German Opel aid tests EU rules

September 15, 2009

opel-logosThe credibility of the European Union’s single market and state aid rules is at stake over Germany’s selective offer of taxpayers’ money to preserve Opel factories and jobs on its soil.

On the face of things, it looks like an open-and-shut breach of state aid rules. General Motors agreed last week to sell 55 percent of its European arm to a consortium of Magna and Russia’s Sberbank under massive pressure from Berlin.

German leaders have said publicly that they promised 4.5 billion euros in loan guarantees for the Magna-led bid — but not for rival bidder RHJ International — because it would preserve all four production sites and as many jobs as possible in Germany. The European Commission says:

state aid cannot be subject to additional non-commercial conditions concerning the location of investments and/or the geographic distribution of restructuring measures.

QED? Well, not quite.

The German authorities are unlikely to have been naive enough to put any such linkage in writing. And without such formal evidence, the EU competition regulator may find it hard to deny approval for the rescue. After all, didn’t French President Nicolas Sarkozy get away with a 6-billion-euro rescue loan to French car makers Renault and Peugeot in March on the unwritten (but loudly proclaimed) understanding that they preserve production sites in France?

European Competition Commissioner Neelie Kroes says she will scrutinise closely whether Germany set “de jure or de facto” conditions for helping Opel, whether aid was offered to only one bidder, and why its business plan was considered preferable. Kroes has a second possible line of attack, since Brussels must be convinced that a rescued Opel will be viable in the long run. She should talk to the German government’s own trustee, who voted against the Magna sale, questioning its chance of survival due to its small size and chronic overcapacity in the sector.

There is no shortage of plaintiffs. Belgium’s Flanders region says that Berlin’s chequebook industrial policy is distorting the level playing field of the EU single market. This is somewhat disingenuous, since the Flemish government has also offered state cash for Opel to keep its Antwerp assembly plant open. 

Similarly, British Business Secretary Peter Mandelson said on Monday that Brussels should “not accept anything that looks like a political fix or any linkage between aid and retention of jobs in any specific plant or country”. But wait a minute. Isn’t British willingness to provide taxpayer support for Vauxhall, Opel’s British arm, tied to maintaining its two UK plants? A Vauxhall union official said Mandelson told workers’ representatives in July that “before he committed any money he would need guarantees on UK production”.

The truth is surely that all governments want to use public funds to save jobs at home rather than abroad. Germany simply wields a bigger cheque book and has more at stake, with half of Opel’s 50,000 workforce and the headquarters on its turf.

So what is to be done? The Commission will not want to take the political blame for forcing Opel to the wall in the midst of a recession, infuriating the EU’s biggest member state.

One possible solution would be for Brussels to propose a Europe-wide restructuring plan for the auto industry, involving all member states, along the lines of the 1977 steel plan devised by Industry Commissioner Etienne Davignon. But neither Germany nor France wants such an initiative, since each seeks national advantage. It’s a game of “after you Claude” with each government hoping the cuts will fall elsewhere. Besides, the Commission does not have the same power to declare a “manifest emergency” in the car sector as it had on steel under the European Coal and Steel Community treaty.

Perhaps the prospect of Brussels rejecting aid for Opel will give the Commission enough leverage to force all member states with production sites to negotiate on a common pot of public money to support a restructuring plan that would be monitored for its fairness and economic viability by the EU executive.

That would be a step forward and a boost for the single market. It might even make a start in solving the underlying problem of European auto production overcapacity.


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