Italy threatens reprisals over French energy tie-up

Plans to merge Suez and Gaz de France provoked a war of words yesterday as Italian politicians threatened reprisals if the deal goes ahead, preventing Rome's biggest utility, Enel, from entering the French energy market.

The proposed, €73bn (£50bn) French merger has prompted fears of a new round of protectionist consolidation in national markets and the European Commission president, José Manuel Barroso, urged an end to "nationalist rhetoric", promising to uphold laws on free competition.

After a meeting in Brussels yesterday, Italy's Economy minister, Giulio Tremonti, argued: "If the [European] Commission does not act, my advice would be for it to close down because of a failure to meet its mandate." France's Prime Minister, Dominique de Villepin, rejected the charge of protectionism, saying: "What we want is to give our companies the means to fight on an equal basis. It's not a question of economic protectionism."

The French merger plans emerged on Saturday after news of a likely hostile bid by Enel for Suez. The Commission has said that there is "no evidence" of any breach of EU rules on free movement of capital which bar a government from preventing a takeover on nationality grounds. But it argues this could change if more material is presented or if Enel makes a formal bid for Suez.

Officials believe the Suez-GdF deal will have to be reviewed by the EU competition authorities but the main focus of that is likely to be the Belgian market, which could be sidestepped by divesting some of the Belgian assets.

The clash over utility takeovers is seen as a test of the EU's commitment to opening cross-border energy markets. With Italy in pre-election mode, Roberto Maroni, its Social Policy minister, promised new measures for the "defence of strategic sectors" in the economy. Other possible reactions mooted include creating an Italian "national champion" in the energy sector, by merging power giants Enel and Eni.

Rome is also said to be considering direct measures against Paris such as cutting off energy supplies from Italy to the French island of Corsica, or renationalising the stake of France's EDF in Edison, an Italian energy firm.

The Commission has already warned Spain not to block a bid for Endesa, the former state monopoly, by Germany's E.ON.

Mr Barroso argued: "Europe cannot make progress if there are barriers between the member states."