Metro to the rescue?

"We are sure that we can take over 60 of the 90 Karstadt stores and integrate them into our Galleria Kaufhof concept," Metro Chief Financial Officer Thomas Unger told Germany's Die Welt newspaper. "This would give those people employed by Karstadt a secure future," he added.

The future of those employed in the remaining 30 stores, approximately 4,000 Karstadt employees, was not necessarily one of unemployment, Unger added, saying that past acquisitions have allowed Metro to absorb other workforces into its existing stores.

As well as the Europe-wide Galleria department store chain, Metro owns the Media Markt and Saturn electronics outlets, Real supermarkets and its own brand of cash-and-carry warehouses.

Arcandor owns a 52-percent stake in Europe's second biggest tourism group Thomas Cook, operates the Quelle mail-order business and iconic shops such as the KaDeWe in what used to be the commercial heart of West Berlin, as well as the Karstadt chain of department stores.

Metro's approach comes at a desperate time for Arcandor which last month announced that it was seeking government loan guarantees of around 650 million euros ($925 million) and a credit line of 200 million euros from Berlin out of a government fund to help companies hit by Germany's worst postwar slump.

Metro announcement comes as EU frowns on state aid plan

But the future of Arcandor and its 50,000 employees looked bleak on Wednesday after the European Commission said it would take a dim view of any state aid.

"Our preliminary conclusion is that Arcandor was already in difficulties before July 2008 – in other words its difficulties are not caused by the credit crunch," Jonathan Todd, a spokesman for EU Competition Commissioner Neelie Kroes, said in a statement. "Therefore it is not eligible for aid under the schemes which the Germans have put in place," he said.

On Saturday, Chancellor Angela Merkel's government agreed to support with billions of euros of taxpayers' money a takeover of General Motors' Opel unit by Canada's Magna and state-owned Russian lender Sberbank.

But Merkel has since insisted that Opel was a "special case" and on Wednesday Economy Minister Karl-Theodor zu Guttenberg said that Germany "has to stick to the rules."

"We received today a very clear call from Brussels that Arcandor was already a company in trouble as of July 1, 2008," zu Guttenberg told reporters. "This negative condition is one which would fundamentally stand in the way of Arcandor qualifying for guarantees or loans as part of this Germany Fund."

Arcandor becomes an election issue

The fate of Arcandor, which employs twice as many people in Germany as Opel, has become something of a political hot potato ahead of general elections in September.

Frank-Walter Steinmeier, Merkel's center-left Social Democrat (SPD) challenger for the chancellorship and current vice-chancellor, said that an insolvency of Arcandor would be the worst possible solution.

Finance Minister Peer Steinbrueck, Steinmeier's SPD ally, called on zu Guttenberg – who is from Merkel's conservative bloc – to conduct a proper review, saying "any public pre-commitment would be wrong."

nda/AFP/dpa