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Car Trouble

Europe and Germany Move to Boost Economy

With an economic downturn looming, the EU moved to shore up its automobile industry on Wednesday, provoking the ire of environmental groups. Germany too has cobbled together a package, eyeing incentives to encourage investments in green technologies.

European carmakers received a dose of support from the European Union on Wednesday when Industry Commissioner Günter Verheugen backed a request for €40 billion in low-interest loans for the struggling auto sector.

The public money would be reserved for manufacturers to meet tough new EU emissions standards, but it comes against a backdrop of a similar American package for its own car industry.

The European Automobile Manufacturers Association (ACEA) has been calling for the cheap line of credit since early October, just after the US government announced a $25 billion package of low-interest loans for American auto giants General Motors, Ford and Chrysler.

Commissioner Verheugen came out in favor of the EU plan after a meeting with car industry executives on Wednesday. "Loan subsidies could be provided via the European Investment Bank," he said.

EU member states would have to decide on the final amount of loan money, Verheugen told reporters, but "we are talking about a credit volume of €40 billion available for research and development in the area of energy efficiency and lower fuel consumption of new vehicles."

Dwindling profits and demand have led some European car companies -- including Daimler in Germany and Skoda in the Czech Republic -- to suspend production. Daimler announced Monday it would shut down its main German factory for five weeks over this year's Christmas holiday.

The ACEA argued to European commissioners that the slowdown would make it hard for manufacturers to meet an EU target to cut carbon dioxide emissions from cars by 18 percent by 2012.

The auto sector is a major source of jobs in Europe, which is one reason the EU has an interest in granting it public support. But environmental groups are skeptical about the green tinge to the loan plan.

"While Günter Verheugen attempts to greenwash massive state aid and credit to the car industry," said Rebecca Harms, deputy vice president of the Green faction in the European Parliament, in reaction to Wednesday's meeting, "he is also lobbying together with automakers to water down CO2 reduction targets for new cars. Helping the car industry out of a crisis is unacceptable if it comes in the form of disguised subsidies to companies that are hell-bent on continuing with business as usual."

But Verheugen said on Wednesday, "We are in a situation where it is getting harder for big European businesses to get credit. It is not a question of hand-outs, it's a question of the European Investment Bank making available a low-interest credit program."

A Tax Break from Berlin

Also on Wednesday, German Chancellor Angela Merkel announced a €20 to €25 billion stimulus package for the German economy that would include tax breaks for owners of especially clean cars. For two years starting in 2009, according to German Environment Minister Sigmar Gabriel, new cars adhering to the nation's cleanest exhaust standards will be free of an annual automotive tax.

Environmentalists have been in favor of the German measure because it would be an incentive for car owners to scrap older polluting cars.

The German stimulus package will also include soft loans for contractors who improve building insulation and tax deductions for home-improvement work. Peter Struck, parliamentary head of the SPD faction, told the Berliner Zeitung that more details of the package would be released next week. "All together we are talking about a volume of perhaps €20 billion to €25 billion" to cushion the German economy ahead of the expected downturn.

German Unemployment Sinks

Not all the economic news was bad though. The Federal Labor Agency in Berlin announced Thursday that the number of Germans out of work fell below 3 million in October -- for the first time since November 1992. The jobless rate sank to 7.2 percent, down considerably from a historic peak in February 2005 of 12.6 percent.

Agency chief Frank-Jürgen Weise said the numbers showed that employment in Germany had suffered "no serious effects of the economic slowdown and the situation on the financial markets," so far.

But an economist at UniCredit in Munich, Alexander Koch, told the Associated Press that job cuts could be on the horizon. "Especially in the important manufacturing sector," he said, huge cutbacks in demand might herald "a noticeable cutback in industrial activity and subsequently in the labor force."

msm -- with wire reports