Mario Monti to draw up single market report

However the new initiative does not mirror the "high-level group" method recently used to come up with proposals on financial regulation, and no deadline has been set for the document's hand-in.

"Should you accept this mission, you will conduct it under your sole responsibility and you will report directly to me on progress and conclusions. You will be able to rely on the Commission's expertise and support," says Mr Barroso in the letter. Mr Monti has agreed to take on the task.

Currently president of Bocconi University, Mr Monti is a former internal market commissioner (1995-1999), but is perhaps best known for his tough battles with big business while handling the competition portfolio (1999-2004).

Economic nationalism

Analysts are divided as to how badly the EU's single market has suffered from the financial and economic crisis.

With national banks on the edge of collapse late last year, member state government's independently announced deposit guarantee schemes and billion-euro recapitalization plans.

"Clearly state aid in the financial sector was needed, because there was a real risk of major problems, not only for individual firms but for the financial sector and the European economy as a whole," senior fellow at the Brussels-based Bruegel think tank, Andre Sapir, told EUobserver.

By updating its state aid guidelines at the time, the EU hoped to prevent new internal market distortions and is now currently examining a number of government aid measures to the financial sector suspected of being greater than actually needed.

"I think the sequencing of this was perfectly correct," says Mr Sapir.

However, protectionist alarm bells started to ring when a number of governments then turned to bailout their creaking car sectors whose overcapacity was already visible before the crisis.

French President Nicolas Sarkozy famously announced in February that national car manufacturers receiving money from a proposed €6 billion aid package should relocate production plants back to France, sparking fury in other member states.

In the end, Mr Sarkozy rowed back on the controversial measures and his aid plan was approved by the European Commission.

"These are issues that affect us all ... and we must make sure that there is a level playing field where EU competition law applies," German chancellor Angela Merkel said at the time.

Overcapacity

But the Chancellor now finds herself at the center of the latest state aid controversy, with several EU governments concerned about possible strings attached to German aid promises to the chief Opel buyout contender, Magna.

German aid, they fear, will come on condition that job cuts are made disproportionately in Opel plants outside the EU's largest economy.

"We will have to examine the exact terms and conditions attached to the aid once those terms and conditions have been finalized," the Commission's competition spokesman Jonathan Todd said on Tuesday.

"We are still awaiting information from the German authorities about the final outcome of the financial package," he added.

But while emergency state aid was justified in the financial sector and competition commissioner Neelie Kroes appears to be taking a tough stance regarding automobiles, the debate now needs to move on, says Mr Sapir.

"One should draw some lessons from what Europe did 20 years ago in the steel sector. We need a plan on how we are going to handle this over capacity and not get into the dangerous disputes between countries seeking to outbid one another on state aid," he says.

"This has been the sad element of the Opel case," he adds, an indication of the difficult issues Mr Monti must tackle when drawing up his report.