EU, Germany to Settle on VW Subsidies Issue

09/05/96

The Associated Press has reported that Germany and the European Commission are close to ending a confrontation over unauthorized subsidies to German automaker Volkswagen. The dispute between the European Union's executive body and German authorities arose over the $520 million subsidy the East German state of Saxony has earmarked for VW to get the carmaker to build a car plant within its borders.

Senior officials from both sides of the conflict were reported to have outlined a deal late Monday night that could end with the Commission dropping its threat of legal action. Details of the proposed compromise were not released, but EU officials indicated that Saxony would have to freeze subsidies it has been paying to VW.

Commission spokesman Klaus van der Pas said, "Flagrant illegality must be stopped. That is a clear precondition for any solution."

The Commission is invested with the power to block government subsidies judged harmful to fair competition among companies in the 15-nation EU. In June, the Commission rejected Saxony's plan to pay $520 million to support VW's investment in the state. Saxony gave Volkswagen the money, despite the commission's ruling, claiming that a delay could jeopardize 30,000 jobs in an unemployment blackspot.

VW has threatened to move scheduled investments from Saxony to Slovakia and Hungary if they were prohibited from receiving the entire subsidy.

Paul Dever -- The Auto Channel