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Brussels, 16 February 2011

Free movement of capital: Commission requests Italy to modify privatisation law over investment restrictions

The European Commission has requested Italy to modify legislation that grants the State special powers to intervene in ownership and management decisions in privatised companies operating in strategic sectors such as the telecommunications and energy sectors. The Commission considers that the special powers constitute unjustified restrictions on the free movement of capital and the right of establishment in the EU. The Commission's request takes the form of a reasoned opinion, the second stage of an infringement procedure. If the Italian authorities fail to take satisfactory measures to remedy the infringement of EU law within two months, the Commission may decide to refer the case to the European Court of Justice.

What is the aim of the EU rules in question?

Free movement of capital is at the heart of the Single Market and constitutes one its "four freedoms". It allows for more open, integrated, competitive and efficient markets and services in Europe. For citizens it means the ability to undertake a range of operations abroad, such as opening a bank account, buying shares in non-domestic companies, or purchasing real estate. For companies it means the ability to invest in and own companies in other European countries, and play an active role in their management.

How is Italy not respecting this rule?

Italian legislation provides that the State may be granted special powers to safeguard its vital interests in the event that they are under threat First, the State has the power to oppose both acquisitions of shares and the conclusion of pacts by shareholders representing a certain proportion of voting rights (5% or a lower percentage if so established). Second, the State can also veto certain company decisions, such as a merger or a company split.

In the Commission's view this legislation places an unjustified restriction on the free movement of capital and the right of establishment (Articles 63 and 49 respectively of the Treaty on the Functioning of the EU).

Restrictions on the acquisition of shares in specified companies, or provisions completing a system of special powers and enabling their practical implementation in individual cases make direct investment and portfolio investment in the companies concerned less attractive and may discourage potential investors from other MS. The power to veto decisions fundamental to the functioning of an enterprise can also have the effect of dissuading investments.

Member States may always justify such measures under strict conditions defined in the Treaty and clarified by the Court’s case law. In this case however, the Commission does not consider that the criteria for the exercising of the powers at hand are adequate to attain the objectives sought. There are not sufficiently precise and could give way to excessive discretion.

In a March 2009 ruling (C-326/07), in a previous Italian case, the European Court of Justice confirmed that the powers to oppose these types of activities are inappropriate for the purposes of safeguarding the State's vital interests. As for the ability to veto management decisions, the Court noted it is possible to establish a link between this power and the need to protect the State's interest, but it must be based on objective and verifiable conditions. One or more of these special powers have so far been introduced for the following private companies in Italy: Telecom Italia, ENI, Finmeccanica and Enel.

How are citizens and business suffering as a result?

As a consequence of the special rights afforded to the State, investors are prohibited from fully managing certain companies, and are prevented from acquiring shares above a certain threshold in those companies. In addition, individual shares may be adversely affected by the risk that the State can veto important company decisions, which the management deems in the best interests of the company, such as a merger, or a break-up.

Free movement of capital:

Latest information on infringement proceedings concerning all Member States:

For more information on infringement procedures, see MEMO/11/86

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