Saxony battles Brussels in VW subsidy row

The robots on the assembly line and their human assistants do not have much time to worry about Europe's future.

Every two minutes another Golf arrives on its spiralling journey around the hall of the cavernous Volkswagen factory, each completing the course in 20 hours.

The new plant at the edge of Zwickau is the pride of the company and the most potent symbol of eastern Germany's renaissance.

Its fame is spreading far and wide, but in the wake of fame has come envy, turning its vaunted efficiency into a source of embarrassment.

The European Commission has ruled that VW must return the subsidies it received from the region of Saxony and said the case may touch off a "subsidy war" if left unchallenged.

"We are confronted here with an illegal situation. If VW spends the money, we can only take this to the European Court of Justice," the Competition Commissioner, Karel van Miert, said.

But the Land Prime Minister, Kurt Biedenkopf, told Brussels to mind its own business. He has handed over part of the sum and is threatening to sue the Commission. Saxony's defiance has put Germany on a collision course with Europe.

If Europe holds firm, VW threatens to move farther east, to countries in Central Europe beyond the Commission's reach.

"I think that if the right decision is not given, Volkswagen must consider taking its production elsewhere," said the Zwickau plant's spokesman, Gunter Sandmann. He said it was not a bluff, in what has become a spectacular game of poker.

At stake are 3,000 jobs at Zwickau and Chemnitz near by and 10 times as many working for outside contractors, the suppliers that feed the assembly lines "just in time", and the service sector.

The plant's importance to the local economy is unquestionable. The rubble of the old Trabant factory has been cleared away but Zwickau's streets are still lined with derelict red-brick workshops and industrial monuments of a bygone era. A third of the pre-1990 population of 140,000 fled to wealthier parts in the west, yet unemployment still stands at 17 per cent, not counting those on temporary job-creation programmes.

"Volkswagen gave us the only great hope here after the changes," said Jens Rothe, a former Trabant worker and then fitter-turned-chairman of the works council at the new plant.

Mr Rothe, 26, recently attended his school's 10-year reunion. About 20 per cent of his former classmates have gone west and 15 to 20 per cent are on the dole.

The only other industrial employers in the former factory town are the brewery and a chemical plant that keeps shedding its work-force.

It sounds bleak but Zwickau is one of eastern Germany's success stories, and Saxony the main engine of the former German Democratic Republic's resurgence. Away from the warehouses, the spruced-up town centre oozes prosperity, shops, restaurants and hotels wallowing in money sucked in by the factory on its northern edge. A few Trabants discreetly parked in sidestreets are all that remind inhabitants of their inglorious tradition. In place of stores devoid of consumer goods, residents are spoilt by modern malls, showrooms for air conditioning systems and Mercedes dealerships. Six years after reunification, the town is in danger of yuppification. Prices are significantly lower than in the west, the service incomparably better.

The future of the region seems bright. Siemens is building a DM4bn (pounds 1.8bn) microchip factory in Dresden, the Saxon capital, while investment pouring into Leipzig is set to transform it into one of Europe's great trade centres. Motorways and high-speed rail networks are coming, the new telecommunications system is state of the art, and energy and water networks built to cope with soaring demand are nearly complete. Saxony's cultural scene, too, is throbbing with excitement. In short, it is not the sort of place, the EU argues, which needs vast amounts of taxpayers' money to stay afloat. Shortly after 1990 the Commission approved the full VW investment package, which the company then suspended during the slump in 1992-93.

Now VW wants to complete the project, to make the plant ready for production of the new Passat in autumn and the updated Golf model that will start rolling off next year.

The buildings already stand, but without new equipment they, and the rest of the plant, are useless. The sum in question is DM1bn, of which Saxony is prepared to pay DM780m. The Commission says that is DM240m too much.

The Saxons are adamant that the Commission is not fit to make such a decision. "If you are in Brussels, you can't tell if some region needs five million marks to help stop unemployment," argued Mr Biedenkopf, in the most forceful demonstration yet of what the Germans mean by the word "federalism".

