In a legal move that sets up a power struggle between Brussels and Rome, EU officials accused Giorgia Meloni’s government of potentially violating EU law in imposing national conditions on the deal. Bloomberg earlier reported the step. 

The Brussels-based executive said that Italy’s application of its golden powers on UniCredit’s deal “may contravene” the bloc’s merger rules, highlighting how Rome’s move “lacks sufficient reasoning.” 

The EU’s said the government’s move appears “incompatible with other provisions of EU law, including on the free movement of capital and on prudential oversight by the European Central Bank,” a statement from the EU executive said.  

In the preliminary findings, the European Commission added that it should have reviewed the Italian government’s application of its golden powers before it was implemented on the deal. 

Monday’s escalation might pave the way for a legal wrangle that could ultimately land at the EU Court of Justice, should Italy eventually refuse to appease the concerns. Rome now has now been requested to respond to the commission’s findings. 

The EU stance adds to criticism by an Italian tribunal, which struck down some regulatory requirements imposed by the state in a decision published on Saturday.

The Administrative Court of Lazio toppled the Italian government’s request to lower the loan-to-deposit ratio at Banco BPM and UniCredit in Italy for five years, and to not reduce the current level of Banco BPM and UniCredit’s project finance portfolio in Italy. 

Still, the court backed the government’s order to UniCredit to exit Russia and to keep unchanged domestic investments at Banco BPM’s newly acquired asset manager Anima Holding SpA.

UniCredit welcomed the local court decision as “unequivocal proof that the way in which Golden Power was used was illegitimate. 

A government official said the decision largely confirms the legitimacy and structure of the prescriptions.

UniCredit unveiled its unsolicited all-share offer for Banco BPM in November, when it became clear that the Italian government was looking to build a large banking group around the formerly bailed-out Banca Monte dei Paschi di Siena SpA. Banco BPM was seen as a potential candidate to merge with Monte Paschi.

Orcel escalated the standoff with the Italian government in May, when it filed a claim with the administrative court over the wide-ranging conditions imposed on the potential deal.

Despite the outcome of the Italian ruling, it’s unclear if UniCredit will still pursue a deal for Banco BPM given several of the requirements were confirmed and the expiry of the offer period on July 23.