EU: France's Auto Bailout Could Be Harmful

European Union is concerned that a French government bailout for local carmakers Renault SA and PSA Peugeot-Citroen undermines competition across the 27-nation block.

BRUSSELS (AP) -- The European Union said Tuesday it is concerned that a French government bailout for local carmakers Renault SA and PSA Peugeot-Citroen could harm other European producers.

France needs EU approval to grant the aid, which includes euro7.5 billion ($9.8 billion) in low-interest loans in return for car companies' promises not to lay off workers this year or close factories.

EU regulators' criticism builds on Czech and Swedish fears that France's help for its national industry is protectionist and could undermine competition across the 27-nation block.

EU spokesman Jonathan Todd said EU Competition Commissioner Neelie Kroes wrote to the French government on Tuesday to ask it to explain as soon as possible how the car bailout will work.

The concern was shared well beyond Kroes' group of regulators.

"We are all very interested in the (French) answers to the questions of the European Commission," said Dutch Finance Minister Wouter Bos at a meeting of EU finance ministers. "What I have read of that plan made me frown."

Czech Prime Minister Mirek Topolanek last week blasted French President Nicolas Sarkozy for suggesting that a French car producer shift production from a Czech plant to France. Swedish Prime Minister Fredrik Reinfeldt said Monday he also feared some aid measures might trigger protectionism.

"There are a number of concerns which the Commission has," including whether the aid will be linked to guarantees to keep production facilities open in France, Todd said.

Payments already given to the car sector would also become illegal "if additional conditions apply like the obligation to keep production centers in France," he said.

Kroes warned last week that France would break EU law if it demanded that car makers buy only French car parts or invest only in France in return for government aid.

The Commission said Tuesday that open markets remained key to getting out of the economic rut. Todd said the Commission would have to ban "any measure that would undermine the internal market, given that it is a source of prosperity and jobs in Europe."

Sarkozy said the car package approved Monday was needed "because the crisis hitting the automobile industry is exceptional."

The pact doesn't include plans to bring back to France production by overseas subsidiaries of Renault and Peugeot-Citroen, which Sarkozy said last week he would like to happen "if possible."

Kroes said she would prefer to see France give aid to the car sector that would benefit the sector as a whole, such as support for job training or payments to encourage car buyers to scrap old models in favor of more fuel-efficient cars.

The French car industry employs one in ten French workers.

European car companies say they expect to sell 15 percent fewer cars this year. They warn that they need government help to keep employing 2.2 million people in Europe. A further 10 million jobs rely on the industry.

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