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Business Europe

France defends auto bailout amid protectionism row

Latest update : 2009-02-12

France defended its nearly-nine billion euro plan to bail out national carmakers saying it was neither protectionism nor against European rules, a day after other EU finance ministers warned against protectionism.

AFP - France fiercely defended on Wednesday its plan to pump almost nine billion euros into its struggling carmakers, at the risk of sparking a full-scale European Union dispute over protectionism.

President Nicolas Sarkozy wants to lend PSA Peugeot Citroen and Renault three billion euros (3.9 billion dollars) each on top of other measures, in exchange for a promise not to shut French plants or cut French jobs.

The European Commission, which has yet to give the loan its approval, warned on Tuesday that the plan might break EU laws against protectionism, amid sniping from the Czech Republic, Slovakia and German industry.

The Czech presidency of the European Union has called for a summit at the end of the month to encourage leaders to "say clear 'no' to protectionism".

Nevertheless, in its first response, France came out fighting.

"It's not protectionism, it's the defence of our industry and the defence of our jobs," Minister for European Affairs Bruno Le Maire told France Info radio, insisting there was nothing illegal about the plan.

Le Maire said the plan did not break the rules of the EU internal market and added that "if the market had worked as well as it should then it would have provided the liquidity that Peugeot and Renault needed."

Aides to French Finance Minister Christine Lagarde said she would invite her new German counterpart Karl-Theodor zu Guttenberg to Paris to reassure him that the French measures "were not inspired by protectionism."

Motor manufacturing is a vital pillar of French industry, directly employing one in 10 members of the workforce, but the sector has been hard hit by the global economic crisis and the collapse of consumer credit.

Peugeot-Citroen said on Wednesday it had lost 343 million euros in 2008 -- having made 885 million in profit the previous year -- and forecast that the European market for new cars would shrink by another 20 percent in 2009.

The firm plans to cut its workforce at European plants by 11,000 through voluntary redundancies and non-renewal of contracts.

"France is, of course, our biggest country in terms of employees, but we have lots of staff in other countries which we are currently reducing quickly," group chairman Christian Streiff told reporters.

Paris sees Renault and Peugeot as national champions, although they only produce around 40 percent of their vehicles at home, running major plants in Spain, Italy, Romania, Portugal, Slovakia and the Czech Republic.

Job losses will further anger Prague and Bratislava and the German industrial federation BDI has also said it is "highly alarmed."

In total Sarkozy proposes six billion euros in five-year loans, two billion more for Renault and Peugeot's financial arms, 600 million for suppliers and around 220 million in grants for motorists who replace older cars.

Last week, he stirred the controversy by making it clear that he wants French firms to stop sending jobs and plants abroad.

"We want to stop factories from relocating abroad, and if possible bring them back home," Sarkozy said.

"If we give money to the auto industry to restructure itself, it's not so we can hear about a new plant moving to the Czech Republic or wherever."

France's plan can only go ahead if the European Commission approves it, and its spokesman on competition issues has already expressed concerns.

"We have certain concerns," Jonathan Todd told reporters on Tuesday. "The commission is going to look very closely at the French plan.

"If there is an additional condition like keeping a production plant in France, that would make the aid illegal," he warned.

Even in France, the bail-out has not been universally welcomed.

An editorial in the influential daily Le Monde attacked Sarkozy's as an example of "the dangerous turn that Europe is taking towards falling back into national isolation, with everyone for themselves."

Date created : 2009-02-11