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French bailout hits EU snag

2009-02-16 07:14

Brussels - France's aid plan requiring its car makers to avoid closing factories in the country for five years may be incompatible with European Union rules, the bloc's executive arm said on Friday.

The European Commission said that before delivering a final verdict it needed to study in detail the French scheme, which offers 6 billion euros ($7.8 billion) in loans to Renault and PSA Peugeot-Citroen.

The programme has raised concerns in some of the EU's 27 countries that France would resort to national protectionism to save jobs during recession. The topic will be discussed at a special EU summit on March 1.

"We are concerned about French companies being asked not to close factories in France, which could go against what the (EU) treaty says about the freedom of establishment," Commission spokesman Jonathan Todd told a regular news conference.

France has until Tuesday to send details of its plan to the Commission, which has the power to block illegal state aid.

French Prime Minister Francois Fillon, during a visit to Brussels on Thursday, had brushed aside suggestions that the plan was protectionist, saying the loans would be extended at market rates.

But Todd said the five-year duration of the loans also raised concerns because EU leaders had agreed any special measures to overcome the economic crisis should last only two years.

"It would seem that it (French aid) is for five years' duration, but the temporary framework that allows member states to take this kind of measure is only for 2009 and 2010," he said.

Todd said under EU rules, firms may be required to refrain from cutting jobs or closing factories for some time only if they receive regional aid, from the EU or national budget.

Such aid is aimed at helping, for example, areas of high unemployment.

"That is not a problem as long as it is aid given for regional development, that is, explicitly in order to foster development in a particular region that is a more disadvantaged region," he said.

"Up to now we have had no indication that this aid for the French automobile sector is anyway regional development aid."


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