Opel rescue opens Pandora box for German state aid

15th June 2009, Comments 0 comments

Chancellor Angela Merkel has said repeatedly that the bailout for Opel with the help of a public credit worth 1.5 billion euros was an "exceptional case."

Frankfurt -- Germany, having orchestrated a rescue for automaker Opel, is trying to keep the lid on a Pandora's Box of state aid, even if it means turning away luxury sports carmaker Porsche and retailer Arcandor.

Chancellor Angela Merkel has said repeatedly that the bailout for Opel with the help of a public credit worth 1.5 billion euros (2.1 billion dollars) was an "exceptional case."

She said "we have very clear criteria (for offering public aid): was the company in good shape in the summer of 2008" before the global economic crisis began to gather steam?

In remarks to ZDF public television last week, she said: "Does it have a future in the economy? What is its outlook? And then we have a commission that decides."

Opel was already in trouble before that date, but a bankruptcy would take place under US laws governing its parent General Motors, with unforeseeable consequences for German and European production sites.

"We have given Opel nothing more than a fair chance to start over," Merkel told ZDF.

The German leader says she has no intention of setting a precedent however, as calls for help multiply in a country that expects to see economic activity contract by 6.0 percent this year in the worst downturn since World War II.

The state-owned development bank KfW, charged with handling requests for aid with a 100-billion-euro fund designed to help firms stricken in financial crisis, is swamped.

It has already received 1,200 requests for a total of 4.95 billion euros, and receives up to 18 new ones each day, a spokeswoman told AFP.

Most of the requests are from small and medium businesses which are being hit by falling orders and finding it hard to obtain private loans.

What has made headlines, however, are high-profile cases involving groups listed on the stock exchange.

Last week, the government-held firm rejected a request from the retail and tourism group Arcandor that owns nearly 53 percent of the British travel group Thomas Cook, which was forced to declare insolvency.

"Arcandor does not qualify for aid," economist Michael Braeuninger from the HHWI institute told AFP. "Granting it would demolish all barriers."

The retail group said 43,000 jobs would be "affected" by its insolvency, much more than the 25,000 at stake at Opel.

The figure could be much lower however if the biggest German retailer, Metro, buys Arcandor and merges most of its Karstadt department stores with Metro's own Kaufhof chain.

The government also said Arcandor shareholders should contribute more to a rescue plan, and was backed by the European Commission, which opposes a state bailout of the retailer owing to allegedly dubious management practices in the past.

Porsche also raised widespread scorn with its calls for help.

The company has asked for 1.75 billion euros in credit from KfW, even though Porsche chief Wendelin Wiedeking is said to be the highest paid chief executive in Germany and ran up nine billion euros in debt trying to takeover Europe's biggest carmaker, Volkswagen.

The head of Germany's BDI federation of employers, Hans-Peter Keitel, reacted by saying: "There must be moral barriers, especially when one knowingly commits to risky enterprises."

The government is nonetheless wary of angering workers ahead of a general election in late September which has turned the economic crisis into a major campaign issue.

Merkel's conservative Christian Democratic Union (CDU) and its sister party the Bavarian Christian Social Union (CSU) regularly square off with centre-left coalition partners from the Social Democratic Party (SPD) on the state's role in the economy.

The SPD, a loser in last week's European Parliament poll, is trying to win back its base by attacking Economy Minister Karl-Theodor zu Guttenberg (CSU), who opposed aid for Opel and Arcandor.

Guttenberg was nicknamed "bankruptcy minister", even though many Germans agree with him that throwing taxpayer's money into bottomless pits makes little sense.

According to opinion polls by the magazine Stern, 61 percent of Germans opposed bailing out Arcandor, and only 10 percent criticise Guttenberg's position.

Public opinion could change however if the number of bankruptcies multiplies and unemployment shoots up.

Germany is also being watched closely by European neighbours.

"We expect the European Commission to track state interventions to avoid any distortion of competition," a high-ranking European Union diplomat told AFP.


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