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PR(06)28: The Authority opens formal investigation into State aid granted to the Icelandic Housing Financing Fund

21.6.2006

The EFTA Surveillance Authority opened today the formal investigation procedure with regard to State aid granted to the Icelandic Housing Financing Fund (HFF). 

The purpose of today’s opening decision is to comply with the EFTA Court’s judgment of 7 April 2006 (see below) and to call upon the parties concerned to submit their comments, in order to clarify whether the services provided by the HFF comply with the conditions laid down in Article 59(2) of the EEA Agreement.

Background

The HFF, an institution wholly owned by the Icelandic State, provides mortgage-secured housing loans to residents in Iceland. During its first examination of the HFF in 2004, the Authority found that, in funding and operating its loan system, the HFF received state aid from the Icelandic State. The HFF system had been put into effect without prior approval by the Authority. Such aid would have been subject to recovery if it had been found incompatible with the EEA Agreement.

The Authority concluded however in 2004 that the service provided for by the HFF was compatible with the EEA Agreement as it qualified as a “service of general economic interest”, in the meaning of Article 59(2) of the EEA Agreement. This conclusion was based on the premise that the HFF was obliged to provide house financing at affordable rates and on equal conditions throughout the entire Icelandic territory, irrespective of the profitability of individual operations. In the Authority’s view, the HFF offered a service which was not available on the private market in Iceland. Therefore, the Authority decided to approve the HFF system[1], by means of a preliminary examination, without opening the so-called formal investigation procedure.

This Decision was challenged before the EFTA Court by the Bankers’ and Securities’ Dealers Association of Iceland. The association argued, inter alia, that the HFF system could not profit from the derogation in Article 59(2) of the EEA Agreement. It was further argued that because of the difficulty to declare the HFF compatible with Article 59(2) of the EEA Agreement, the Authority should have opened the formal investigation procedure.     

EFTA Court’s ruling of 7 April 2006in Case E-9/04[2]

The EFTA Court sustained the appeal from the Bankers’ and Securities’ Dealers Association. In the opinion of the EFTA Court, the State aid scheme in question had raised “doubts […] as to the compatibility with the functioning of the EEA Agreement”, doubts which had not been overcome by means of the preliminary examination. Hence, the Authority was under an obligation to initiate a formal investigation procedure, before making a decision.This was not done and, for that reason, the EFTA Courtannulled the Authority’s previous Decision.

[1]    Decision No. 213/04/COL of 11 August 2004.

[2]    Judgment of 7 April 2006, Case E-9/04 The Bankers’and Securities’Dealers Association of Iceland v EFTA Surveillance Authority [2006] EFTA Court Report (not yet reported). The judgment is available at the EFTA Court’s website: www.eftacourt.lu


For further information, please contact:
Mr. Amund Utne
Director, Competition and State aid Directorate
Tel. (+32)(0)2 286 18 50

or

Mr. Michael Sánchez Rydelski
Deputy Director, Legal & Executive Affairs
Tel. (+32)(0)2 286 18 34

21 June 2006




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