The European Commission today (26 September) opened a formal investigation into EUR40.7m of state aid the Italian government plans to pay to denim maker Legler.

Brussels argues the state aid is an illegal subsidy that would create unfair competition.

Legler has had financial problems for years and is currently restructuring, but the Commission questions whether the aid will do anything but keep it artificially afloat.

EU competition commissioner Neelie Kroes said: "The Commission must ensure that restructuring aid effectively restores a company to commercial viability and does not create undue distortions of competition.

"In the case of the aid for Legler, we have our doubts."

The Italian government intends to grant Legler state aid in the form of a EUR13m long term guarantee, a EUR13.2m direct grant and EUR14.5m for debt relief.

The company operates in Lombardy and Sardinia, making high quality denim, corduroy and flat cotton.
 
By Monica Dobie.