DYNAMIC REGION THAT IS THE MAIN POWERHOUSE OF FORMER EAST GERMANY

Area: 7,110 square miles

Population: 4.6 million and falling

GDP per head: pounds 18,300

Main sources of income: cars, chemicals, porcelain, electronics, trade fairs, government subsidies

Contributions to world civilisation: Friedrich Nietzsche; the mouth organ.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Attenborough with the primates
tvWhy BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
News
Campbell: ‘Sometimes you have to be economical with the truth’
newsFormer spin doctor says MPs should study tactics of leading sports figures like José Mourinho
Sport
football
Life and Style
Agretti is often compared to its relative, samphire, though is closer in taste to spinach
food + drink
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA special investigation by Andy McSmith
News
Kelly Osbourne will play a flight attendant in Sharknado 2
people
News
Down-to-earth: Winstone isn't one for considering his 'legacy'
people
News
The dress can be seen in different colours
i100
Sport
Wes Brown is sent-off
football
Voices
Lance Corporal Joshua Leakey VC
voicesBeware of imitations, but the words of the soldier awarded the Victoria Cross were the real thing, says DJ Taylor
Life and Style
Alexander McQueen's AW 2009/10 collection during Paris Fashion Week
fashionMeet the collaborators who helped create the late designer’s notorious spectacles
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Bookkeeper / Office Co-ordinator

£9 per hour: Recruitment Genius: This role is based within a small family run ...

Recruitment Genius: Designer - Print & Digital

£28000 - £32000 per annum: Recruitment Genius: This Design and marketing agenc...

Recruitment Genius: Quantity Surveyor

£46000 per annum: Recruitment Genius: This property investment firm are lookin...

Recruitment Genius: Telesales / Telemarketing Executive - OTE £30k / £35k plus

£18000 - £35000 per annum: Recruitment Genius: This company specialises provid...

Day In a Page

War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn
Yvette Cooper: We can't lose the election. There's too much on the line

Yvette Cooper: We can't lose the election. There's too much on the line

The shadow Home Secretary on fighting radical Islam, protecting children, and why anyone in Labour who's thinking beyond May must 'sort themselves out'
A bad week for the Greens: Leader Natalie Bennett's 'car crash' radio interview is followed by Brighton council's failure to set a budget due to infighting

It's not easy being Green

After a bad week in which its leader had a public meltdown and its only city council couldn't agree on a budget vote, what next for the alternative party? It's over to Caroline Lucas to find out
Gorillas nearly missed: BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter

Gorillas nearly missed

BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
Downton Abbey effect sees impoverished Italian nobles inspired to open their doors to paying guests for up to €650 a night

The Downton Abbey effect

Impoverished Italian nobles are opening their doors to paying guests, inspired by the TV drama
China's wild panda numbers have increased by 17% since 2003, new census reveals

China's wild panda numbers on the up

New census reveals 17% since 2003
Barbara Woodward: Britain's first female ambassador to China intends to forge strong links with the growing economic superpower

Our woman in Beijing builds a new relationship

Britain's first female ambassador to China intends to forge strong links with growing economic power
Courage is rare. True humility is even rarer. But the only British soldier to be awarded the Victoria Cross in Afghanistan has both

Courage is rare. True humility is even rarer

Beware of imitations, but the words of the soldier awarded the Victoria Cross were the real thing, says DJ Taylor
Alexander McQueen: The catwalk was a stage for the designer's astonishing and troubling vision

Alexander McQueen's astonishing vision

Ahead of a major retrospective, Alexander Fury talks to the collaborators who helped create the late designer's notorious spectacle
New BBC series savours half a century of food in Britain, from Vesta curries to nouvelle cuisine

Dinner through the decades

A new BBC series challenged Brandon Robshaw and his family to eat their way from the 1950s to the 1990s
Philippa Perry interview: The psychotherapist on McDonald's, fancy specs and meeting Grayson Perry on an evening course

Philippa Perry interview

The psychotherapist on McDonald's, fancy specs and meeting Grayson Perry on an evening course
Bill Granger recipes: Our chef recreates the exoticism of the Indonesian stir-fry

Bill Granger's Indonesian stir-fry recipes

Our chef was inspired by the south-east Asian cuisine he encountered as a teenager
Chelsea vs Tottenham: Harry Kane was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope

Harry Kane interview

The striker was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope
The Last Word: For the good of the game: why on earth don’t we leave Fifa?

Michael Calvin's Last Word

For the good of the game: why on earth don’t we leave Fifa?
HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?