The negative assessment made by European Competition Commissioner Neelie Kroes on the shipyard's privatisation plan yesterday drew guarded reactions from both the Labour Party and the General Workers' Union.

GWU leader Tony Zarb said he shared the government's optimism that a final arrangement with the European Commission would be found.

Ms Kroes shot down the government's current privatisation strategy as it is, saying that plans to write off about €100 million in debts before selling Malta Shipyards violated EU rules. She did qualify that she was willing to see a revised business plan before taking a definite stand. Nonetheless, she was quite categorical in her stand. "In principle it is not acceptable", she said about waiving the remaining debt.

Finance Minister Tonio Fenech still said he was confident that the European Commission would eventually come round to accepting what the government had in mind after the final business plan is submitted.

Speaking to The Times yesterday, Mr Zarb said he believed a solution would be found. "I think it can happen if we all work together. We have to be careful not to put spokes in the wheels. This is a national project," he said.

Fresh from a landmark agreement with the government on the fate of the workers, Mr Zarb was on the war path against the government on the issue just a few weeks ago. However, he insisted yesterday that nothing had changed in principle. "We were in favour of privatisation from the beginning; now we're being consistent with that position."

Labour leader Joseph Muscat was a little more critical. However, he still would not be drawn into polemics. "The party's stand is that we do not intend to make a political issue out of this... Now is not the time. The EU needs to see a united front on Malta's part and it also needs to understand the national sentiment on the matter."

He urged the government to see to it that the issue with the Commission is resolved, adding that anyone with knowledge of EU state aid law should have seen this problem coming and should have prepared for it in advance. When asked whether he shared the government's optimism about a deal being struck with the Commission, Dr Muscat said he would rather not comment further at this stage.

The Labour parliamentary group issued a statement yesterday evening saying that it expected the Prime Minister and the government to do whatever was necessary to ensure that the problem with the EU on the privatisation of the dockyard did not endanger the company and jobs.

The party said some of the problems were evident at an early stage and could have been avoided had talks started earlier and had the necessary measures been taken in terms of the accession agreement.

However, at this stage, in the national interest and the interests of the workers and taxpayers the issue should not be politicised. No circumstances which could harm the future of the maritime industry, the workers and national assets should be allowed to develop, the party said.

The group said the Prime Minister should shoulder his responsibilities and be honest with the people.

Ms Kroes said on Thursday, during a brief visit to Malta, that the government had been clever to negotiate a derogation before Malta joined the EU, allowing it to continue subsidising the 'yards till the end of this year but the time is now up, she said. "It's five to 12."

Mr Fenech used the recent agreement reached between the government and the GWU to argue his case for convincing the Commission.

"Even in the recent dispute between the government and the General Workers' Union, when both sides made quite tough statements, we still found a compromise and I believe the same will happen this time," he said.