Sept. 28 (Bloomberg) -- The European Union's highest court struck a blow against state control of former monopolies by ruling that the Dutch government's veto powers over TNT NV and Royal KPN NV are illegal.

The European Court of Justice agreed with arguments by the European Commission, which regulates takeovers across the 25- nation EU, that the so-called golden shares made investments in the companies less attractive. Previous rulings by the court have forced countries including France, the U.K. and Spain to give up special holdings in companies such as BAA Plc and Telefonica SA.

The ruling by the Luxembourg-based court bolsters efforts to make the European economy more competitive by rolling back state interference with private businesses. EU economic growth is set to trail behind the U.S. pace for the fifth straight year in 2006, the EU forecasts.

Today's ruling is ``an important landmark,'' commission spokesman Oliver Drewes told reporters in Brussels. EU countries should stop wasting time and resources ``defending the indefensible,'' he said.

The decision is largely a symbolic victory for the EU because the Dutch government had already scrapped its golden share in Royal KPN, the largest Dutch phone company, and plans to give up one in TNT, operator of the Dutch postal service.

Free Market

The ruling is good news for the market, said Eric Morgan de Rivery, a partner in Paris at law firm Jones Day. It means that ``the forces of the market can now play more freely''.

Shares of TNT rose 73 cents, the most in two months, to 30.27 euros in Amsterdam. Shares of KPN rose 1 cent to 10.03 euros.

The Netherlands is the sixth country the commission has taken to the EU court over golden shares.

The Netherlands last December sold a 1.39 billion-euro ($1.8 billion) stake in Royal KPN, based in The Hague, and on Sept. 22 sold its remaining 8 percent stake for about 1.7 billion euros. Since 2003 the government has raised at least 10 billion euros selling stakes in 18 companies including Hoofddorp-based TNT.

The Dutch government still owns a 10 percent stake and a golden share in TNT.

``The verdict fits the intention the state has had for years to eventually give up the stake in TNT and thus also give up the golden share,'' the Finance Ministry said in a statement on its Web site. ``The government will, in consultation with the company, execute the verdict as soon as possible.''

A sale of shares will first be discussed with the company, said William Lelieveldt, a spokesman for the Finance Ministry today.

Belgian Exception

``What happens is up to the state and how they react to the decision,'' Pieter Schaffels, a spokesman for TNT, said by telephone today.

Only Belgium has been allowed to keep its special powers in Distrigaz SA and Societe Nationale de Transport par Canalisations in 2002 when the court ruled the golden shares were justified because they helped protect energy supplies in the event of a crisis. Golden shares had to be of ``legitimate public interest,'' the court ruled.

In today's ruling the court acknowledged that ``the guarantee of a service of general interest, such as universal postal service, may constitute an overriding reason'' to block the free movement of capital.

The Dutch golden share ``goes beyond what is necessary in order to safeguard the solvency and continuity of the provider of the universal postal service,'' the court wrote.

The court's legal adviser in an opinion in April said the legality of governments' golden shares had to be tested on a case-by-case basis.

`Sensitive Industries'

The court has consistently allowed defenses of ``sensitive industries'' like energy infrastructure while rejecting ``any kind of state protectionism on the rest of the economy,'' said Jean-Nicolas Caprasse, managing director of Institutional Shareholder Services Europe in Brussels, in a telephone interview ahead of today's ruling.

The commission has a separate case pending over a German law that gives the German state of Lower Saxony the power to block takeovers or plant closures of Volkswagen AG, Europe's largest carmaker, in which it owns a 20.75 percent stake. The agency also seeks to strip Italy of its veto power, through golden shares, of former state monopolies Eni SpA, Enel SpA and Telecom Italia SpA.

Maduro advised the court on Sept. 7 to repeal a law in Italy that allowed the city of Milan to retain a 33.4 percent stake in Aem SpA, Italy's biggest municipal utility, and the power to appoint members to its board of directors.

Today's cases are C-282/04, C-283/04 Commission v. Netherlands.

To contact the reporter on this story: Stephanie Bodoni in Luxembourg via sbodoni@bloomberg.net

Last Updated: September 28, 2006 11:43 EDT