(LUXEMBOURG) - Europe's highest court ruled on Thursday that Spain broke EU law by subjecting energy sector takeovers to special regulatory scrutiny in a case that fuelled fears of protectionism between European nations.

Since 2006, Spain has required takeover bids in the energy sector to be reviewed by the country's National Energy Commission, a move which allowed Madrid to block German energy group EON's offer for Spanish power group Endesa.

The Luxembourg-based European Court of Justice ruled that requiring companies to seek prior permission from the NEC for a takeover constituted "a restriction on the free movement of capital," which is protected under EU law.

The court also found that Spain had failed to show that the system of "prior authorisation" was justified on the grounds that it was necessary to protect Spanish energy security.

The European Commission brought the case against Spain after the NEC rejected EON's bid for Endesa in what was widely seen in Brussels as a protectionist move.

The court already ruled in March that Spain illegally defied EU demands to drop restrictions on EON's proposed takeover of Endesa, which European Commission antitrust regulators had approved.

The standoff fuelled fears in Brussels at the time about a growing protectionist trend in EU nations, especially in the strategic energy sector.

Such fears were further fanned when Paris orchestrated the merger of energy group's Suez and GDF to thwart a bid by Italian energy company Enel for Suez, and Hungary introduced laws to block an Austrian takeover of an energy group.

In the meantime, EON dropped its bid for Endesa in April 2007, leaving the way clear for a bid by Enel and Spanish construction group Acciona.

Judgment of the Court of Justice in Case C-207/07
Commission / Spain

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