The 400m euro ($388m; �251m) lifeline thrown to struggling mobile phone operator by the German government could yet run into trouble with the European Union.

The company was left stranded and facing imminent insolvency last week when its partner and shareholder, debt-burdened France Telecom, pulled the plug on its funding.

This is not money for research and development, this is rescue aid... the German government needs to get in touch with us

Amelia Torres EC spokeswoman

With a federal election just six days away, the government engineered a bailout involving two state banks from the company's home state of Schleswig Holstein, saving for the moment 5,500 jobs.

But Brussels said that because the loans would count as a state rescue, the European Commission had the final word.

Aid or not?

"This will have to be notified for examination on the basis of rules for rescue and restructuring aid," said Amelia Torres, the EC's competition spokeswoman.

"This is not money for research and development, this is rescue aid. State intervention business needs to be examined by the European Commission. The German government needs to get in touch with us."

Berlin, meanwhile, was defiant, arguing that the loans amounted to no more than a normal bank credit.

And the finance ministry told reporters that early indications from Brussels suggested that the loan could not be challenged.

Troubled times

The government's rescue follows a difficult year for Mobilcom.

An ongoing row between its founder, Gerhard Schmidt, and France Telecom over funding culminated in Mr Schmidt's forced resignation.

The French company is itself bowed under nearly 70bn euros in debt, and desperate to minimise its obligations to an underperforming Mobilcom.

Former CEO Schmid still holds a 40% stake

A board meeting last Thursday - which also produced the departure of the French giant's own chief executive, Michel Bon - appeared to seal Mobilcom's fate by at last cutting off funding.

The following day, 13 September, saw Mobilcom admit it was facing imminent collapse.

But the new funding could turn things around, and a Mobilcom spokesman said that Friday's fears could now prove overstated.

Insolvency, he said, was now "off the table", as was legal action against France Telecom.

Mobilcom's shares, down to barely a single euro on Friday from a high in January of more than 26 euros, shot up in morning trading, rising to 3.20 euros - a one-day gain of 200% - by 1220 GMT.

Playing politics

Meanwhile, Chancellor Gerhard Schroeder is working with his French counterparts on a resolution of the cross-border argument.

"We've had talks with the Elysee this morning," he told a press conference on Monday.

But the European Commission is not the only group which has problems with Chancellor Gerhard Schroeder's handling of Mobilcom.

His conservative opponent in the elections due in six days' time, Edmund Stoiber, blamed the government for creating Mobilcom's woes in the first place.

"One must make clear that the reason (for Mobilcom's predicament) lies with the government, in that it made the six largest phone companies pay practically 50m euros from their pockets," he told German TV.

"Mobilcom paid 8.5bn [euro] for these licences alone. It was one of the government's big mistakes."

Mr Stoiber has led for much of the campaign, helped by Germany's struggling economic performance and ballooning unemployment roster.

But Mr Schroeder's handling of Germany's recent devastating floods - planning to pay for the clean-up by deferring tax cuts - has put Mr Stoiber on the back foot, and the challenger is behind in the polls for the first time in the campaign.