EC set to move on France Telecom subsidies

The European Commission is preparing to act against France Telecom and the French government over a €9bn credit guarantee made in 2002.

While the telco never drew on the guarantee, made when its debt mountain had hit €70bn, EC officials plan to use French legal precedents to show that a mere French government statement is as effective as any formal agreement.

Early this year Competition Commissioner Mario Monti had made the case a top priority, according to reports in the FT.

A Commission spokesman in London said: "This is based on an internal document being circulated amongst officials."

Commission officials argue that French courts have ordered compensation for creditors when companies have gone bankrupt after local officials had given assurances about the companies which they later failed to honour.

This means that there is, in effect, a subsidy, even though the French government took no steps to formally set up a line of credit for France Telecom after it said that it would. The move caused mild outrage among other European governments with failing industries.

The spokesman said: "The Commission works only on hard evidence, what is written down. We do not know when the officials will decide on the report and when they will act."