Nov. 12 (Bloomberg) -- Europe's Galileo satellite program, designed to rival the American global positioning system, should be scrapped unless its sponsors can prove it is economically viable, a panel of lawmakers in the U.K. Parliament said.

The European Union in May nearly doubled the estimated subsidy needed to launch the navigation system to 4.5 billion euros ($6.6 billion) from about 2.4 billion euros. Britain and the other EU nations would have to make up the difference.

``The government must stop this folly,'' Gwyneth Dunwoody, a U.K. member of Parliament who leads the Transport Committee, said in a statement in London today. To fund Galileo, the EU ``is prepared to break all the rules for prudent budgetary discipline. This cannot be allowed to proceed.''

The comments amplify concerns the committee has voiced for years that the costs of Galileo are likely to spiral out of control and won't be matched by the benefit of running a European alternative to the U.S.-military created GPS system.

European Aeronautic Defence and Space Co. and Alcatel- Lucent SA are together leading the main bid to build and run Galileo. Other companies involved are Thales SA, which makes military electronics in France, Britain's Inmarsat Plc, Spanish satellite operator Hispasat SA and Spanish airport operator Aena.

`Deeply Convinced'

``Germany and France want this project,'' German Chancellor Angela Merkel said at a news conference in Berlin after talks with French President Nicholas Sarkozy. ``We have agreed that we don't want to put it off. We're deeply convinced that Europe needs this system.''

Merkel said transport ministers from Germany and France will be asked to make proposals at a meeting with European counterparts this month on how the project can be funded.

``We want it to happen; it's a major strategic target,'' Sarkozy said. Italian Prime Minister Romano Prodi, speaking to reporters in Rome after talks with European Commission President Jose Manuel Barroso, said the project is of ``fundamental importance'' to the EU. Barroso said ``we hope that the differences that remain can be settled.''

Britain would have to pay as much as 17 percent of the 10 billion pounds needed to operate the system over the next 25 years, the U.K. Transport Committee estimates. The plan envisions 30 satellites orbiting Earth by 2012, four years later than initially planned. Only one test satellite has been launched.

Costs and Benefits

``It would be entirely unacceptable to proceed with the Galileo project at this stage without fresh and rigorous evaluations of the balance between costs and benefits,'' the committee said in a report released today. ``The new cost- benefit analysis should include a comparative evaluation of the zero-option of scrapping the project altogether.''

Three years ago, the committee expressed doubt about the need for Galileo and about the reliability of cost estimates made by its sponsors.

Galileo's profits aren't guaranteed because the U.S. government-funded GPS, designed primarily for defense, is used for free by businesses worldwide. Proponents of Galileo say it would attract paying users because it has better signals than GPS, and offers a service guarantee, unlike the U.S. network, which can be cut off anytime for national security reasons.

The current level of subsidy falls short of the threshold that would require unanimous approval by the EU's 27 member nations, meaning the U.K. can vote against the program but can't veto it.

The committee said that U.K. ministers should refuse to cooperate on other areas of EU policy until they get their way on Galileo.

To contact the reporters on this story: Mark Deen in London at markdeen@bloomberg.net

Last Updated: November 12, 2007 11:09 EST