Italy has been shocked by the unending crises facing Fiat, and even financial help from the state needs EU approval.
The EU Competition Commissioner Mario Monti has said he has told Italian Prime Minister Silvio Berlusconi that struggling carmaker Fiat could not receive state-aid without EU approval.
But Monti added that the Commission would give fast-track consideration, within EU guidelines, to any Fiat rescue initiative presented to the Commission by Italy.
Fiat held emergency talks with Italian Prime Minister Silvio Berlusconi on Sunday to solve a financial crisis, which has raised the prospect of Europe's once biggest carmaker being sold to US car giant General Motors.
After the meeting the Italian government said it was considering "market options" to strengthen the country's car industry.
The government said in a statement after a meeting between top Fiat executives and Prime Minister Silvio Berlusconi that it was seeking to "safeguard production centres" in Italy and would conclude a plan for the industry this month.
Fiat, Italy's biggest private sector employer, announced last week it would lay off 8,100 workers, or 20 per cent of its Italian auto workforce, shocking government ministers who suggested it might be time for the powerful Agnelli family to sell loss-making Fiat Auto.
Lay-offs at the factory in the Sicilian town of Termini Imerese would account for almost a quarter of the total job cuts.
Speculation about how Fiat can deal with the crisis which has been caused by growing losses, falling sales and high debts.
Newspaper La Repubblica reported that Fiat was considering a capital increase of up to €5.0 billion with GM stumping up half the cash and creditor banks and the Italian state contributing the rest.
Financial weekly Milano Finanza also said the government was considering injecting public funds into the group.
But Fiat remained tight-lipped. "We have decided to abstain from comment on all the hypotheses that have been made," a spokesman said.
It is unclear how the Italian government could dig into its pockets as it tries to fight a budget deficit.
"We are considering a series of ideas, obviously compatible with what the government can do ... Remember the EU explicitly rules out the possibility of state aid," deputy prime minister Gianfranco Fini said at the weekend.
But with the troubles permanently front-page fare in newspapers, Berlusconi is under pressure to find some way to soften the impact of the crisis or risk being scorched by the Fiat fire.
Fiat accounted for about 5 per cent of Italian gross domestic product last year, and ministers have hinted that the crisis could force the government to lower its 2003 growth target of 2.3 per cent.
Analysts say Fiat was late off the mark with restructuring, as its car line-up became increasingly unpopular and outdated and it continued to depend too heavily on the Italian market.
Italy has traditionally been Fiat's largest market, but its share of car sales has declined dramatically this year, touching a record low of 28.7 per cent in September.
Thousands of Fiat workers this week marched with relatives, pensioners and schoolchildren to protest the lay-offs and some demonstrators blocked motorways and railways near Fiat's six Italian car factories.
The country's biggest union, the CGIL, has called its 5.4 million members to take part in a general strike against the government's labour and economic policy on October 18th and it might take up the Fiat cause, putting further pressure on the Italian government.
Some analysts have said Fiat's job cuts appear an attempt to increase the value of Fiat Auto ahead of a possible sell-out to GM. That would leave Fiat to focus on its other businesses which range from power to insurance.
The Italian group has an option to sell the remaining 80 per cent of Fiat Auto to GM from 2004.
GM bought 20 per cent of the car arm in 2000 in a stock deal worth $2.4 billion.
But after Fiat shares slumped to nearly 20-year lows this week, analysts have said they expect a much lower valuation for any future deal.
Fiat's Fresco was quoted as saying in the Wall Street Journal on Friday that he expected any offer from GM to have "a very low value".
In Saturday's edition of La Stampa, a newspaper owned by the Agnelli family, Fresco reiterated a sale to GM was not the only possibility for Fiat Auto.