A consortium of eight companies from France, Germany, Spain, Britain and Italy charged with building and running Galileo has been given until May 10 to set up a joint legal entity to run the system or risk losing control of the project, scheduled to be operational in orbit by 2011.
But German Transport Minister Wolfgang Tiefensee, speaking on behalf of the EU, said he had "little hope left" that the consortium will end the infighting over how to split the workload and get down to work by a Thursday deadline. Spain has reportedly been insisting on a larger number of contracts.
"Galileo is in a profound and serious crisis. We're in a dead end street," Tiefensee said. "The cardinal problem is that the companies still have not been able to agree on the way forward. We need to find an alternative solution."
The European Commission is to present a proposal on May 16 on how to overhaul the project. A spokesman for the EU executive said the system would not get into orbit as planned in its present form. Tiefensee said Germany, which holds the rotating six-month EU presidency, wants extra public money for the project.
"There will be a stronger participation of the public sector in the construction phase of Galileo," he said, adding that the future of the system would be decided at an EU summit scheduled for June 21-22 in Brussels.
"Galileo is the most important high-tech project for Europe ... It is necessary to continue," he said.
Only one out of 30 planned satellites that are part of Galileo has been launched - in December 2005. The second satellite missed its initial autumn 2006 launch date after it short-circuited during final testing.
Under the original plan, European taxpayers were supposed to cover roughly one third of the EUR3.6 billion (US$4.9 million) project, which is to create some 150,000 jobs.
"We will hope to find another form of financing, of distributing the cost (within) a public-private partnership," Tiefensee said, adding that it has not yet been decided whether the current consortium will be able to hold on to some of the contracts.
Galileo was originally to have started launching its 30 satellites - compared to GPS's 24 - by 2008. However, that date was pushed back to 2011 due to previous disagreements between EU governments on how to pay for the system. Tiefensee on Monday pushed the likely launch date back by another year.