Bank of Italy investigated by EU

There have been calls for Antonio Fazio to resign

The European Commission is to begin legal action against the Italian central bank, the Bank of Italy, over its handling of recent bank mergers.

The move was announced by the Internal Market Commissioner, Charlie McCreevy, who said action was likely to start next month.

It comes after Dutch bank ABN Amro said the Bank of Italy tried to block its bid for Italian lender Antonveneta.

The Bank of Italy was said to have wanted an all Italian merger instead.

'Blocking free movement'

The bank's governor, Antonio Fazio, has been accused of abusing his position over the matter and has faced calls in Italy to resign.

I have not signed the letter yet but I expect to do so before Christmas for the start of proceedings [against the Bank of Italy] EU Internal Market Commissioner Charlie McCreevy

He is alleged to have used his power to promote a merger between Antonveneta and Banca Popolare Italiana (BPI), in order to block ABN Amro's takeover attempt.

Mr Fazio has denied the charges.

Mr McCreevy's legal action will accuse the Italian authorities of contravening the free movement of capital and the freedom for businesses to operate in another member state.

"I have not signed the letter yet but I expect to do so before Christmas for the start of proceedings [against the Bank of Italy]," said Mr McCreevy.

Mr Fazio has also faced investigation in Italy over the scandal, and was last month questioned for five hours by magistrates in Rome.

The story first broke in August when secret recordings allegedly showing Mr Fazio advising the former head of BPI, Gianpiero Fiorani, on how to best proceed with an approach for Antonveneta were leaked to Italian newspapers.

ABN Amro acquired a majority 69% stake in Antonveneta on 26 September, after BPI's approach was blocked by Italian authorities investigating the scandal.