Italy to feel EC's heart of steel: Sarah Lambert looks at the Commission's moves to keep its plan on course

IN THE face of the Italian intransigence that has so undermined plans to restructure Europe's over-productive steel industry, the European Commission yesterday took legal action to prevent its efforts degenerating into chaos.

The 17-strong Commission agreed yesterday to serve an injunction on the state-owned Italian steel-producer Ilva, forcing the company to notify it of all state aid and to suspend plans to write off debts of pounds 3.2bn. Italy has 15 days to reply to Commission questions. If it fails to comply, the EC may restrict imports of Italian steel products.

Karel van Miert, the Competition Commissioner, explained he had had no option. 'If we do not signal the alarm now we put our plans at risk . . . the situation is serious because the credibility of our approach is also to do with our ability to solve state-aid cases, and if we cannot maintain that credibility there will be chaos as member states adopt go-it-alone and beggar-thy-neighbour policies.'

Faced with surplus capacity at home and cheap steel imports from Eastern Europe, the EC has devised a plan that depends on the co-operation of member states to work. The alternative option last tried in the 1970s - to declare the industry in 'manifest crisis' and introduce production quotas - was rejected because it would not solve the fundamental capacity problem.

Fernand Braun, the EC steel envoy, has toured Community producers trying to secure voluntary commitments to cut output by 30 million tonnes of crude steel and 20 million tonnes of rolled product. In return, the EC will provide pounds 192m with matching funds from national governments to cover the social costs of a three-year restructuring plan, which could cost 100,000 jobs. The prospect of mass unemployment in already hard-pressed regions has led to strikes and demonstrations, particularly in eastern Germany. This has given the steel crisis a political dimension, which has complicated the Commission's search for a solution.

Many producers are unwilling to make deep enough cuts - commitments are 8 million tonnes short of the Commission's target. The recent US decision to slap tariffs on EC imports has hardened hearts.

Italy has been the main thorn in the Commission's side. It believes the Ilva plant in the south of the country, an area of high unemployment, has received generous and illegal state aid - a pounds 292m investment in the plant in 1992 by the state holding company IRI, which then announced it was restructuring the plant. This included selling off some marginal activities and writing off 90 per cent of the company's debt and loan guarantees. Such financial book-keeping does not, under EC rules, constitute legitimate state aid.

The company agreed to a Commission request for an independent assessment of the plan and the company's finances, but for two months it has refused the assessor access.

In Italy, an Ilva spokesman said yesterday that if the EC banned the aid 'it would seriously complicate our position and that of the whole European steel industry and might even lead eventually to the liquidation of the company'.

Italy is not alone in helping its industry. Germany has proposed subsidising the Eko Stahl plant in the east, while Spain is committed to a plan to subsidise a new state-of-the-art plant in the Basque country in return for capacity cuts elsewhere. Mr van Miert said the political problems of forming a new government were complicating the Spanish problem.

The setbacks have put at risk the Commission's delicate timetable. A crucial meeting planned for 26 July to discuss progress and firm up cutback commitments has now been postponed for two months. 'We want to be in a position to act sometime between September and November,' said the Commissioner, who will meet steel industry representatives in Geneva on Monday.

(Photograph and graph omitted)