France Télécom announced it was to receive a loan of €9bn (£5.7bn) from the French government on Wednesday to help it manage its €70bn debt mountain.
French minister for industry Nicole Fontaine met her equivalents from the 14 other EU member state governments at a dinner preceding today's ministerial meeting, and asked them to agree to loosen up the competition rules for telecoms companies to help them through a difficult time. Other ministers said she made no mention of her government's planned loan to France Télécom.
Italian communications minister Maurizio Gasparri told reporters he learned about the French government's plan in the newspapers, and called on the European Commission to be "very careful in evaluating" any such loan.
The European Commission, the EU executive body charged with policing competition, has strict rules on government assistance to struggling firms. It can only be permitted if the finance is provided at market rates and if the state behaves like a private investor. France claimed the loan to France Télécom was not state aid, but rather an investment any private sector lender would consider.
Gasparri said it was not up to Italy to judge whether the French plans constituted state aid, but added: "We are seeing some creative finance in Europe. We will see what is the limit to creativity."
Commission spokesman on competition matters Tilman Rueder said the commission had not been informed about the loan plan by the French government.
Once it is notified of a plan to grant public aid to a company, the commission has two months in which to decide whether or not to open a state aid investigation. If state aid is deemed illegal, then companies are ordered to repay the money to their government.
There was near universal opposition to Fontaine's request for EU measures to help the sector - Fontaine was forced to sign up to an unusually blunt statement in the meeting's conclusions today: "State aid is not the way forward," the 15 ministers agreed.
"France had to eat humble pie today. It doesn't happen very often," said a diplomat from another EU country. The bluntness of the joint position on state aid was "most unusual for an EU conclusion", the diplomat said.
Only Finland and Luxembourg offered any sympathy to France. "The view among the rest was that there is a need for a common approach to the telecoms sector regulation across the EU," the diplomat said. "One company in difficulty should not prompt EU-wide changes to the rules."
As a concession to France, the telecoms ministers agreed today that the state of the sector should be discussed at a summit of union heads of state next spring. However, the diplomat said this would probably be quietly forgotten in the next few months, if market conditions and telecoms share prices continued to pick up.
Other telecoms companies were reluctant to speak out against the proposed loan to France Télécom. "We are very much for a level playing field across Europe, but we can't comment on state aid to other companies," said Andrea Paradine, a BT spokeswoman, who stressed that her company, a former state monopoly, no longer receives public sector funding.
BT chief executive officer Ben Verwaayen said prospects in the European telecoms sector are improving, but he added: "You have to look at individual companies. Some are still heading in a worrying direction."
Separately, the commission is about to release its latest study of the telecoms sector, which concludes that far from being in crisis, it continues to outpace other industries in terms of growth.
It argued that there is no justification to slacken the rules on competition and state aid for telecoms companies. On the contrary, it believed former state monopolies like France Télécom continue to dominate some sectors of the telecoms market. This prevents rivals from competing in new areas, such as broadband technology.
According to the report, due out on Monday, rivals only have access to 0.5% of all EU lines to offer high-speed Internet access through conventional copper wires. The incumbents account for nearly 90% of the market for local calls from fixed lines.
The commission hinted it might take legal action against countries including Germany, the UK and Spain unless the market for high-speed Internet services is opened further to competition.