An EU directive on takeovers was ditched by the European parliament on Wednesday after 12 years of preparation and negotiation.

In a major blow to the European commission's "Financial services action plan" to liberalise financial services and markets in the EU, the economic reform agenda has been thrown into confusion.

Commissioner with responsibility for the EU internal market, Frits Bolkestein, refused to be drawn on what he described as a "serious setback".

"We are going to reflect carefully on our next step," he said.

The directive sought to create an EU-wide set of rules to protect minority shareholders and regulate hostile takeovers.

And the long-awaited European legislation needed a simple majority of MEPs to pass, but it was rejected in a knife-edge tied vote, 273 to 273, with 22 abstentions. In a reflection the deep divisions aroused by the legislation, the parliament's president, Nicole Fontaine, refused to cast her vote.

Opposition to the commission was led by German MEPs who followed the urging of their national government and voted against the measure.

At the centre of the new legislation was a clause requiring shareholders to be offered a fair and equitable price in the event of a hostile takeover.

Germany was alone amongst the EU's 15 member states in opposing the directive on the grounds that it abolished many of the "poison pill" measures which management use to defend against a hostile takeover.

German corporate culture was shaken last year when the first German blue chip company, Mannesman, was taken over in a hostile bid by a foreign company.

Germany also opposed the directive because it did not touch on so-called "golden shares", used by member states to defend companies from hostile takeovers.

"The big German companies have returned to the kind of reflexive corporatist attitude they had in the past. It is shareholders who should decide and not board members, who may have different interests," said Bolkestein.

In another blow to the liberalising agenda of the commission, the European Court of Justice yesterday issued a preliminary opinion that such golden shares are legal.