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Germany

Merkel Warns Obama Over Support for Automotive Big Three

With carmakers all over the world hurting, German Chancellor Angela Merkel has said she will confront US President-Elect Barack Obama over Washington's automotive aid package. But is the pot calling the kettle black?

Merkel sitting in an Audi

Cars could be a divisive issue for the German chancellor and the new US president

Merkel's remarks came as her governing Conservative-Social Democratic coalition announced a massive 50-billion-euro ($66.2 billion) economic stimulus plan.

"Of course, we won't be able to just stand by and watch how the American automotive industry is kept alive by billions of dollars," Merkel told reporters in Berlin on Tuesday, January 13.

The US government has offered General Motors, Chrysler and Ford up to 17.4 billion dollars in state help.

Merkel added that, should Germany feel itself to be at a competitive disadvantage, the two countries would have to have "serious discussions."

Those talks could come at the world financial summit in April in London, where the world's most powerful leaders will try to agree new rules for the global financial markets.

German car exports fell by 22 percent in December 2008, compared with the year before, as a result of the global economic crisis. The American automotive market contracted by around 18 percent over the same period.

A subsidy by any other name?

Cars on a winter street in Germany

German carmakers, too, are getting plenty of state help this winter

With European leaders looking to Obama for leadership at the London summit, it's questionable how serious Merkel's warning was meant.

And Germany itself has offered sops to its domestic automotive industry. The equivalent of some $2 billion dollars in the stimulus plan has been earmarked for the German automotive industry.

Merkel has said that carmarker Opel, the European wing of General Motors, could get up to 1.6 billion euros ($2.1 billion) in loan guarantees to help the company survive the economic downswing.

The German government has also waived taxes on new car purchases for 2009 and offered a 2500 euro premium for drivers who scrap cars more than 10 years old, if they purchase new vehicles.

The latter initiative mirrors a similar measure taken in France.

It's being sold, in part, as a way of getting Germans to convert to more ecologically friendly cars, but the automotive industry hopes it will boost domestic car sales as well.

According to some estimates, the buy-back premium could encourage as many as 300,000 new vehicle purchases.

Other analysts, however, doubt that the premium will have a significant effect on people's decisions to buy a new set of wheels in a year when the economy threatens to grind to a halt.

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