The Portuguese government's holding of 500 "golden" shares in former state telephone company Portugal Telecom (PT) is illegal, the European Union's top court ruled Thursday, a week after the government used the shares to veto a Spanish takeover, according to dpa. The ruling, which cannot be appealed, should open the way for PT's Spanish rival, Telefonica, to buy up PT's 30-per-cent stake in Brazil's largest mobile-phone service provider, Vivo. European phone companies are keen to break into the Latin American market as their domestic markets approach saturation point. The European Court of Justice "declares that, by maintaining in Portugal Telecom special rights, allocated in connection with golden shares, Portugal has failed to fulfil its (EU) obligations pursuant to the free movement of capital," a court statement said. Under EU rules, the free movement of capital is one of the four founding principles of the 27-member bloc. All members are obliged to take all measures to guarantee it. The EU's executive, the European Commission, in 2008 took Portugal to court over the golden shareholding, arguing that it was an illegal block on free investment. While the case was going on, on June 30 the Portuguese government used its veto powers to block Telefonica's takeover of PT's Brazilian holding. The commission criticised the move, but said that it would wait for the ECJ's ruling. And on Thursday the ECJ fully backed the commission's argument, saying, "the holding of golden shares confers on Portugal an influence on the management of PT which is not justified by the size of its shareholding." Portugal argued that its golden shareholding was necessary to keep the telecoms network running in case of "crisis, war or terrorism" - effectively making its investment a national-security issue. The ECJ gave that argument short shrift, saying that Portugal failed to explain "how the holding of golden shares would make it possible to prevent such an interference with public security." The Portuguese government is now legally obliged to scrap its golden shares. If it fails to do so, it could face a fine.
