State Aid Debate
October 15, 2008
Finance Minister Peer Steinbrueck said he was "not prepared to announce a bailout plan for the auto sector or promise tax breaks just because the industry is applying pressure," in an interview with weekly Die Zeit to appear on Thursday, Oct. 16.
On Monday, German Chancellor Angela Merkel had rejected a comprehensive economic rescue package despite signs that Europe's biggest economy was heading into recession. But she was less adamant about Germany's key auto sector in light of $25 billion (19 billion euros) worth of aid offered to automakers that have produced cars in the United States for 20 years.
France also announced a program that offers 400 million euros to carmakers to promote the development of environmentally automobiles.
Economic downturn hurts automakers
"We will probably have to strongly support the automobile industry ... though that poses questions about European competitiveness," Merkel said. "We have to look again at how we can react. Aside from that, there will be no economic package in the classic sense."
Germany's VDA auto federation then called for "political investment incentives," such as tax credits for consumers buying new cars and changes to the auto tax changes linked to greenhouse gas emissions to induce owners of older cars to buy new ones.
"Effects of the financial crisis and global economic deterioration have made conditions more difficult on auto industry markets," VDA president Matthias Wissmann said Tuesday in a statement.
Car sales in Europe dropped by 8.2 percent in September to 1.3 million and sales for the year are down 4 percent to 11.7 million, the European Automobile Manufacturers' Association said on Wednesday.
Several German car makers have recently announced production cutbacks and revised 2008 earnings owing to slumping auto sales.
Help for exporters
In a move likely to please the export-heavy auto industry, Economy Minister Michael Glos said Wednesday that the government would aid German exporters.
"The deterioration in the overall economic environment can lead to a loss of export momentum," he said in a statement. "The slowdown we're seeing in a number of European countries, and the expected recession in the United States, will put the dampeners on exports."
German was prepared to boost export credit guarantees called the "Hermes Cover," Glos said. The governments uses the guarantees to protect German businesses by taking over debt from foreign entities that do not pay their bills.
The state engaged in 17 billion euros worth of such guarantees in 2007, which was less than 2 percent of Germany's 969 billion euros in total exports.