Brussels begins Rover inquiry

THE EUROPEAN Commission is to make a formal request to Britain for information and explanations on subsidies promised to BMW to persuade the German car maker to invest at its Rover subsidiary, a Commission source said yesterday.

The British government announced a grant of pounds 152m for Rover in June, drawing sharp criticism from former European Competition Commissioner Karel Van Miert.

Commission sources suggested that Mario Monti, the new EU anti-trust chief, will ask the Commission to start a formal investigation into the matter at its weekly meeting on Wednesday. It will examine doubts that the subsidies, or part of them, could be approved under special rules on state aid to the car industry.

However, Britain could withdraw notification of the aid before the meeting and refile a modified package later. The EU executive last month began similar proceedings against Germany and Italy over planned support for VW and Fiat.

Mr Van Miert's main issue with the Rover aid was that BMW had not proved it would have invested in Hungary instead of in Rover's base at Longbridge, as the German company apparently threatened.

Car makers often play European governments off against each other to obtain higher subsidies.

The existence of alternative investment locations plays a key part in the Commission's assessment of state aid to the car industry under the special rules, which allow higher support to compensate for higher pay and other local factors.