Commission offers golden opportunity for those in the know

Date: 12/06/03

By Peter Chapman

Study contracts in the state aid field are providing jobs for the lawyers, who in turn offer expert knowledge to the European Commission

EU LAWYERS may not get the sympathy vote ahead of firemen, doctors and nurses when it comes to job security.

Yet, with global merger figures well below mid-1990s boom levels, many firms are showing under-performing partners and associates the door - some acquired during their own messy international deals - while freezing recruitment of young blood.

But before you shed a tear, the European Commission is offering an unlikely helping hand with a flurry of lucrative study contracts in the complex field of state aid.

That is because only law firms - together with a handful of specialist consultants - have the know-how to do the job.

The latest tender up for grabs is a whopping €320,000 award for experts to help analyse the €9 billion credit line offered to ailing telecoms operator France Telecom by its owners, the French state. The contract, lasting up to 160 days, works out at a healthy €2,000 per day - just about enough to pay the school fees, keep the Porsche on the road, and still have change for a few rounds of golf.

It is a win-win situation for the Commission and the legal profession, say the lawyers.

The complex number-crunching in the France Telecom case would have tied up a large chunk of DG Competition for months. However, current market conditions mean that the chronically understaffed EU executive has a unique opportunity to get vital expert outside knowledge at a relatively knock-down price.

"Now is probably a good time for outsourcing," says Christian Ahlborn, one of the EU's top state aid lawyers and a partner with Linklaters and Alliance.

"A lot of law firms have over-capacity so the Commission might get it cheaper and it won't have to hire people," he says.

Another plus, says Ahlborn, is that this outsourcing spreads the word across the legal fraternity about the way the Commission wants to deal with state aid. "It provides more transparency about the way things are done."

That could smooth the way cases are presented by interested parties in the future, he explains.

Commission competition chief Mario Monti will soon modernize the system by injecting more economic rationale into the processes and devolving more enforcement back to member states.

This overhaul will give Monti's Director-General Philip Lowe more troops to tackle the biggest cases. But the complexity is unlikely to diminish.

"There is clearly something like an 'arms race' that has been going on since the Commission started to enforce state aid rules," says Ahlborn. "It started off with governments giving out a sack of money, then they gave [financial] guarantees. The Commission then catches on," he explains, and the 'race' shifts to other loopholes. The focus, say the experts, is now on so-called 'hidden aid'.

In the France Telecom case, the Commission must decide whether the French government acted like any other 'market economy investor' would have done - or could have done - in the same circumstances. For example, it must weigh up how the French government managed to convince private investors to snap up €8.5 billion worth of FT bonds.

Under the spotlight is the effect on investor confidence of the €9 billion credit line together with government statements that it would "take any measure necessary to overcome France Telecom's financial difficulties".

In an earlier case, involving German regional bank WestLB, the Commission bought outside help to examine how huge state-endowed real estate assets allowed the bank to raise finance on favourable terms.

If the managerial benefits of outsourcing are clear, the political benefits could be even greater.

The search for manpower is a strong signal that the Commission is prepared to put its money where its mouth is, to fight distorting state handouts, however cunningly conceived.

"I find it quite impressive that the Commission is going that way - getting into the issues," says Georg Berrisch, a state aid partner at US firm Covington & Burling. "If the Commission is going after you, you probably have to be very smart to cover up something because this shows that it is prepared to engage outside people. You can't speculate that you will win simply because it is so complicated."