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Customers, employees and partners of Bull breathed a collective sigh of relief when unnamed sources within the European Commission (EC) indicated last month that they "welcomed" the French government's second and most recent rescue plan for the troubled computing and IT services company.

But the relief was short-lived. Days later, the EC said it had been misquoted and instead, it would pursue France through the courts for providing 'unlawful' state aid. The news raised fresh questions about Bull's future.

Despite being one of Europe's oldest and biggest companies, with an especially strong presence in the UK public sector, Bull has been in a downward spiral for several years. Its revenue fell to EU1.5 billion in 2002, down from a peak of EU3.8 billion in 1998, the last time it made an annual profit. It has been forced to sell off a number of important assets to stay afloat, including its smartcard unit, which was once a world leader, and its enterprise resource planning consultancy.

To the people of France, the condition of Bull's finances has become a matter of national concern.

When it ran into difficulty in the early 1990s, the French government sought salvation in the free market, floating the company on the Paris bourse and encouraging the management to take its commercial lessons from Silicon Valley. But it didn't work, and Bull has rarely been out of trouble.

In recent years, as Bull's losses mounted, the French government, which still owns about 17% of Bull (although its share will soon be diluted), has come under pressure to bail out the company. That it chose to do so - and the methods it opted for - has been a big source of controversy ever since.

Paris lent Bull EU100 million in December 2001. Three months later it loaned the company a further EU350 million. Both advances were described as 'rescue' loans, although some Brussels officials feared they were really 'restructuring' grants. The distinction is important. Under European Union regulations, governments can lend cash to domestic enterprises for restructuring purposes (such as redundancy payments) only once. But Bull had already used up its restructuring credit back in 1994. All the same, legal experts say that Europe's state aid rules contain loopholes. "Quite a lot can be snuck under there," says one Brussels lawyer.

Twelve months later, after a lengthy probe, Brussels finally pounced, demanding the loan be repaid in full by 17 June 2003. When Bull failed to meet that deadline, its CEO, Pierre Bonelli, promised that the money would be repaid by September. Again, the deadline passed. Last month, the French government stunned observers by saying it planned to write off 90% of the loan and would accept the remaining EU45 million in the form of a special tax, which it would collect over an eight-year period. For this tax to be triggered, Bull must make profits above EU10 million.

For EC officials, that was the final straw. They plan to take the case to the European Court of Justice if necessary.

Even if the outcome is favourable for Bull, the company still needs to build up profitable, sustainable lines of business. Today, much of its revenue is derived from maintenance contracts for its legacy GCOS mainframes and sales of hardware, most of which is based on technology from one of its major shareholders, Japan's NEC. About a third comes from services contracts, especially from the French and UK public sector; and just a fraction of its sales come from its Massachusetts-based software subsidiary, Evidian.

Bull desperately needs all those units to start delivering ongoing profits. But if the case goes against the company, France's may have to give up on its national champion - regardless of how well it performs.