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Business

Germany, United States Discuss Support for Ailing Auto Industry

Berlin was holding talks with Washington over plans to protect the car industry as a slump in demand threatens the global auto sector. But German politicians can't agree how much aid to dole out or who should get it.

Montage of euros coming out of a gas pump

Politicians can't agree how much money, if any, should be pumped into the auto industry

Speaking at a press conference following a gathering of European Union leaders on Sunday, Feb. 22, in Berlin, German Chancellor Angela Merkel said the European car makers should have a "fair chance" in competition with auto groups from other parts of the world.

Merkel said this included not only competition with US car manufacturers, as the question of state aid for the European car sector is to be discussed at a special EU summit set down for March 1.

We have a common market," said Merkel, adding that European leaders meeting in Berlin agreed any national stimulus measures and financial rescue plans would have to be created in a way that "limits distortions to competition to an absolute minimum."

Level playing field

Cars covered in snow at a dealership

Auto sales are down in both the United States and Europe

The European Commission -- the EU's executive arm -- would be responsible for making sure EU members do not provide aid to domestic markets at other countries' expense, she added.

The announcement comes as tension in the 27-member bloc increased after France unveiled plans to support its key auto makers with 6 billion euros ($7.7 billion).

French President Nicolas Sarkozy had added to the friction by suggesting that French car makers should relocate their eastern European plants to France to save French jobs.

Speaking at Sunday's press conference, Sarkozy declined comment on the issue, but said he agreed with Merkel and that the subject would be discussed at the March 1 summit, which would include all the EU's leaders.

European observers have also been paying close attention to US carmaker General Motors as the auto giant announces plans for its European subsidiaries

The American company has already forced its Swedish brand Saab to file for protection against bankruptcy and the future of Germany's Opel remains uncertain.

A spokesman for GM's Opel operation told German radio Sunday that the group had drawn up a rescue plan to allow the group to restructure.

Possible aid for Opel controversial

Close-up Opel logo on a new car

Opel's future will likely depend on its restructuring plan

This would help Opel meet the demands of Merkel and other German political leaders for the group to prepare a restructuring plan before considering state aid for the ailing car maker. German politicians have been unwilling to bail out Opel without guarantees it would not flow into GM's accounts in the United States.

"If the state helps Opel now, then it will have to help BMW tomorrow, and then Daimler the next day and all the car parts suppliers," Hans-Olaf Henkel, a former president of the

German BDI industry federation and IBM Europe chief executive, told German radio. "And overnight, before we even noticed what hit us, we will have brought back Communist East Germany."

Not paying to support Opel would also have serious economic effects. German Finance Minster Peer Steinbrueck told German public broadcaster ARD allowing the company to collapse could cost between as much as 3 billion euros and up to 50,000 jobs in the German automobile industry.

No guarantees

A stack of 100-euro notes going from one hand to another

Germany hasn't yet promised to provide any money to Opel

He, however, stopped short of promising to help Opel regardless of the cost.

"I want to see the company's restructuring program first," Steinbrueck said. "I want to see what efforts it is going to take and then, as a final step, consider whether the state should provide and guarantees."

Opel was the first European carmaker to seek a government bailout since the current economic crisis began. It had originally projected needed 1 billion euros in loan guarantees for 2009. However, media reports show the carmaker will revise that figure to as much as 3.3 billion euros to stay in business until 2011.

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