Germany’s plan to give 4.5 billion euros in loan guarantees to car maker Opel has become a test case of the European Commission’s ability to prevent nationalist state aid to industry in the financial and economic crisis.

Brussels should refuse to wave through Berlin’s bung, offered exclusively to the bidder that promised to preserve all factories and the most jobs in Germany, under the EU’s temporary framework for state aid in the crisis. If Neelie Kroes gives Europe’s biggest economy a pass on Opel, it would open the floodgates of economic nationalism in the EU internal market.

Reappointed European Commission President Jose Manuel Barroso is promising to uphold the single market and competition rules to preserve the foundation of Europe’s prosperity. But that is particularly hard when the challenge comes from the EU’s big boys — Germany, France and Britain, whose support Barroso needs to make the EU work. Already Germany and France are looking to extend state rescues beyond the banking and car sectors to bail out their container shipping lines. And Britain is seeking leniency on its state-rescued banks.

Canadian car parts maker Magna <MGa.TO> and Russia’s Sberbank <SBER03.MM> are due to sign a deal this week to buy 55 percent of New Opel from General Motors. Berlin has not yet informed the EU regulator of the amount of aid it plans nor the conditions, and is still trying to persuade other countries with Opel or Vauxhall plants to put money in the kitty.

The aim is clear: a) to avoid indirectly subsidising jobs in other European states; and b) to make it harder for the Commission to turn it down on grounds of economic nationalism. Yet given the way Berlin negotiated with Magna and pressured GM to prefer that bid, it is hard to see how Brussels can fail to find that it used taxpayers’ money to ensure all four German factories survive. Denying the Opel aid the fast-track procedure would force Germany to go through a longer and more rigorous EU approval process and raise pressure to change unacceptable terms of the deal.
   

Britain, which has struck the highest moral tone against state aid that distorts competition, seems ready to pay to save a threatened Vauxhall plant in Luton. Belgium, which has shouted loudly about German selfishness, is willing to cough up to save the endangered Antwerp factory. Spain and Poland, which also have Opel sites, have so far declined to chip in.

The Commission set a dodgy precedent in March by allowing France to give a 6 billion euro state loan to its car makers after President Nicolas Sarkozy agreed not to put in writing the stated condition that they maintaining all plants in France.

The French and Germans contend that the car industry, like banking, is systemically important for their economies — an argument rejected by the OECD. The truth is that the European automobile sector is suffering from huge overcapacity, estimated at up to 30 percent. Keeping ailing manufacturers alive with public money only weakens healthy ones in the long run.

Veteran EU grandee Etienne Davignon, who restructured the European steel industry in the 1970s and early 1980s, compares the Commission’s dilemma to that of a traffic cop outside his local Anderlecht soccer stadium.

If one pedestrian crosses the road on a red light, I blow my whistle. If a football crowd after the match crosses the road on red, I get out of the way.

If Neelie Kroes doesn’t blow her whistle on Opel, the EU regulator may be trampled in the stampede.