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Germany will have to change Opel deal after election

By Paul Taylor
September 24, 2009

opelanerIt looks increasingly clear that Germany will have to change its deal to aid carmaker Opel once Sunday’s general election is out of the way.

The European Commission has signaled to Berlin that promising 4.5 billion euros in loan guarantees to only one of the two bidders for General Motors’ European arm to preserve all four German production sites and most Opel jobs in Germany may breach EU rules on state aid to industry. EU regulators want to know why Chancellor Angela Merkel and four German states offered the money to back car parts maker Magna’s bid but not for financial investor RHJ International’s, and on what conditions. 

With Britain, Spain and Belgium’s Flanders region — all hosts to Opel production sites – crying foul, the EU executive is under strong political pressure to intervene. British Business Secretary Peter Mandelson has questioned the viability of Magna’s business plan in a letter to the Commission.  Brussels reaffirmed in a statement on Wednesday that Germany could not attach political conditions to the company’s restructuring plan or tie its hands. 

The European Commission will not accept that State aid granted under the Temporary Framework is conditional upon the implementation of a specific business plan, previously discussed and/or negotiated with Member States, which defines the geographic distribution of restructuring measures, without leaving to the beneficiary undertakings the possibility to revise their plans if necessary.

State funding under the Temporary Framework is meant to tackle the financing problems due to the credit crunch, and cannot be used to impose political constraints concerning the location of production activities within the internal market. The beneficiary undertakings must therefore retain full freedom to develop their economic activities in the internal market.

Even the Commission’s German vice-president, Guenter Verheugen, long regarded as the German car industry’s best friend, has told his countrymen that one EU country cannot be allowed to buy a favourable solution for its workers at the expense of another. He has offered the Commission’s help to bring all the Opel host countries together and work out a joint state aid plan for Opel to be monitored by Brussels.

In theory, that means Berlin ought to sign Magna and its Russian partner Sberbank a blank cheque which might lead to a plant in Antwerp or Luton or Zaragoza being kept open instead of an assembly line in Bochum, if the Belgian, British or Spanish site is more efficient. That would be hard for German taxpayers to swallow.

After months of haggling with Magna and arm-wrestling with GM, Merkel and Social Democratic vice-chancellor Frank-Walter Steinmeier pushed through the Opel deal this month to show voters that their grand coalition was fighting to defend German jobs in the global recession. But once the polling stations close, Berlin may be open to change. Economy Minister Karl-Theodor zu Guttenberg hinted as much on Thursday, when he said Germany will seek a “good European solution with all our European partners” over state aid to Opel and does not expect the European Union to block a deal.

That could lead to a reduction in Germany’s share of the public aid, or to Magna being offered a bigger pot of aid by several governments to keep more plants open. Neither would make Opel a more viable business proposition in a market suffering from chronic overcapacity.

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