Premier Romano Prodi on Wednesday denied accusations of meddling in the affairs of Telecom Italia (TI) and discouraging foreign interest in the Italian telecommunications giant.
In a statement from the South Korean capital of Seoul, where he is on an official visit, Prodi said: "It's incorrect to say the government intervened in the TI case".
"The government limited itself to observing that TI represents a key company for Italy's economic growth and, as such, can be defined as 'strategic'," said the centre-left premier, two days after America's AT&T quit talks on buying a key stake in TI for 2.7 billion euros.
AT&T cited "regulatory uncertainties" for ending its talks with Pirelli, the tyre group which controls 18% of TI through holding company Olimpia.
Mexico's America Movil and AT&T had been negotiating to buy a third each of Pirelli's 80% stake in Olimpia with Pirelli retaining the option to sell the rest in a year.
The potential operation drew heated protests from many small shareholders, as well as trade unions and elements in Prodi's nine-party governing coalition.
TI was privatised in 1997 but the government still holds veto powers over the ex-monopoly's corporate decisions.
The premier himself said on Tuesday that he hoped the 44-billion-euro firm would remain Italian.
"The market has its rules and nobody wants to interfere with them but obviously it's legitimate to hope that at least one telecoms company remain in Italian hands," he said.
US Ambassador Ronald Spogli was subsequently quoted by the Italian media as saying that "there is a huge difference between Italy and the US regarding government presence in economic affairs... In Italy, there is a long tradition of a very strong government presence in the economy".
Pirelli Chairman Marco Tronchetti Provera indirectly blamed the government on Tuesday, saying that "making foreign firms run away one at a time to limit options doesn't work".
"Scaring off foreign investors is not the way to protect the interests of shareholders or the country - it just destroys the firm's intrinsic value," said Tronchetti Provera, who quit as TI chairman last September after clashing with Prodi over company strategy.
He confirmed that talks with America Movil were continuing and appealed to politicians to respect the "freedom of businessmen to make decisions according to their legitimate interests and free market criteria".
But Prodi said from Seoul that "ministers or politicians expressing their personal views cannot be interpreted as government intervention".
"The government only speaks and intervenes (in the economy) through acts, laws and regulations," he argued.
He also said that Spogli had contacted him to tell him that he had been misquoted by the Italian press.
Prodi said the only government act linked to the TI case was a bid to increase the powers of Italy's communications authority AGCOM.
Communications Minister Paolo Gentiloni has drawn up a measure which would empower AGCOM to oversee the "functional separation" of TI's fixed-line telephone network. A boosted AGCOM would have greater scope to regulate the fixed network.
The minister says the operation will give all telecoms firms equal access to the network and also make it possible for others, apart from TI, to invest in it.
In a parliamentary hearing on TI on Wednesday, Gentiloni said the network was a vital national asset representing "the nervous system of our economy".
He echoed Prodi by saying that the government had not "in any way" interfered in the TI case but had "completely respected market dynamics and shareholders' rights".
The minister said the government "might hope" for TI to remain Italian but that this was "not a condition to pursue via administrative interventions or barriers imposed by law".
But he added that it was obvious the government was not indifferent to TI's fate. "No government of a large Western country would be indifferent... Given that the destiny of one of our largest private firms is at stake, indifference would be incomprehensible and irresponsible," he said.
BERLUSCONI SAYS NO TI TALKS UNDER WAY.
Meanwhile, the family holding company of former premier and opposition chief Silvio Berlusconi denied on Wednesday that it was eyeing debt-laden TI.
Fininvest issued a statement saying that "no negotiations of any sort are under way and we have not signed accords of any kind regarding the assets of Olimpia or TI".
Speculation has been rife in the Italian media that Berlusconi, a billionaire media mogul and Italy's richest man, is planning a bid for TI, possibly with the help of Piaggio motorbike and scooter-maker chief Roberto Colaninno.
The rumours sparked a flurry of worried reactions from centre-left lawmakers, who said such a deal would add to Berlusconi's conflicts of interest and break current media laws - although centrist Justice Minister Clemente Mastella broke ranks by saying a Fininvest move "would not be inappropriate".
Meanwhile, Intesa Sanpaolo, Italy's biggest bank, has confirmed its interest in a "temporary investment" in TI.
TI shares, which have fallen sharply this week, remained relatively stable on Wednesday, slipping 0.26% to 2.34 euros while Pirelli edged up 0.4% to 0.89 euros.
Before Tronchetti Provera bought TI in 2001, Pirelli shares were worth more than three euros while TI shares were trading at around four euros.
In order to help buy TI, Tronchetti Provera used 4.4 billion euros of Pirelli cash and has since been selling Pirelli assets to help pay off debts stemming from the deal.
