European competition policy. Monti’s moment

France Telecom could provide the last test of Mario Monti's resolve

MARIO MONTI, the European Union's (EU) competition commissioner, is busily tidying up loose ends for his successor. On July 7th, the day that the European Commission gave its final blessing to a French government-aid package for Alstom, a troubled engineering group, Mr Monti introduced new rules to govern future state bail-outs. Then on July 12th he said that he would decide shortly whether the commission will order France Telecom to pay the French government around €1 billion ($1.2 billion) in taxes that went uncollected in years past. And he will soon make up his mind about a proposed €400m loan by Italy's government intended to keep Alitalia, the country's ailing national airline, airborne a while longer.

Mr Monti's new rules on state aid provide a clearer policy framework and give EU member states less room for manoeuvre to negotiate a backroom deal a la franaise. They make it clear that the “one time, last time” rule on doling out emergency cash applies to all companies for ten years. The rules also require companies, once they have recovered, to pay back fixed amounts of state aid according to the size of the firm in question - one-quarter of the state's rescue aid for small firms, at least 40% for medium-sized firms and at least half of the cash for big companies. The rules also introduce a new concept, urgency aid, which allows firms to start restructuring whilst working out a definitive plan for reform or liquidation.

Before the new rules become effective in October, Mr Monti will fight at least one more battle with the French government, this time over allegedly illegal tax subsidies and supposedly favourable treatment of a loan to the partially-privatised France Telecom in 2002. Commission staff claim that in the 1990s the telecoms giant was partly exempted from a French business tax usually levied at the local level but paid directly to the finance ministry by France Telecom under a special arrangement. Despite some internal scepticism about the case, the commission also launched an inquiry into a €9 billion loan granted by the government to France Telecom to clear its debts. France Telecom says that the tax exemptions were owed because it had previously overpaid the business tax, and it vows to take its case to the European Court of Justice if Mr Monti decides against it.

Closing France's ever-open helping hand for sick companies has been a tough challenge for Mr Monti. In the 1990s, the French government repeatedly bailed out Air France, its national airline, and Credit Lyonnais, a state-owned bank until its privatisation in 1999. Last year the commission filed a lawsuit against the French government in the European court, aiming to force it to reclaim an emergency loan to Bull, a troubled computer maker.

Though he has often compromised in French state-aid cases, Mr Monti has generally been good at his job. He is leaving a stronger EU competition department with more effective rules to govern state aid, mergers and antitrust.

Many countries are now battling to have their own candidate replace Mr Monti in the commission that will take office in November. Jacques Barrot, a Frenchman and EU commissioner for regions, has even decided to spend two weeks at a language school in Britain to brush up his English, hoping (it is said) to boost his chances of being competition commissioner. But France has too many contentious competition issues to be allowed in the driver's seat, says Eric Morgan de Rivery, a lawyer at Jones Day. The smart money in Brussels is being bet on another candidate. Another term, Mr Monti?

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