Portuguese government telecom stake illegal, EU rules

It said the Lisbon administration had an "unfair veto right" that breaches EU rules.

The Luxembourg court's ruling said golden shares - often held by governments in a company undergoing privatisation - gave the Portuguese government veto rights that would be bound to discourage EU transnationals from investing directly in the company, which was privatised in 1995.

By maintaining their special rights in the telecoms company, along with golden shares, Portugal had failed to fulfil its obligations "pursuant to the free movement of capital," the court's judges stated.

The government's golden shares gave it leverage in PT's management which was not justified by the size of its shareholding, they emphasised.

While EU law allows member states to suspend the free movement of capital for the sake of securing reliable telecommunications in a crisis situation such as a terror threat, the court said the Portuguese government had failed to show how its ownership of the golden shares would prevent such crises.

A Portuguese government spokesman said Lisbon would now get rid of its controlling stake and that Portugal would comply with the ruling.

The Portuguese government used the golden shares option for the first time on June 30 to block Spanish transnational Telefonica's bid for the PT stake in Brazil's largest wireless operator.