead art. 36 of the Euro-Mediterranean agreement between the EU and Tunisia from 1998 as a grounds of invalidity. Unsurprisingly, the Court did not go for that one. ICF v. Commission (FR) and Fluorsid SpA and Minmet Financing v. Commission

This Week and Last Week in Luxembourg

The British system of special advocates for national security immigration cases survived a challenge under the free movement directive this week. While the Grand Chamber (Judge Von Danwitz) set some limits, those are the same as the limits already set by the ECtHR and the UK Supreme Court: Only when it is strictly necessary, and in any event the “essence” of the case must be disclosed. ZZ v. Secretary of State for the Home Department Cf. UK Human Rights Blog and Eutopia Law Blog

The big competition case last week was Bundeswettbewerbsbehörde v. Donau Chemie et al., where the Court (Judge Tizzano) held that access to a competition case file cannot be made subject to a right of veto of the parties. Even in cases of leniency submissions, the national court has to assess the balance of interests. Note that the new Commission proposal for a Directive on private damages suits in competition law forbids access to statements made in leniency submissions and settlement negotiations categorically. COM(2013) 404 Cf. Kartellblog and, on the Proposal, Recent Developments in European Consumer Law Blog

In January 2012, the General Court (Judge Forwood, of course) held that there was no longer any need to adjudicate the asset freeze case of Ayadi v. Commission, because Mr. Ayadi had since been removed from the asset freeze list. The Court (Judge Rosas) affirmed last month’s Grand Chamber judgement in Abdulbasit Abdulrahim v. Council (also by Judge Rosas) to hold that that was wrong. Ayadi v. Commission

In the Sardinian Hotel Aid case of HGA et al. v. Commission, the Court (Judge Arabadijev) signed off on the use by the Commission of a “corrective decision” in order to update a state aid procedure in mid-stream in light of new information provided by the Italian authorities (don’t ask). In so doing, the Court upheld the General Court’s decision in Regione autonoma della Sardegna et al. v. Commission (NL, DE, FR).

If one public authority hires another to clean its offices without any kind of (traditional) collaboration being established between them, that constitutes a public service contract under Directive 2004/18, meaning that it should have been tendered. Piepenbrock Dienstleistungen GmbH & Co. KG v. Kreis Düren

Ryanair lost its appeal in the Alitalia state aid case. The Commission’s decision finding that the loan provided by the state constituted unlawful state aid while the state’s other measures did not now stands. Ryanair v. Commission

As it turns out, just because you didn’t mention jurisdiction when opposing a the European order for payment, doesn’t mean you’ve forfeited the right to do so in the regular procedure under Regulation 44/2001. Goldbet Sportwetten v. Sperindeo

AG Mengozzi is proposing that, for a change, the Swiss should not end up holding the short end of the stick in a dispute about the tax-free amount for German inheritance tax. Welte v. Finanzamt Velbert

AG Kokott delivered an opinion on the rights of the citizen taxpayer when a Member State asks another Member State for information. She concluded that, as far as EU law is concerned, the citizen has no rights in this context. Jiří Sabou v. Finanční ředitelství pro hlavní město Prahu (NL, DE, FR)

The facts in the unfair commercial practices case of CHS Tour Services v. Team4 Travel make for a pretty interesting case, but tragically the ECJ’s portion of it is pretty straightforward. Defendant describes its arrangement as “exclusive” based on its contract with the hotel in question, plaintiff manages to book there anyway, and therefore challenges the use of “exclusive”. Result, according to AG Wahl: “Where a commercial practice falls within the scope of art. 5(4) of Directive 2005/29, it is of no relevance whether the criteria under art. 5(2)(a) and/or art. 5(2)(b) are also fulfilled.” So the plaintiff wins. Cf. Recent Developments in European Consumer Law Blog

According to AG Mengozzi, the requirement that you have to provide your fingerprints for your passport does not violate art. 8 Charter. Schwarz v. Stadt Bochum (DE, FR)

AG Jääskinen made some pointed remarks about the brevity with which the French Cour de Cassation formulated its prejudicial question (par 19), before concluding that the questions posed are irrelevant for the dispute at bar and therefore inadmissible. The case concerns the locus delicti of a case of alleged music piracy under Regulation 44/2001. Pinckney v. KDG Mediatech AG (NL, DE, FR)

The General Court (Judge Martins Ribeiro) handed down an interesting access to documents judgment last week. In Stichting Corporate Europe Observatory v. Commission, it held that the fact that certain documents about the EU-India free trade negotiations had been provided to trade associations – i.e. potentially to large numbers of people – did not mean that the Commission had essentially already made those documents public.

