The European Commission is to investigate a R4,1-billion subsidy the German government awarded BMW for the construction of its new R11,8 billion plant in Leipzig. Counsellor Gerhard Schröder has already blasted the Commission for its “anti-German bias”, and the enquiry is expected to further boost tensions.
The European Commission is to investigate a R4,1-billion subsidy the German government awarded BMW for the construction of its new R11,8 billion plant in Leipzig. Counsellor Gerhard Schröder has already blasted the Commission for its “anti-German bias”, and the enquiry is expected to further boost tensions in the European body.
Schröder, who is facing a tough fight for re-election in September, has repeatedly attacked Commission authorities for an alleged anti-German bias on issues such as new proposals on car sales, a new Europe-wide takeover code, and the health of his country’s economy, reported on Thursday.
A decision on the BMW grant, to be provided by the German federal government and the regional government of Saxony, could come in four months. However, the Commission has up to 18 months to rule on the issue.
A Commission spokesman said the decision to probe the aid for the plant, where the BMW 3-Series will be built, was taken because the “Commission was simply not convinced that the subsidy met European Union rules on state aid”.
Under EU law, state aid for car plants cannot exceed the amount of money the company would have saved by moving the project elsewhere. In BMW’s case, the German authorities told the Commission that the company could have saved more than R4,9 billion by building the plant in Kolin, in the Czech Republic, where costs such as employees’ wages are lower, the report asked.
The Commission said its main doubts focused on whether the need to compensate BMW justified such a large aid deal. “Is the cost difference [between Leipzig and Kolin] as high as the German authorities argue?” the Commission spokesman said.
The German authorities will now have to convince the Commission that the aid is justified. Supporters of the plan say the factory, due to open in 2005, will help an area of former East Germany that is suffering from high levels of unemployment by creating up to 10 000 jobs among factory workers, suppliers and contractors.
In its reaction, BMW AG said the investigation did not come as a surprise and added that it would have “no difficulty at all” in demonstrating the necessity for the state aid.