France Gets a Deadline on Bailout

Brussels -- - The European Commission recently gave France five days to come up with a justification for its intended bailout of Alstom that does not breach the European Union's state-aid rules.

The commission also announced that it would open an investigation into the French government's involvement in the struggling engineering company's 3.5 billion euro ($3.9 billion) rescue effort.

France said it planned to inject 300 million euros ($335 million) into Alstom, which makes high-speed trains, ships and electricity generators, by taking a stake in the company before the end of this month, as part of a larger government initiative to save the company. France has said that it also plans to lend Alstom 300 million euros this month.

The government has already taken a stake of 300 million euros in the company.

The European Union's commissioner for competition, Mario Monti, said in a statement that if France went ahead with the capital injections without approval from Brussels, he would seek an injunction at the European Court of Justice in Luxembourg to stop the rescue actions.

Mr. Monti's statement weighed heavily on Alstom's share price. The stock was down over 8 percent today before the Paris stock exchange suspended it from trading.

"The decision taken by the European Commission today shows that we remain open to further dialogue with the French authorities," Mr. Monti said, adding that he remained confident a solution could be found "that doesn't distort competition."

In Paris, the finance ministry said in a statement that it was pursuing talks with the commission in an attempt to save Alstom from bankruptcy.

France's planned rescue of Alstom would involve the government taking a 30 percent equity stake in the company. It is hoped that this would reassure private investors, mainly banks, into providing most of the refinancing needed.

Mr. Monti said the injunction would be sought if France took a stake in the company without the commission's consent, but he appeared to leave open the possibility that France could offer the company a short-term loan, instead of increasing its equity stake in Alstom.

The formal investigation of the French government's attempt to rescue Alstom is unlikely to conclude before next spring. It will examine the aid the company has already received, as well as France's plan to lure private investors to Alstom by offering loan guarantees on 65 percent of the company's planned 3.5 billion euro capital increase.