France to rescue domestic car industry

Renault Trucks, which, while based in France, is actually own by AB Volvo of Sweden, will receive €500 million in loans.

The negotiated quid pro quo is a pledge to keep the car factories open, maintain jobs and produce ‘green' cars.

The bail-out agreement will also restrict executive bonuses and cap dividends, according to industry secretary Luc Chatel.

"This is not a gift. It is not a subsidy. It is a loan offered at an interest rate of six percent," Mr Sarkozy said of the disbursements, which will be doled out over five years.

"Renault and PSA have made a commitment ... to close no sites over the duration of the loan and to do everything to avoid redundancies," he added.

Some ten percent of the French work in the car sector, making it one of the biggest employers.

Britain, Germany, Italy and the US too have all committed public funds to aid their own car sectors.

Last month, the UK supplied car companies and parts manufacturers £1.3 billion (€1.5bn) in loan guarantees from the European Investment Bank, along with a direct £1 billion (€1.1bn) from public funds. Also in January, Berlin committed €1.5 billion to its car producers, in a plan to encourage new car purchases.

Italy's $1.7 billion (€1.3bn) plan for its car firms is similar to that of Germany, offering consumers €1,500 if they trade in their old car for a greener replacement.

The more expensive French move however is already raising warnings of a trend towards economic nationalism.

"The fragile economic prospects of every WTO member have become especially vulnerable to the introduction of any new measure that closes off market access or distorts competition," said the director general of the World Trade Organisation, Pascal Lamy, in response to the French bail-outs at a meeting of ambassadors to the WTO in Geneva.

"We must remain vigilant," he added.

The European Commission too has reacted with caution.

"The commission will need to scrutinise very carefully details of the subsidies, the conditions attached, to make sure of their compliance with state aid and single market rules," commission competition spokesman Jonathan Todd said on Monday.