BRUSSELS (Thomson Financial) - The European Commission said it has opened an in-depth inquiry into a 31 mln eur subsidy paid to the French domestic appliances manufacturer FagorBrandt by the French authorities.
The commission has concerns that the aid may be used to finance the repayment of 22.5 mln eur of unlawful aid the firm received in 2002.
'We must make sure that the new aid is not used to finance the repayment of the old incompatible aid and that the restructuring of FagorBrandt does not harm other European firms in the market,' competition commissioner Neelie Kroes said in a statement.
Between 2004 to 2006 FagorBrandt made increasing losses. These difficulties arose from more intense competition on the market, particularly as a result of the emergence of low cost companies from Asia and Turkey, and from the development of competition from retailers.
Internal factors also contributed to the difficulties, in particular the obligation to repay 22.5 mln eur of illegal aid (plus interest) received in 2002, which was subsequently declared incompatible with EU state aid rules by a commission decision of Dec 2003.
On Aug 6 this year, French authorities notified the EU executive of a project to grant 31 mln eur restructuring aid to FagorBrandt. According to the French authorities, in the absence of such aid FagorBrandt would be unable to cope with the losses expected for 2007 or to find additional financing on the market.
In its preliminary assessment into the matter, the commission doubted that the aid would be compatible with the EU rules on restructuring aid, especially regarding the long-term viability of the company and the limitation of aid to the minimum necessary.
The EU executive also has concerns about the likely negative impact of the aid on trade between member states, since FagorBrandt is mainly competing with other European manufacturers. The aid could, therefore, support the company at the expense of its European competitors and their workers. nina.chestney@thomson.com nc/jrr COPYRIGHT Copyright Thomson Financial News Limited 2007. All rights reserved. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.
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