THE European energy industry was standing at a crossroads today after the French government's decision to order a e70 billion (Pounds 48 billion) defensive merger between two of its big three power companies prompted demands for the European Commission to act on French protectionism.

Centrica, Britain's biggest independent energy group, said the French move could, if unchecked, further stifle attempts to introduce Europe-wide competition with a knock-on effect on the price of gas for UK consumers.

French Prime Minister Dominque de Villepin and Finance Minister Thierry Breton today unveiled the terms of a deal in which state- controlled, market-dominant Gaz de France is merging with Suez, one of France's most successful internationally-acquisitive industrial and utility groups.

The deal - in which de Villepin cited "the strategic importance of energy to France" - was brokered and finally signed over the weekend-by the Elysee Palace to almost universal alarm.

While Suez claims to have been attempting a tie-up with GdF for much of the past year, the deal is a clear block to the attempt by the Italian national energy company Enel to launch a bid for Suez.

Indicating that Europe's major nations could be on the brink of an economic civil war, Italy's Economy Minister Giulio Tremonti said: "This is 1914 all over again."

Accusing the French of "neo-protectionism", he added: "The tendency of European states to build protective barriers must be stopped."

Centrica finance director Phil Bentley said the deal must be used by Brussels to secure concessions from France to open up its markets and those of Belgium, where Suez via its ownership of Electrabel also has a dominant position.

"The proposed transaction is a merger between former monopolies in two of Europe's most closed and concentrated markets," he said. "Centrica will work very hard to ensure that any approval is accompanied by significant disposals and deep structural changes to drive greater competition in Belgium and France."

Centrica is likely at least to push to take control of SPE, Belgium's second-largest electricity company, in which it has a 25.5% stake in a joint venture with GdF.

Roger Urwin, chief executive of National Grid which has also had its European expansion plans frustrated, said it may now be put up or shut up time for the EC's energy and competition regulators. "They [the EC] have said there is a whole series of things that need to be done," he said. "This is an opportunity for them to push their arguments."

Ten days ago, Brussels Competition Commissioner Neelie Kroes promised an antitrust investigation into anti-competitive practices by European state governments and their leading companies.