EU challenges Italy's use of 'golden power' rules for banking sector deals

By Valentina Za and Giuseppe Fonte

MILAN (Reuters) -The European Commission is challenging Italy for its use of "golden powers" legislation to screen bank acquisitions, a spokesperson said on Friday, a move that could restrict Rome's ability to vet strategic corporate takeovers.

So-called golden powers allow Italy's government to block or set conditions on foreign and domestic corporate takeovers in strategic sectors such as energy, telecommunications and banking.

Brussels has asked Italy for details about the way it applies the legislation to assess potential bank acquisitions, Olof Gill, spokesperson for the financial services department at the Commission, told Reuters.

The move comes as the Italian government is preparing to conditionally approve Italian bank UniCredit's proposed bid for smaller rival Banco BPM.

"The Commission applies the European Union Pilot dialogue whenever it is considered useful to have an informal discussion in a more structured way with the member states on potential questions regarding compliance with EU law," Gill said.

Brussels can launch infringement procedures if it does not receive a satisfactory response from member states.

Italian newspaper Libero first reported news of the EU's initiative earlier this week.

Initially designed for use at the EU level to fend off unwelcome offers from outside the bloc, golden powers were expanded during the COVID-19 pandemic to shield strategic companies after valuations crashed.

Some member states, including Italy, have applied the legislation to the banking sector, even if the European Central Bank is the EU authority in charge of banking supervision. EU treaties also promote free movement of capital within the bloc.

While the government rarely blocks takeover bids, the use of golden powers has increased red tape costs for firms - in some cases, unnecessarily - forcing them to hire legal experts and file paperwork to avoid potential breaches of the rules, lawyers say.

The EU is currently reviewing the bloc's framework to screen foreign direct investments in an effort to reach a more uniform application across member countries.

Germany has said it will not apply that framework to UniCredit's investment in Commerzbank, even though it strongly opposes a full takeover. Berlin only vets potential transactions that involve an EU buyer in the defence sector.

An Italian government official said Rome wants to understand how the EU framework will eventually be modified before considering changes to its own legislation.

(Reporting by Valentina Za in Milan and Giuseppe Fonte in Rome; editing by Alvise Armellini and Rachna Uppal)