The purpose of the EU legislation regarding airlines was precisely to prevent incumbent legacy carriers (i.e. Olympic) from stifling competition legitimate free market start-ups. Thus the marketplace would have more vendors which means more competition and thus lower/flexible fares. The free market.
Unfortunately Adam Smith never saw how global corporations would rise to create behemoth entities which themselves stifle competition and start-ups.
If you want to use the legislation to base the EU for your own ends. Go ahead but you're incorrect.
There are many reasons why the company failed. I think in the end its probably fair to say that the market size just didn't exist for a country of just over 10m people. They tried a LH strategy and a local strategy and even investment from Russians. It will be a great shame to see an airline with such a long history disappear. Maybe Central Europe would have been better served by LOT, CSA and Malev combining in a SAS style operation?