The new company, to be called Alenia Marconi Systems, is to combine production and research in radars, missiles, command and control systems, and air traffic control.

The company, registered in the Netherlands, is expected to become operational by the end of the year.

It will have operating profits of �107m and assets of �200m, with joint headquarters in Chelmsford, England, and Rome, Italy.

GEC Managing Director Lord Simpson said: "The joint venture represents a signficant setp in the restructuring of the European defence electronics industry."

Single Euro firm?

The Euofighter project could be the basis for consolidation

They have asked industry to come up with a blueprint by October, and said that private capital should dominate such a grouping.

"The EADC should be run on a commercial basis by a single management structure, should have access to private capital markets, and should be listed on the stock exchange," the ministers from Italy, France, the UK, Germany Spain and Sweden concluded.

But industry has been split over how to proceed with such a merger.

The main stumbling block is the status of French government owned planemaker Aerospatiale, a partner in the Airbus consortium which is also scheduled to become a private company later in the year.