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Business

European Stocks Drop as US Senate Rejects Auto Bailout

Negotiations in the US Senate on a $14-billion (10.5 billion euro emergency loan for the ailing US auto industry collapsed late Thursday, leaving the fate of General Motors, Ford and Chrysler uncertain.

Cars await delivery

The US auto industry must now wait until Congress reconvenes, says Senate leader

The discussions failed after the United Auto Workers union refused to agree to Republican demands for wage cuts and reductions in labour costs to the level of Japanese competitors operating in the US.

"It's over with. I dread looking at Wall Street tomorrow. It's not going to be a pleasant sight," said Senate Majority Leader Harry Reid, a Democrat.

Reid later said there would be "no more work" on the bailout until the "reconvening of the new Congress next year."

Bad Christmas for many

The House of Representatives approved the emergency loan Wednesday night, imposing strict oversight rules in exchange for keeping GM and Chrysler out of bankruptcy at least until April and extending a hefty line of credit to Ford.

From left, General Motors chief Richard Wagoner, Chrysler chief Robert Nardelli and Ford chief Alan Mulally

The chiefs of the US 'Big Three' car companies have a nervous wait ahead

But Senate Republicans vowed to oppose the same deal in the upper legislative chamber, where Democrats hold a much slimmer majority than in the House.

Earlier Thursday, Dec. 11, Reid said the two sides were working furiously towards a compromise.

"Millions of Americans, not only the autoworkers, but people who sell cars, car dealerships, people who work on cars, are going to be directly impacted," said Reid. "It's going to be a very, very bad Christmas for a lot of people."

Fears stoked, stocks down

The failure of the auto bailout to pass through the Senate precipitated heavy losses on Wall Street and in Asia, and caused European shares to open sharply lower.

In London, the FTSE 100 index of leading shares was down 1.21 percent at 4,335.46 points in early trade.

In Paris, the CAC 40 tumbled 3.18 percent to 3,200.91 points and in Frankfurt, the DAX shed 4.28 percent to 4,563.32 points.

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