Fyra

In his weekly column, which is usually unique among opinion pieces in being both carefully reasoned and highly insightful, Bas Heijne tore into a slew of targets yesterday. The reason why he lost his calm like that? Fyra.

Fyra is - or rather: was - the high-speed train between Amsterdam and Brussels. There is also a high-speed from Amsterdam to Brussels and then on to Paris, the Thalys, but that train works just fine and is not the topic of this story. Fyra, on the other hand, is an unmitigated disaster. It was launched on December 9, last year, and by the time I took the highspeed (Thalys) to Brussels in early January, it already had a reputation for offering at best an even chance of reaching its destination. Later that month, it was taken out of service, as reported by the BBC here. On May 31, the Belgian railways announced they were cancelling the Fyra service permanently, and a few days later the Dutch followed suit.

So who's to blame? Bas Heijne mentions a few people, but he seems mostly interested in talking about Parliament. However, let's start at the beginning:

• The supplier of the train, the Italian company AnsaldoBreda, seems to have supplied a train that was not fit for purpose.
• NS and NMBS took delivery of a train that was not fit for purpose.
• NS and NMBS contracted with AnsaldoBreda in the first place.
• The Dutch and Belgian governments are the only shareholders of NS and NMBS respectively, so clearly they dropped the ball.
• Likewise, there are some things wrong with the regulatory system. More on that below, but again it is the governments of the two countries that are responsible for that one.
• And finally, Mr. Heijne notes how Parliament (the Dutch one) seems to spend all of its time either screaming at the government about something that was on the front pages of the newspapers the day before, or screaming at the government because of some mess that resulted from the government giving it what it asked for. While that is quite correct, I'm not sure if it is such a relevant consideration in this particular instance. I don't recall any screams from Parliament about how we urgently needed a highspeed connection with Belgium. The government seems to have originated that idea all on its own.

So who's really to blame? Well, it may be my professional background, but I think the issue is one of regulation, not politics. Remember the issue of NS: Like Schrödinger's cat, it is two things at once. It is a state-owned for-profit company that contracts with another state-owned for-profit company for access to the network, which it is entitled to because of a concession it was granted by its owner, the state. All the money it makes running trains and avoiding taxes it pays out to the state in dividends.

In the 1990s, this schizophrenia infected even the state. The Treasury department viewed NS as a for-profit subsidiary and advocated treating it as such until its privatisation, which was to happen sooner rather than later. The Transport department, on the other hand, viewed it as a state-owned enterprise that should be encouraged to run the trains as wisely as possible based on the government's instructions without being burdened with such nuisances as competition or privatisation. The former was run almost exclusively by the liberal VVD party between 1994 and 2007, mostly through the highly influential Deputy-Prime Minister and occasional party leader Gerrit Zalm, while the latter ministry was traditionally a bastion of Christian-Democrats and Socialists. And so, with the ebbs and flows of power between parties and between ministries, the government's policy goals with regard to the railway sector changed as well. That is how the country ended up with a fully unbundled railway sector with competitive tenders in large parts of the system, but also with a state-owned incumbent who is given the most important concession outright every few years. (The last time until 2025.)

Highspeed South, which includes both Fyra and Thalys, is a wonderful example of this schizophrenia at work. When the Treasury was powerful, it pushed through a competitive tender for this concession. NS was so paranoid about letting any foreign company onto the Dutch market that they went crazy and overbid massively. As Mr. Heijne's own newspaper, the NRC, discovered in 2011, the company's internal bid team thought that €120 - 130 million per year would be the maximum realistic bid. The board, however, added to that in a series of meetings until they ended up with € 148 million, a sum € 18 million higher than the € 130 million that the Transport Ministry had estimated as the maximum. The bid was so high that the government went back and encouraged them to re-evaluate, but in the end the bid was accepted. (No other company even came close to bidding € 100 million, much less € 148 million, so NS's concern was entirely unwarranted.)

When High-Speed Alliance, the NS-KLM joint venture tasked with running the trains, went bankrupt in 2011, the Treasury had long since lost its influence. So the liberal approach to railway regulation was unceremoniously replaced by a conservative approach: The Dutch company gets to keep its concession. Instead of re-tendering, the highspeed service was added to NS's regular concession and granted outright, at a reduced price of € 108 million per year. (Ironically, since 2010 the Transport Minister was a liberal.) Nationalism and bureaucracy instead of competition.

