BRUSSELS, Mar 23 (Reuters) A row over economic nationalism in cross-border mergers flared on Thursday before a high-voltage European Union summit due to discuss a common energy policy and measures to promote jobs and growth.
Italian Prime Minister Silvio Berlusconi, battling for his political life in an April 9-10 general election, was set to use the summit to attack France's role in engineering a merger of two French energy giants in the name of ''economic patriotism''.
One of his key coalition partners, parliament speaker Pier Ferdinando Casini, declared that governments which restricted cross-border takeovers were not true Europeans.
''Either you are a pretend European, and therefore in favour of protectionism and nationalism, or else you are a real European and want to stimulate competition,'' he told reporters at a pre-summit meeting of EU conservative leaders.
He won guarded support from German Chancellor Angela Merkel, who said: ''We can only have an internal market when electricity flows freely and when we accept European champions and not just think nationally.'' But Luxembourg Prime Minister Jean-Claude Juncker, who is seeking to fend off a hostile takeover bid by Mittal Steel for steelmaker Arcelor based in his country, declined to condemn economic nationalism, saying: ''Sometimes governments have good arguments.'' Italy's attempt to recruit allies for an open letter denouncing protectionism and calling for open markets collapsed on the eve of the two-day summit, suggesting few EU leaders want a public fight after a year of deep divisions in 2005.
Belgian Prime Minister Guy Verhofstadt said he had refused to sign the Italian letter ''because those who want to send letters have to beware of protectionism themselves''.
The Italian state has a controlling minority stake in Enel, protecting it from a takeover. The Bank of Italy last year used regulatory powers to try to block Dutch and Spanish banks' takeover bids for Italian financial institutions.
SHOTGUN WEDDING Paris brokered a shotgun wedding between state-controlled Gaz de France and private Suez last month in the name of ''economic patriotism'' to fend off a looming bid from Enel, raising major competition issues in Belgium's energy market.
''What is most important for us is to have as many operators as possible in the Belgian market because more competition means lower prices for consumers,'' Verhofstadt told Reuters.
''This seems to me much more important than the fight between different countries as has been the case, at least in the press, in recent days.'' The European Commission is investigating whether the French actions breached EU laws on free movement of capital. It has started similar probes into moves by Spain, Poland and Italy to block cross-border takeovers in energy and financial services.
Commission President Jose Manuel Barroso has warned member states that if they take protectionist measures against each other, they will undermine the EU's single market, which has boosted European prosperity and underpins business confidence.
But he argues that the recent cases are ''growing pains of the single market'', noting that cross-border mergers reached a record level in the first two months of this year.
Asked if protectionism was a threat to the EU, Danish Prime Minister Anders Fogh Rasmussen said: ''I am worried about general tendencies towards economic protectionism. I am not going to interfere with domestic affairs in France, Spain or elsewhere. I think that is a responsibility for the Commission.'' Known for his unconventional outbursts, Berlusconi has his back to the wall, with polls showing him trailing a centre-left coalition led by ex-European Commission President Romano Prodi.
But he is not the only EU leader in trouble at home.
French President Jacques Chirac faces huge street protests against a disputed new youth employment contract, and British Prime Minister Tony Blair is under fire over secret loans to his Labour Party in a row that has intensified speculation that he may stand down earlier than anticipated.
The main novelty on the summit agenda is a drive to launch a common European energy policy in the wake of the crisis in January when Russia turned the taps off on Ukraine in a pricing dispute, abruptly reducing supplies to EU countries.
New east European members that once lived under Soviet domination are keen for the EU to speak with a single voice to Moscow, and to pledge that oil and gas stocks will be shared with any member state which suffers a sudden supply cutoff.
West European powers such as France and Germany want to maintain privileged bilateral relations with Russia and are wary of letting the European Commission negotiate on their behalf.
Other issues in dispute are whether to create a single European energy regulator, which many states oppose, and what place nuclear power should have in Europe's energy mix.
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