The European Commission said on April 14 2010 that it had decided to refer Greece to the European Court of Justice for not complying with a July 2008 Commission decision that found that state aid was unlawfully granted to Hellenic Shipyards (HSY) and should, therefore, have been recovered.

"The Commission allows member states to pay out large sums in state subsidies to business every year, but in those cases where the aid is found to be illegal it must be recovered swiftly to restore the level playing field and to preserve the credibility of the rules themselves," European Competition Commissioner Joaquín Almunia said.

"We have had to bring a number of cases of this type in recent years, notably against France, Italy and Austria. We need to make sure that member states make their best efforts to recover the money," he said.

On July 2 2008, the Commission decided that subsidies granted by Greece to Hellenic Shipyards S.A. were incompatible with the common market because they distort competition.

This was because Greece did not respect the conditions attached to the restructuring and closure aid approved by the Commission in its prior decisions of 1997 and 2002.

Moreover, various loans and guarantees provided by the Greek state and the then State-owned bank ETVA to Hellenic Shipyards constituted incompatible aid as they were provided either below market price or at a time when the financial situation of Hellenic Shipyards had become so difficult that it could not find bank financing, the Commission said.

All of these measures benefited the civil activities of HSY giving it an unfair advantage over its competitors, according to the Commission.

In fact, Hellenic Shipyards is involved in both civil and military activities, but in this decision, the Commission said that it had only examined aid which had exclusively benefited its civil activities because the subsidies that Hellenic Shipyards received for its military activities are exempted from EU state aid rules.

Therefore, HSY has to reimburse about 230 million euro  of aid plus interest, from its civil activities. The interest is calculated, for each state aid measure, as from the date when the aid was granted.

The European Commission has been in discussions with the Greek authorities and Hellenic Shipyards since July 2008, concerning possible ways of implementing the decision, taking into account the company's financial difficulties.

"The objective is to ensure an effective implementation of the decision while respecting the national security interests of Greece and bearing in mind the company employees' best interests," the Commission said.

"But these efforts have been fruitless so far."

The Commission therefore had decided to refer Greece to the Court of Justice of the European Union, under Article 108(2) of the Treaty on the Functioning of the EU.

Member states have to recover State aid that had been declared incompatible by the Commission, within the deadline set out in the Commission decision.

This is very important because delays to the execution of recovery decisions undermine the effectiveness of the rules themselves and maintain the distortion of competition.

If a member state does not implement a recovery decision, the Commission may refer, the matter to the Court of Justice under Article 108(2) of the Treaty on the Functioning of the EU, seeking to have the member state condemned for violating EU law.

In the event that the member state does not comply with the first judgment of the Court of Justice, the Commission may refer the matter again to the Court of Justice under Article 260 of the Treaty on the Functioning of the EU, to request that lump sum penalty or daily penalties be imposed on the member state concerned until the aid is recovered or the State has demonstrated it has done all in its power to recover the money (in the case of a failing firm).