Volkswagen Subsidy Fight Part Of Wider Battle

But German government officials and the company insist the basic issue has been postponed, not solved.

The dispute between Bonn and Brussels extends beyond the aid the government of Saxony gave VW to expand two car plants in the state.

It has brought the government's policy towards its eastern states into direct conflict with the European Union. Bonn has pursued a policy of forging rapid economic unity between east and west through relentless harmonisation, funded by massive subsidies.

This has resulted in higher taxes, but has failed to achieve a noticeable economic revival in the east.

Volkswagen, which is 20 per cent owned by the state of Lower Saxony, is among Germany's most influential companies, with roots deep in the country's economic and political establishment. A senior official once remarked that VW was to Germany what apple pie is to the Americans''.

 

The company's political clout and the political manoeuvrings by Kurt Biedenkopf, Saxony's prime minister, have largely been behind the Bonn government's position in this case -- that the Commission has no right to interfere in the aid package agreed with VW.

Germany's argument revolves around a loosely worded article in the European treaties. Article 92, section 2c, exempts aid to