The European Commission has launched an investigation into whether the Greek government violated EU fair competition rules by helping Olympic Airways, the country's struggling flag-carrier.

The inquiry will centre on the legality of loan last month of 19.5 million euro ($17m) by the state-controlled Commercial Bank of Greece.

The government announced a restructuring plan for Olympic last month.

The plan included 2,000 job cuts, a reduction in routes and moves to separate the core airline operations from the debt-burdened group.

It also involved a hefty injection of funds to keep the company afloat.

The Commission said it would investigate the legality of the aid, which was "apparently aimed at redressing operational difficulties."

It will also look at into aid authorised by the government in 1994 and 1998.

If Greece violated EU rules, Olympic may be asked to pay back millions of dollars.

Analysts say this could lead to bankruptcy for the Olympic, making it the third major European airline after Swissair and Sabena to go bust since 11 September.