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'Helping Carmakers Sets a Dangerous Precedent'

On Wednesday the European Commission backed the crisis-strangled car industry's call for a bailout by way of low-interest loans. It also doubled its crisis fund for troubled member states and announced that it would soon unveil plans for fighting the global downturn. German papers mull over the decisions made in Brussels.

Wednesday was another busy day in Brussels. The European Commission backed calls from the car industry for billions in low-interest loans and also announced that it was doubling its crisis fund for troubled member states.

After European Union Industry Commissioner Günter Verheugen met with auto industry executives he told a news conference that he backed the European Automobile Manufacturers Association (ACEA) calls for a €40 billion ($52 billion) soft loans package to help it develop greener cars. Verheugen suggested the loans could be provided by the European Investment Bank (EIB). However it is up to the 27 member states, rather than the Commission, to make that decision. The EIB provides lending to generate economic growth in the bloc.

The EU has been under pressure to help its carmakers after the United States government agreed to provide soft loans to its automobile industry. Tighter environmental legislation has come just as the market is contracting and the ACEA said it needs help if it is to meet the EU targets for slashing carbon dioxide emissions in cars.

Meanwhile on Wednesday the EU said that it was loaning €6.5 billion to Hungary as part of a €20 billion international rescue package for the country, which has been particularly badly hit by the global credit crunch. The EU Economics Commissioner Joaquin Almunia also announced that the bloc was doubling its crisis fund for troubled member states from €12 billion to €25 billion.

And Commission President Jose Manuel Barroso said that the EU executive was working on plans to cushion the blow of the economic downturn and would present an action plan on Nov. 26 that he wanted all EU governments to follow. He also suggested that governments should think about giving more money to the EIB, which could then direct funding and loans to projects and small businesses suffering from the financial crisis.

On Thursday the German press takes a look at the decision-making in Brussels and many papers don't like what they see.

The Financial Times Deutschland writes:

"There was good news and bad news coming out of Brussels yesterday. First the good news: The EU Commission wants to open its coffers to a distressed and needy Hungary. The bad news is that it also wants to support the European car industry with low-interest loans."

"It is a necessary act of solidarity -- politically, economically and morally -- when the European Union protects one of its members from bankruptcy. And doing so does not overstep its legal competencies. EU regulations see the emergency loans as a means of helping hard-up member states."

"By helping the carmakers the commission is setting a dangerous precedent. The industry's economic difficulties do indeed pose a risk for many jobs -- but unlike the financial sector, it does not threaten the entire European economic system. There is, therefore, no logical reason for the Europeans to collectively support the automobile industry. The decision is above all a success for the professional lobbying of well organized companies."

"It is dubious enough when national governments use taxpayers' money to give certain industries a competitive advantage which does not contribute to the social good. It is, however, far more devastating when this happens on an EU level. ... Every country has industries that are suffering, but cars don’t play as big a role everywhere as they do in Germany and France."

The center-right Frankfurter Allgemeine Zeitung describes the EU performance as "grotesque" and writes:

"Barroso and his Vice President Verheugen know that they -- fortunately -- are not responsible for economic stabilization policy. Nevertheless the Commission president acts as if his 'action plan' is expected to provide an important stimulus. However, the success of the plan is completely dependent on the cooperation of the member states. Verheugen is boastfully offering the automobile industry €40 billion in extra loans from the European Investment Bank (EIB). The EIB has not exhausted its credit volume, so there is no need to find extra funds. Even false hopes that are awoken with misleading announcements can affect the economic situation."

The center-left Süddeutsche Zeitung writes on how the financial crisis has spread around the world, including to Eastern Europe:

"Some of the victims of the crisis include those responsible for it, those states that long profited from the excesses of the credit boom and lived far beyond their means. The best-known example is Iceland: the island republic differed from many others in that it was one of the richest countries on earth until recently and its banks acted particularly badly."

"However many others have also followed Iceland's path. The Baltic republics financed their boom with easy credit and real estate speculation, the new EU member Bulgaria had a completely unsustainable trade deficit of 25 percent. Similar figures are found in instable or almost failed states, which have never had a solid financial policy."

The business daily Handelsblatt comments on how the financial crisis is affecting the European insurance industry:

"Most insurance companies in Europe have come through the crisis relatively unscathed. However stricter regulations and tougher rules would send a positive signal to the market. After all, the share prices of many insurance companies have dropped sharply."

"Europe could demonstrate its capacity to act and position itself as a role model. Instead, national egotism is preventing EU states from agreeing on new reforms."

-- Siobhán Dowling, 1:10 p.m. CET