FRANCE TELECOM'S CONDEMNATION RAISES QUESTIONS ON THE ROLE OF THE STATE.

• Position: European Commission

The European Commission's decision against France Telecom on July 20, qualifying the French government's support for the operator as state aid, raises questions regarding the state's role as shareholder. Besides condemning the primarily state-owned French operator to repay between Euro 800 million and 1.1 billion in illegal tax breaks plus interest, the Commission has also qualified all the support granted to the operator by Paris in 2002 as aid: the release of Euro 9 billion never actually used, and more generally declarations backing the operator by the then Economic Affairs Minister Francis Mer.

The Commission says the release of Euro 9 billion "should not be seen in isolation but in the context of declarations by the Government between July and December 2002". It believes that Ministerial comments "fostered expectations and confidence on the financial markets". More generally, Competition Commissioner Mario Monti's services fear being increasingly confronted by Ministerial declarations in support of enterprises active on competitive markets. Mr Monti says the principle established on July 20 is important since it gives an indication as to how expressions of support might be dealt with in future.

Paris refutes the decision to qualify these elements as public aid insisting "the State behaved towards France Telecom like any astute investor in a market economy". In other words, it acted like any other private investor. Jacques-Philippe Gunther an associate with lawyers Freshfields, argues that "the result...