German Opel rescue tests EU road rules

By Paul Taylor
May 29, 2009

paul-taylor– Paul Taylor is a Reuters columnist. The opinions expressed are his own –

Mon Dieu! Are the Germans starting to behave like the French?

Berlin’s efforts to salvage carmaker Opel from the wreckage of U.S. auto giant General Motors pose as big a challenge to Europe’s single market as French attempts earlier this year to tie loans to its carmakers to keeping jobs and factories in France.

The European Commission, which enforces EU competition rules, made President Nicolas Sarkozy drop any formal condition on the aid to Renault and Peugeot. But it seems ill-placed politically to stop the German juggernaut, even though the deal seems to be pegged to keeping German factories open and making any job cuts and closures elsewhere.

Facing a general election in September, Chancellor Angela Merkel wants to save Opel by providing 1.5 billion euros in bridging finance until it can be taken over by private investors backed by several billion more euros in state loan guarantees.

Federal and state leaders have pushed the suitors into a bidding war to preserve Opel’s 25,000 jobs and four production sites in Germany in preference to other GM plants in Britain, Belgium, Spain and Poland.

That amounts to using German taxpayers’ superior financial muscle to skew Europe’s level playing field. It is not only unfair to European neighbours but also to other German and European car manufacturers, under market pressure to reduce huge overcapacity in the sector.

A similar problem arises when governments tell banks receiving public capital injections or state guarantees that they are expected to lend at home rather than abroad. But while rescuing banks may be necessary to prevent a financial system collapse, rescuing Germany’s number four car maker is largely about saving jobs and votes rather than the economy.

European Commission President Jose Manuel Barroso, seeking reappointment by EU leaders on June 18, has for months deflected calls for an EU-wide car industry recovery plan opposed by Berlin. That has left member states to take measures compatible with EU rules such as scrappage premiums and loans to develop clean engine technology.

The commissioners for competition, enterprise and employment warned jointly on May 12 that state aid to GM Europe “cannot be subject to additional non-commercial conditions concerning the location of investments and/or the geographic distribution of restructuring measures.”

But the EU executive has kept a low profile in the Opel affair and only called emergency talks for Friday with ministers from member states concerned after Belgium wrote to Merkel and Barroso urging a European solution to avoid beggar-thy-neighbour policies. With GM hurtling towards a June 1 U.S. deadline for bankruptcy, the meeting seems to be a damage limitation exercise and comes too late to change Berlin’s approach.

Barroso has tried with some success to hold the line against protectionism and subsidy races in Europe since the financial crisis began. But he has not yet shown a way out of the contradiction between governments using taxpayers’ money in the national interest and the preservation of fair competition within a single market. State-aided deals forged in the furnace of the crisis will prove difficult to unpick and the distortion they wreak on competition can grow over time.

Yet applying EU rules strictly by forcing banks or car companies that receive rescue aid to restructure and cut back activity after six months is politically impossible in such an economic emergency. Competition Commissioner Neelie Kroes was slapped down after she threatened to let banks go bust if they failed to provide satisfactory restructuring plans on time.

But the EU badly needs a strategy to get the toothpaste back into the tube once the crisis eases. A reappointed Barroso will have to get tougher after the German election.

(Editing by David Evans)

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