In my view, that is how we ended up with this Fyra debacle. As NRC wrote in January, the reason why in 2004 NS and NMBS bought the AnsaldoBreda trains instead of rolling stock from another manufacturer was purely a matter of price. They compromised on speed (which you wouldn't need anyway given how close together the stops are) and quality in order to get the cheapest possible train. That decision made sense from the point of view of a company that was in over its head, having bid way too much in a competitive tendering process. The trouble only arrived now, long after all the responsible railway executives and government ministers have retired.

To review:

• 2001: The government screws up the tender by accepting a bid that was unrealistically high. (Tenders are hard.)
• 2004: NS and NMBS buy the cheapest trains they can get their hands on.
• 2011: HSA collapses and is rescued by the Dutch state.
• 2013: The trains start running and then break down. 

This is not a problem that started in Parliament. They wrote a law that is fundamentally sound. It just leaves a little too much room for shenanigans, so shenanigans is what we got. The solution seems to be that NS should be privatised post haste. A company that makes € 300 million profit per year should fetch a handy sum, which should please the orthodoxy, and theoretically privatisation should remove any further temptation for the Transport Ministry to do anything stupid. Let a private NS run the trains it has contracted to run, and let the Transport Ministry and the Regulator ACM fine them up the wahzoo if they screw it up.

Lone Voice of Sanity Successfully Silenced

Ever since the beginning of the current economic crisis, the government's orthodoxy that cutting expenditure to match tax receipts is the only option has been echoed by all official voices - the Treasury, the National Bank - except one. The CPB, the state agency responsible for analysing the economic impacts of government policy through advanced economic modelling, consistently insisted on pointing out that reducing expenditure doesn't do anyone any good if that reduces GDP more than debt. If contractionary austerity is, well, contractionary - and the CPB's models show it is -  maybe it should be left for better economic times.

Insiders knew, however, that the secret of the CPB's sucess was fickle. After all, like every government agency there is a limit to its independence, and that limit is the term of appointment of its chief. Coen Teulings, the man who was director of the CPB from 2006 until last April, took responsibility for the unpopular findings of his staff, resisting pressure from the government to downplay the results of the agency's modelling. Now that is term is over, however, he has been replaced by Laura van Geest, someone who comes straight from the heart of orthodoxy: the Treasury Ministry. Following the appointment of former top-Treasury civil servant Klaas Knot to the Presidency of the National Bank last year, this is the second time that an independent agency's conformity to orthodoxy is safeguarded by putting a Treasury staffer in charge.

The most surprising thing is how little time it took for this decision to matter. Teulings left on May 1, but Van Geest's appointment doesn't start until August 1. In the interim, however, the mood has already changed. This week, the CPB released a Policy Brief called "Prudent debt level: a tentative calculation", which magically finds that the prudent (maximum) level of debt is in the 61%-86% range. Above that, the authors claim, "the gains of holding a larger buffer to ward off negative shocks [exceed] the cost of transitioning to a lower debt level", the cost of transitioning being evaluated at a 8-year time horizon.

While this has the merit of not being prima facie stupid (it doesn't have a Reinhart-Rogoff-style threshold level of debt above which bad things start to happen immediately), it misses one thing: it uses an average/ordinary 8-year time horizon, based on the way the economy has historically worked, which is very much not the same as the current 2013-2021 time horizon. The next 8 years are likely to be decidedly not average, just like the last 6 years weren't. The authors recognise this, to some exent. That is why they make caveats such as this one:

In the press release:

Caution is advised in using these debt levels as anchors for policy, as the costs of deviating from these numbers are small in this range while the benefits may be significant.

And in the brief itself:

Caution is advised in using these prudent debt levels to anchor policy. Note for example that, by Table 1, an increase in debt of a 10% from such a prudent level reduces lifetime earnings by just a few percentage points. This is relatively small if the debt increase averts a financial crisis. Also, adverse economic circumstances may lead to temporarily higher debt levels, which can be prudent.

[Footnote:]  This can be understood by seeing that the cost of debt reduction increase in a recession. Then, the prudent debt level, that at which the gains of debt reduction equal the costs, rises as well.

Result: We end up with a study that is not so much stupid as it is misguided, but that conveniently ends up supporting the orthodox line that the Netherlands should get to work cutting its expenditures in order to reduce its debt down to the 60% of the Stability and Growth Pact. So yes, we're still all doomed.