EU lets Germany off the hook over Opel state aid

The European Commission will not investigate improper use of German state aid in the sale of carmaker Opel. The situation at Opel is so critical, several sources told NRC Handelsblad, that the company would collapse before such an investigation could be completed.

European Commissioner for Competition Neelie Kroes just last week warned the German government she had "significant indications" the sale to Canadian auto parts manufacturer Magna may breach European single market rules. The Germans allegedly forced current Opel owner General Motors to sell the company to Magna and the Russian Sberbank rather than to the other bidders, Italian Fiat among them, because Magna gave stronger guarantees about jobs in Germany.

German chancellor Angela Merkel promised Opel 4.5 billion euros in state aid after the deal with Magna was sealed. Other countries that are home to Opel factories subsequently felt forced to arrange similar aid packages to minimise redundancies. This race between EU member states is exactly what single market rules are supposed to prevent.

Germany denies the money was pledged only if the preferred buyer was chosen but, under the 1957 Treaty of Rome, the European Commission is obligated to investigate any suspicion of improper use of state aid.

However, an inquiry into the Opel case could lead to the bankruptcy of the entire company. The case is so complex and would have to be investigated in so many countries it would take months to complete.

Opel trust’s chairman, Fred Irwin, told German public radio last week the company only has liquidity until mid-January. If the company collapses during an EU investigation, Kroes fears 'Brussels' will be held responsible for the direct loss of 50,000 jobs across the 27-member block.

The Dutch Commissioner is still demanding a written statement from General Motors confirming the company was not pressured into the deal by the German government.

Kroes, who has a reputation for being very tough on anti-trust and single market issues, seems stuck between a rock and a hard place. If she chose to investigate the case she could be held accountable for the Opel bankruptcy. If she refrained from it, she would undermines the European Uunion's internal market and the rules in govern that market. If Germany gets away with state aid, why wouldn't other countries?

Kroes' choice for the latter option proves how hard it is to reconcile the European single market rules and regulations against protectionism with the reality of the current recession.

On Tuesday, Kroes' predecessor Mario Monti accepted a request from European Commission president José Manuel Barroso to write a report about the possibilities of breathing new life into the single market. "The single market requires renewed political determination so that it can withstand economic nationalism," Barroso wrote.