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Europe

European Leaders Seek More Help for Car Industry

European Union governments agreed on Friday to step up aid for their struggling carmakers but called for a coordinated response to avoid a race for subsidies among the bloc's 27 nations.

Volkswagens lines up on the factory floor.

The auto industry is vital to both Germany and the European Union

European Union industry ministers met in Brussels on Friday to find ways of supporting their troubled car industries amid calls for up to 10 billion euros ($ 13.2 billion) in credit from the European Investment Bank (EIB).

EIB officials attending the talks said they planned to approve in March 3.2 billion euros in soft loans to help carmakers develop greener and more fuel-efficient cars. But they also said they'd be ready to increase aid.

"Naturally there is always the question of whether we could do more. But first we have to implement what we have," said EIB Vice-president Matthias Kollatz-Ahnen.

"It is clear that ... there will be additional projects, but they are not now mature," he said.

Europe's most important industry

EU leaders agreed in December to provide 4 billion euros in EIB loans in December. But sources close to Friday's talks in Brussels said some ministers had called for this amount to be raised to 10 billion euros.

Carmakers, which represent Europe's most important industry, have been hard hit by the economic crisis, with sales falling by eight percent in 2008 over the previous year. Experts predict a further fall in sales of between 10 and 20 percent in 2009, with sales of heavy-duty vehicles likely to fall by 30 percent.

Adding to the difficulties, access to private credit has also been stifled by the credit crunch, meaning the EIB is often the only lender available.

Help from outside the industry needed

The exhaust of a passenger car

A lot of the pressure is coming from new EU laws regarding car emission standards

European Industry Commissioner Guenther Verheugen noted that while the "primary responsibility to respond to these challenges rests with industry itself," public support for the sector was also necessary. This was particularly needed in view of the EU's strict targets on car emissions, which are set to come into force over the next decade.

So far, Germany, Spain, Sweden and Portugal have already finalized national rescue plans, with France and Italy set to follow suit.

But Verheugen warned governments against engaging in a "subsidies race" and to avoid distorting the internal market by supporting only national champions.

Coordinated policies

Oldtimer car

This car is clearly old enough to qualify for the German program

The commissioner said industry ministers had agreed to coordinate their policies, which range from financial incentives to scrap old cars to the purchasing of vehicles by the public sector.

France, for example, has pledged 400 million euros for research and development over four years and 300 million for restructuring the automotive sector, while Germany has promised an exemption from annual tax for new cars purchased before June 30 and an incentive to scrap cars nine years or older worth 2,500 euros per vehicle.

"There is agreement that such support needs to be effective and coordinated. It should respect key principles such as open global markets, fair competition, better regulation as well as cooperation and transparency," Verheugen said.

The commissioner also highlighted the need to engage in "early dialogue" with the new US administration of Barack Obama as it puts in place its own plans to support US carmakers.

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