(FORTUNE Magazine) – Ever since he killed the GE-Honeywell merger, Mario Monti has been casting a darker shadow. Now it's Microsoft's turn to feel the menacing gaze--and sweeping power--of Europe's antitrust sheriff.

In August, Monti charged Microsoft with obstructing the ability of competitors' software for low-end servers to operate in conjunction with Windows. He also accused the company of illegally bundling its Media Player software into the operating system.

If Microsoft can't settle the case--or convince Monti that it is acting legally--the consequences for the software behemoth could be severe. It's not just the fines that Monti could levy: up to 10% of worldwide revenues (though Europe's biggest fine so far is only $90 million). It's in Monti's power to order the company to strip Media Player from its operating system or, even worse, to open Windows' source code to public scrutiny.

Monti and Microsoft will probably reach an accommodation on the server-software issue. The company will probably agree to reveal just enough technical information to competitors to assuage Monti's concerns.

The bundling issue is likely to present more problems. Tying something such as Media Player to its operating software is a longtime Microsoft strategy--one it steadfastly defends. Bundling Media Player benefits consumers because it makes it easier to view video and audio clips, says deputy general counsel Brad Smith. Moreover, he says, consumers are free to choose competing players.

But Monti has already shown an aversion to bundling, albeit in a different kind of case. As a condition for the aborted deal, he insisted that GE sell enough Honeywell assets to make sure that aircraft engine buyers weren't buying GE engines just because they were bundled with Honeywell avionics.

Monti recently has stressed publicly that the Microsoft case is a work in progress. But in its initial accusations, the European Commission charged that the company hadn't fully cooperated with its investigation. Microsoft has until mid-November to reply to the EC's antitrust charges. It can then ask for a formal hearing, after which the EC has unlimited time to decide what to do. An EC spokeswoman says the commission will probably make a decision early next year. And then? Well, Monti has already started asking questions about XP.

--Janet Guyon