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Germany

Berlin Rejects Expansion of Car Subsidy Scheme

The German government has turned down demands from the auto industry to extend beyond this year a controversial 2,500 euro premium paid to drivers who scrap their old cars and buy new or one-year-old vehicles.

Stacked cars on a junkheap

Right now, Germans can get cash incentives for old cars

A spokesman for the economics ministry, Steffen Moritz, announced in Berlin on Wednesday that there were no plans to expand the scheme, which has been allotted a budget of 1.5 billion euros ($2 billion) -- enough to allow the subsidization of some 600,000 cars.

The Green Party have called for the controversial measure to be torpedoed. They are critical of the fact that the premium is not linked to any specific green standards. The only restriction is that the car being scrapped has to be over nine years old.

"This premium is not tied to any ecological criteria, any fuel consumption limits. It deserves to be completely abolished rather than extended," said Green parliamentary party leader Fritz Kuhn.

Car dealers busy

Various cars on forecourt with sign price hit on top of one

Sales of new cars have increased

But the measure is proving popular with car owners. The authorities are currently receiving around 6,000 applications per day. If this continues, the money will be exhausted well before the end of the year, they say.

Auto manufacturers Volkswagen, Opel and Ford have all reported a rise in turnover that they attribute to the premium.

On Monday, Opel said it had enjoyed a staggering 50 percent increase in sales of vehicles to private individuals in January and had been able to switch from short-time to full production in two of its factories. VW reported a boom in demand for its smaller cars.

VW CEO Martin Winterkorn told the German business publication Wirtschaftswoche that the company had boosted its production of Polos to the tune of 40,000 vehicles. As a result, he said the firm's factory in Pamplona, Spain, had been able to revert to normal production.

The state premier of Lower Saxony Christian Wulff has called for the scale of the scheme to be increased. Wulff, whose state is home to the headquarters of VW, told German news agency dpa that it helped to secure jobs in the German car industry, as well as helping to achieve climate protection goals.

French neighbor eyed suspiciously

VW logo on building

German automaker VW is one of the firms profiting

But unlike France's planned measures to prop up its domestic motor industry, the German premium is not restricted just to German cars, as Chancellor Angela Merkel made clear on Wednesday. "We want all Europeans to profit," she said with reference to the scheme. She said buyers of French brands such as Renault and Peugeot would also receive the 2,500 euro bonus.

"That is why we will be keeping a jealous watch over what is happening in other European countries to support the car industry," she warned.

France was hit by a hail of criticism from EU allies over a 6 billion euro ($7.8 billion) state loan offered to Renault and PSA Peugeot-Citroen earlier this week in return for an unwritten pledge not to close sites in France.

French Prime Minister Francois Fillon is visiting Brussels on Thursday to defend that country's car scheme. The European Union has expressed doubts about its legality given EU competition rules. On Wednesday, President Nicolas Sarkozy rejected that it was a protectionist measure and said he could not be criticized for wanting to preserve French jobs.

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