Italian Premier Mario Monti's fledgling government was facing its first emergency on Wednesday, a spiraling corruption probe at state-controlled Finmeccanica, the country's aerospace and engineering giant.
A government official reportedly met with Finmeccanica's chairman during the day. On Tuesday, Monti issued a statement calling for a "rapid and responsible solution" to the allegations that a slush fund was set up to pay off politicians who referred contracts to Finmeccanica.
Monti, who was in Brussels to meet with European Union officials, said he was following developments closely.
His office could not confirm news agency reports that Chairman Pier Francesco Guarguaglini met with Monti's undersecretary, Antonio Catricala. But Monti said in a statement he would have the defense and economic development ministers ensure that the company is taking the necessary steps to address the scandal.
Finmeccanica is 30-percent controlled by the Italian Treasury, which is under the control of Monti, who also serves as finance minister.
Shares in Finmeccanica were trading down 3.32 percent at euro2.91 ($4) on Wednesday. They have shed 65 percent of their value in the last year.
The allegations, which have been swirling for weeks, have led to calls for Guarguaglini's resignation. He has denied any wrongdoing.
Guarguaglini is under investigation for making false invoices, while his wife Marina Grossi, the CEO of the subsidiary Selex, is under investigation for creating false invoices and corruption.
"The chairman of Finmeccanica, Pier Francesco Guarguaglini, states in no uncertain terms that he has never created illegal funds nor has he ever paid or ordered anyone to pay money to politicians or political parties," said a statement released by Finmeccanica on Tuesday.
The probe being conducted by Rome prosecutors centers on accusations that Selex set up a system of false invoices created to evade taxes and used the proceeds to set up a euro2 million ($2.7 million) slush fund to pay off political go-betweens. The accusations involve contracts for Italy's air traffic controllers body, ENAV.
Top politicians have been accused of receiving cash payments of up to euro200,000, which they denied.
The head of a small leftist party, Antonio Di Pietro, said it has been approached. "But we said `no' because we refused to take part in divvying up the pie and condemn this corrupt system," said Di Pietro, who as magistrate played a key role in the "Clean Hands" investigation of the early 1990s that took down the political class.
Over the weekend, the head of ENAV was placed under house arrest for allegedly illegally financing political parties. The head of sales at Selex, a technology company specializing in homeland defense including radar systems, also was placed under house arrest.
Finmeccanica is a global player in defense and aeronautics, which the Italian state would be loathe to see further damaged by the scandal. It employs more than 60,000 people worldwide and focuses on designing and manufacturing helicopters, civil and military aircraft, satellites, space infrastructure, missiles and defense electronics.
In 2008, it bought the U.S. military contractor DRS Technologies Inc. in a $5.2 billion deal that Finmeccanica sought to boost its role as a key supplier of defense and security systems.
But recently, the company has been performing poorly. CEO Giuseppe Orsi, who took over in May and is reportedly at odds with Guarguaglini, announced a cost-savings plan after the company reported third-quarter losses of euro358 million. The company earlier had issued a profit warning due to structural problems at aeronautics, problem contracts in its transport sector and deteriorating global financial conditions.
Even the head of the powerful CGIL labor confederation has called on the government intervene if the company is no longer capable of relaunching itself.
"Finmeccanica is an asset that Italy cannot lose," Susanna Camusso told RAI state television this week. "Our concerns about the probe are that if there is so much chatter about the company, it risks to lose its value on the stock market, but also its credibility with partners, suppliers, clients, those who make orders."