Germany To Face Tough EU Scrutiny Over Opel Financing-Lawyers
May 29 2009 - 10:40AM
Dow Jones News
The German government's plan to subsidize the purchase of
General Motor Corp's (GM) European operations with government
funding is likely to receive tough scrutiny in Brussels, say
Brussels-based lawyers.
One of the main objectives of the rescue effort is to safeguard
German jobs in an already fragile economy, and ahead of general
elections. Still, if the survival of Opel-Vauxhall is guaranteed
with public financing the commission will be forced to ask for some
difficult cuts in return, lawyers say.
"The problem is that state intervention distorts competition,"
says Michael Schuette, a Brussels-based state aid specialist who
has previously worked with the automotive industry.
According to the EU Commission's rules on state subsidies, "you
can only provide support to a failing company if there is a
restructuring plan, which includes capacity reductions," Schuette
said.
The European automotive sector is especially vulnerable, as the
car makers have only recently found their feet again, and countries
have an interest in protecting their manufacturing base.
If the funding is used to artificially keep the car maker
producing cars for which there are no customers, other European car
manufacturers such as Volkswagen AG (VOW.XE), or French automakers
Renault SA (RNO.FR) and PSA Peugeot-Citroen (12150.FR), would
suffer.
Before you knew it "there would be a subsidies race, to ensure
that the French car makers, for example, could compete with Opel,"
said another Lawyer closely following the current negotiations.
Another problem is that if the deal goes ahead with the state
funding, it would not be out of the question for the commission to
ask to up to 30% of capacity reduction at Opel factories, said one
lawyer.
While the bloc's executive commission has been sensitive about
cutting jobs in the real economy, "it is likely it will insist on
closing factories, the question is how many and where," said Till
Mueller-Ibold, a Partner at law firm Cleary Gottlieb.
The Opel-Vauxhall, provides about 50 000 jobs in Europe, half of
which are in Germany. Other European governments with a stake in
the future of Opel include Belgium, Spain, U.K., Poland and Sweden.
Many are worried that the capacity reductions required by the
commission might fall outside of Germany's borders due to the
Governments heavy involvement.
"It is unlikely that factories will be closed only outside of
Germany, but it is logical to see why the Belgian and U.K.
governments are concerned about the current negotiations,"
Mueller-Ibold added.
Many of Europe's industry ministers are meeting in Brussels
Friday to voice their concerns over the rescue of Opel, and to make
sure that any subsequent deal will be fair to all European
countries where GM has operations.
The German government is meanwhile struggling to reach a deal
with GM, due to a lack of transparency over Opel's finances. It is
widely accepted that the unit is too big for its operational base
and needs to go through hefty restructuring to become
profitable.
Earlier this week GM requested an extra EUR300 million from the
German government, in bridge financing, on top of the EUR1.5
billion, which the government has already agreed to.
The financing would be mainly intended towards running costs of
the car maker, as it is hemorrhaging money.
And therein lies the problem. The more government financing
expected from Germany to facilitate the deal, the unhappier the
European Commission is likely to be with the final outcome.
-By Peppi Kiviniemi, Dow Jones Newswires; +32 (0)2 741 1483;
peppi.kiviniemi@dowjones.com