A deal between France and Italy to create a European champion in shipbuilding has collapsed because of the coronavirus crisis and competition concerns.

Paris and Rome said the merger of Fincantieri and Chantiers de l’Atlantique had been rendered unviable by the Covid-19 pandemic and worries the deal would lead to more industry concentration and higher prices.

The move by Italy’s biggest shipbuilder to buy the French group, agreed three years ago, was hailed as a rare example of European naval consolidation with the aim of fending off US and Chinese rivals.

“The tourism sector is currently facing an unprecedented level of economic uncertainty due to the Covid-19 crisis, which does not allow the operation to continue,” said the French and Italian finance ministers in a joint statement.

European regulators, which had not finished analysing the deal, had said they expected the shipbuilding market to bounce back, undermining arguments consolidation was necessary to protect the sector.

An agreement to pursue the tie-up, due to expire at the end of January, had been extended five times, but Paris and Rome ruled out another extension.

The merger between the state-owned groups had been fraught from the start as the EU commission raised concerns the deal could cause the price of cruise ships to increase in an already concentrated sector.

Competition authorities had suspended their investigation in March and asked for more information to understand the impact of the pandemic on the groups.

“In the context of the health crisis and the lack of visibility on the recovery of the shipbuilding market, the European Commission has not terminated the proceedings,” said the French and Italian joint statement.

The transaction was one of the few complex deals that were being examined by EU regulators in Brussels.

The investigation had been stagnant for months and the companies had hoped a deterioration in market conditions would help clear the deal, people with direct knowledge of the discussions said.

But, despite harsh conditions, regulators up until recently were not convinced the market would be structurally damaged by the crisis, a hint that market concentration remained a concern.

In an interview with the Financial Times last week, Margrethe Vestager, the EU’s executive vice-president in charge of competition, said of the deal: “Customers keep buying tickets for cruise ships. If going on holidays is taking a cruise, then you are really longing for the cruises to come back.

“So even though the market is as it is right now, the order books of those building cruise ships are still filled.”

The French government said it “remains the main shareholder of Chantiers de l’Atlantique” and would “support the company for as long the crisis lasts”.