Could Politics Derail GM Europe Deal?

No sooner had General Motors unveiled plans to sell its European unit than politicians from Britain, Belgium, Spain, and even Germany attacked the plan

Anyone who thought the deal was done, can think again. Over the weekend all sorts of tricky issues have arisen around the announcement of the sale of General Motors' European brands to a consortium made up of Canadian-Austrian car parts supplier Magna and Russia's development bank, Sberbank.

The announcement, made late last week after a meeting of GM's board, will see Magna (MGA) and Sberbank (SBER.RTS) purchasing a 55 percent stake in Opel, with GM retaining 35 percent and the remaining 10 percent going to workers. It came after months of wrangling over the future of the American car company's European subsidiaries.

But almost as soon as the announcement was made, there was strong international reaction. Germany was accused of trying to push GM into selling its Opel and Vauxhall concerns to Magna with a sweetener of around €4.5 billion ($6.5 billion) worth of state aid. The other nations in which GM also operates car manufacturing plants were not impressed, saying that German jobs would be protected at the expense of ones elsewhere.

The European Commission threatened on Monday to block the German government subsidies. "If something happens against the rules, action will be taken," said a spokesman for Neelie Kroes, the European Union's competition commissioner.

Belgium Leading Charge to EU Commission on Competition

Belgian Foreign Minister Yves Leterme told news agency Belga on Sunday that he had met with Spain's State Secretary for Trade, Silvia Iranzo Gutiérrez and the Hungarian State Secretary for competitiveness, Zoltán Mester, to discuss the issue further. Both of those countries also have Opel plants—although currently, the Antwerp plant is the only one in immediate danger of closure.

Leterme also complained to the German government about not having been invited to a planned meeting in Berlin on Tuesday to discuss the future of Opel's plants. While Germany has promised substantial state aid to Opel's new owners, it has not yet been determined exactly where the money is coming from. German money will be coming from federal and state coffers but the other nations in which Opel and Vauxhall plants operate may also be asked to contribute. Almost half of GM's 54,000 strong workforce is located in Germany; the Spanish have the next highest number of Opel employees at around 7,000.

Leterme said he had also met with Bernd Pfaffenbach, state secretary in Germany's Economy Ministry, to insist that European Union rules on state aid and unfair competition were adhered to.

No Political Fixes, No Links Between State Aid And Job Security

Additionally, former Belgian Prime Minister Guy Verhofstadt told Reuters that he had asked European Commission President Jose Manuel Barroso the same sorts of questions. As a result the issue is likely to be debated on Monday in the European parliament—Verhofstadt is currently the leader of the Liberals, the third largest group in the EU assembly.

The other country where a former GM plant may close is Britain. Magna have said that if it cannot get more orders, the Luton plant, which manufactures Vauxhall vehicles as well as some Renault vans, may cease being operational after 2012. And on Monday, British Business Secretary Peter Mandelson reiterated comments made by the Belgians. "Our Vauxhall plants at Ellesmere Port and Luton are highly efficient and I am sure, and we insist, that this be recognized," he said in an interview on BBC radio. "There will be some tough detailed negotiations that lie ahead and it's very important that the European Commission takes a role and a hand in these negotiations."

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