EU Commission sues Germany over Deutsche Post state aid

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The European Commission has initiated legal proceedings against Germany for failing to recover enough “incompatible” state aid from Deutsche Post last year.

The executive branch of the European Union had ordered Germany in January 2012 to claw back between EUR 500m and EUR 1bn in government subsidies from pension assistance wrongly paid for workers in the competitive side of the Deutsche Post business.

The pension assistance from the German government was seen as an “undue economic advantage” for the universal service provider over competitors in the market.

But since the January 2012 order, the Commission and Germany have argued over the amount that should be paid back.

Yesterday, the Commission referred the matter to the EU Court of Justice, saying that Germany had “repeatedly” refused to claim back from Deutsche Post the full amount liable.

If the EU court finds in favour of the EU Commission, Germany could be forced to pay penalty payments.

The Commission said in a statement yesterday: “Companies that have received incompatible state aid have had an economic advantage over their competitors, who had to operate without state funding. This distorts competition in the internal market. To remedy the effects of this distortion, it is therefore important that the beneficiaries of incompatible aid pay this undue advantage back as soon as possible.”

Pension subsidies

The referral of the matter to the EU Court of Justice continues a legal wrangle between the EU’s top competition regulator and Germany over Deutsche Post’s state aid that has stretched back to 1999, originally prompted by complaints from rivals including UPS.

The Commission first demanded money back in 2002.

The pension subsidies currently under question were provided since 2003 to cover the pension liabilities of civil servants taken on by Deutsche Post from the previous government-owned postal administration during the company’s privatisation in the mid-1990s.

The Commission said Deutsche Post was “overcompensated” for these legacy pension costs, particularly for staff in competitive areas of the business.

“Deutsche Post was getting not only a pension subsidy from the State but also an increase in regulated letter prices to cover pension costs,” the Commission said in a statement yesterday. “As a result, Deutsche Post effectively benefited from social contribution rates that were below the rates which other non-price regulated postal services providers had to pay, and was thereby granted an undue advantage over its competitors.”

Repayment

The Commission said it had given Germany four months following last year’s demand to pay back the state aid, but ahead of the deadline Deutsche Post had paid back “significantly lower” than the required amount.

Disagreement has come between the Commission and Germany over the amount to be paid back. Germany decided that the non-price regulated part of the Deutsche Post business from which the incompatible state aid should be recovered extended only to stamp sales, envelope services and advertising mail. The Commission said Deutsche Post’s business-to-business parcel services were also competitive, and therefore should be factored into the state aid calculation.

Germany has repeatedly refused to claim back these additional funds from Deutsche Post, the Commission said yesterday.

Deutsche Post, which has paid EUR 317m in state aid so far, said last year that the Commission’s demand for a state aid refund was unfair compared to state aid permitted to other European postal services, accusing the Commission of “double standards”.

A legal challenge by Germany against the Commission’s January 2012 decision is still ongoing, with the German government stating that it had been waiting resolution of that case before looking at the full amount it should recover from Deutsche Post.