Europe eyes targeted aid to carmakers

BRUSSELS (Reuters) - Any European Union support for automobile companies will be temporary and tied to goals such as improving the sector's environmental performance, EU sources said on Tuesday.

"What will not happen ... is a proposal for old-style subsidies," said one EU source involved in the matter.

"Any support for the car sector would be targeted, temporary measures linked to certain objectives, not the dishing out of billions of old-style aid ... Ecology is certainly an important element," the source said.

The European Commission is set to announce a package of economic stimulus measures on November 26 and carmakers have been stepping up calls for up to 40 billion euros ($50.5 billion) of aid to help them combat a deepening recession.

Pressure on European leaders to help industrial giants such as Peugeot, Renault, Volkswagen and Fiat rose after U.S. Senate Democrats on Monday proposed a $25 billion loan programme for their U.S. rivals.

French President Nicolas Sarkozy and other EU leaders agreed at a summit in October to study possible support to the sector, and the European Commission -- the 27-country bloc's executive -- last month backed in principle the possibility of soft loans from the EU's lending arm, the European Investment Bank (EIB).

But the executive is resisting calls for blanket aid and is looking instead to propose measures to encourage the industry to adapt, notably by producing "greener" cars more in line with the bloc's ambitious goals to combat climate change.

AID RULES

A second EU source confirmed the Commission was still working out the details of the package and played down speculation that any aid could approach the 40 billion euros sought by the industry.

EIB chief Philippe Maystadt said on Friday the bank wanted to increase its lending volume by up to 30 percent in 2009 through 2010 to help member states during the economic slowdown -- equivalent to an annual increase of up to 15 billion euros.

Maystadt said he expected EU finance ministers to approve the increase at their next meeting in December. He did not say whether any loans would be earmarked for carmakers or companies in the supply chain which also face tough times.

EU Industry Commissioner Guenter Verheugen last month backed a call by Europe's carmakers for soft loans to help develop cars which meet toughening European Union CO2 emissions targets.

But any support will have to satisfy strict EU rules on state aid, which frown on subsidies aimed purely at propping up uncompetitive sectors.

"State aid rules are not a luxury. They have to be taken into account," EU Competition Commissioner Neelie Kroes said at a business conference in Paris.

"The car industry won't be the last one (which runs into difficulty), you can be sure about that, but we need to look to the lessons of the financial institutions," she added, referring to criteria laid out by the Commission for national bank rescue schemes in the wake of the financial crisis.

(Additional reporting by Crispian Balmer in Paris; Editing by David Holmes)