The European Commission will take France to court for not claiming back €450m given in aid to ailing computer firm Bull.
Competition commissioner Mario Monti said France's failure to reclaim the money is "a grave violation of state aid rules".
The commission initially approved the €450m (£314m) government rescue package for Bull last November. However, at the time it added the condition that the aid must be paid back by 17 June.
This condition was applied because "Bull had benefited from other cash injections in the past", Monti said.
The competition commissioner said he understood the difficulties companies face, but he stressed that the European Union state aid and rescue aid rules are "flexible enough and adequate" to deal with such problems.
By flouting the rules and granting illegal aid, governments "put the whole EU project at stake", he said.
"The situation left us no choice but to follow the court procedure," Monti said, adding that it would take about a year to take the French government to the European Court of Justice.
Paul Meller writes for IDG News Service