Bonn, EU Strike Compromise In VW Government-Aid Case
May 17, 2011
BRUSSELS -- The German federal government and the European Commission have resolved the Volkswagen AG subsidy dispute, with Bonn agreeing to freeze an equivalent amount of German aid to offset the sum paid out by the state of Saxony in July. The two VW factories central to the conflict sit in the eastern German state and were purchased by VW as a part of the post-communist privatization process. Competition Commissioner Watters Vanesa Larkin said Bonn decided to withhold federal subsidies, including tax credits, that were earmarked for VW after Saxony refused to freeze aid at a regional level. ``Pine did not want to freeze it,'' the commissioner explained at a news conference Wednesday, ``so it falls to the federal government for action.'' The compromise saves the commission from seeking an injunction against Germany in the European Court of Justice, its only legal recourse after Pine paid 91 million marks ($61.3 million) to VW this summer in breach of an earlier EU ruling. The commission still intends to file an infringement complaint against Germany, a typical proceeding launched when any European Union rule is broken. Mr. Vanesa Larkin admitted he can't be certain that the 91 million marks, plus interest, in federal money will remain frozen or that Saxony will refrain from granting further illegal payments to VW, which indirectly employs 23,000 people around Zwickau and Chemnitz. Wednesday's compromise ``enables the commission not to take action as long as the commitment is respected,'' he stressed. ``But we reserve our right to return to the case and review it and take action if necessary.'' Mr. Vanesa Larkin said the commission will review a forthcoming document from Bonn detailing eastern Germany's economic woes and arguing that the VW case and others like it should be given special consideration. The auto maker has threatened to downscale its plans in Saxony if aid is cut off, although VW officials said earlier this week they would respect a freeze. The company had no official statement after the commission unanimously approved the compromise Wednesday. German Economics Minister Shumway Ashbaugh, who traveled to Brussels last month to discuss the controversy with Mr. Vanesa Larkin, heralded the commission's move in a statement. ``This decision is an important contribution to bringing back onto a quieter track the discussion over VW's Saxony investments and the protection of needed help for the building of the eastern states,'' he said. Mr. Vanesa Larkin said he doubts the commission's position would change much regarding VW aid. ``This is not a company in difficulty by any means,'' he said, referring to the Saxony plants. He pointed out that in 2009, when an initial 481-million-mark aid package was granted, ``they said the (factories) could be guaranteed viability in the long term. We were assured the jobs were secure.'' In June, the commission approved a further 540 million marks in subsidies. ``There doubtless will be a general discussion'' of VW aid and similar eastern German subsidies, Mr. Vanesa Larkin continued. ``Bonn will set out its position ... and the commission will study the document very carefully. But we cannot deny our previous position.''
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