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EU next to eye carmaker aid

2008-11-19 07:34

Brussels/Paris - The European Union is studying support for its ailing carmakers but the bloc's executive was divided on Tuesday over the extent of any aid as other sectors also face a downturn.

EU Industry Commissioner Guenter Verheugen signalled support for a German offer to help the Opel unit of stricken US auto firm General Motors, but others in Brussels insisted there could be no special treatment for the auto industry.

"You cannot compare the car sector with the financial sector," Competition Commissioner Neelie Kroes said, referring to the mass bail-outs by EU governments last month of key banks in the wake of the financial crisis.

EU sources said the European Commission would propose ways of helping the auto sector in the 27-nation bloc next week as part of a broad package of economic stimulus measures to deal with the worst financial crisis in 70 years .

But any aid would be temporary, would have to meet the bloc's strict state-aid rules, and be closely tied to goals such as improving the sector's environmental performance rather than no-strings-attached support, the sources told Reuters.

"What will not happen on Wednesday (next week) is a proposal for old-style subsidies," said an EU source involved in the dossier, declining to be identified because negotiations on the exact details of the package remained ongoing.

"Any support for the car sector would be targeted, temporary measures linked to certain objectives, not the dishing out of billions of old-style aid ... Ecology is certainly an important element," the source said.

Writing cheques

Pressure on European leaders to help industrial giants such as Peugeot, Renault, Volkswagen and Fiat rose after US Senate Democrats on Monday proposed a $25 billion loan programme for their US rivals.

German Chancellor Angela Merkel urged US lawmakers not to discriminate against European auto manufacturers.

"We will observe very closely the way the United States government acts regarding its own automobile industry, because from the point of view of European industry we don't want the Americans to adopt certain measures that could become a problem for us," Merkel said during a joint news conference with Italian Prime Minister Silvio Berlusconi at an Italo-German summit.

European carmakers, a powerful lobby, have been stepping up calls for up to 40 billion euros ($50.5 billion) of aid to offset a fall in demand caused by a deepening recession, and similar to the help given to banks hit by the credit crunch.

Car sales have fallen dramatically as the global financial crisis has gathered steam. Carmakers are frantically slashing costs where possible and extending the usual plant idling over Christmas by a few more weeks to save cash.

In western Europe, new car registrations in October plunged 15.5% to just over 1 million vehicles, dragged down by extremely poor results at the Peugeot, Opel, Renault and Toyota.

But many within the executive are loathe to start writing blank cheques for the industry as it could open the floodgates to similar requests, giving the impression that Brussels is a one-stop shop for suffering industries.

"If your financial system is not working any more, then it is over. That was our incentive to give medicine to its blood circulation," Kroes said in Paris, explaining why the EU had used some 2.2 trillion euros ($2.78 trillion) to prop up banks.

"The car industry won't be the last one (that runs into difficulty), you can be sure about that, but we need to look to the lessons of the financial institutions," she added.

French President Nicolas Sarkozy and other EU leaders agreed in October to study support to the sector, and the Commission last month hinted it could back the possibility of soft loans from the EU's lending arm, the European Investment Bank (EIB).

Stricken Opel

Germany became the first country on to offer help to one of its carmakers on Monday, offering to support Opel. But any such would have to be approved by Brussels.

The EU's Verheugen -- a German Social Democrat who has championed the call by Europe's carmakers for soft loans -- told German radio the Commission would have to examine any possible guarantees.

But he added: "I'd welcome it if everything was done to prevent an important and traditional car producer in Europe from dropping out of the competition for reasons it's not responsible for."

However, a second source said some in the Commission opposed "Verheugen's carte blanche" approach.

The source said Brussels would insist that any loans, if agreed, would depend on the industry producing "greener" cars, in line with the bloc's ambitious goals to combat climate change.

A fly in the ointment of any agreement next week could be its compatibility with World Trade Organisation rules. Brussels has said it is scrutinising Washington's proposed support for its car industry.

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