According to reports, the European Commission yesterday told the Swedish government that, unless it reduces the subsidies it currently hands out to its big city newspapers, it may find itself the subject of a formal state aid inquiry.

The order was given following an initial investigation prompted by a series of complaints by some who claim that Sweden's generosity to large newspapers is stifling competition, although the EU has stressed that is has no intention of attacking the country's wider objective of promoting media pluralism.

"The commission recognises the importance of media pluralism for the cultural, democratic and public debate in member states and the importance of newspapers in this context," said Neelie Kroes EU Competition Commissioner. "However, running a newspaper is also a commercial activity and the commission has a duty to prevent undue distortions of competition and trade resulting from public subsidies," Kroes added.

Last year, the Swedish government announced that it was cutting press subsidies to newspapers Svenska Dagbladet and Skånska Dagbladet, although it was overall increasing press subsidies by 10%.

Sweden has three months to make up its mind on whether or not to implement the proposed changes.

Sources: The Swedish Wire , Guardian.co.uk