Nicolas Sarkozy's bailout of carmakers sparks EU summit

The European Commission has demanded clarification of the French President's bailout plan, amid a row over protectionismDavid Charter, Brussels

President Sarkozy was warned by Brussels yesterday that it will veto his bailout for carmakers if it finds that Paris is unfairly limiting French subsidies to French workers and companies.

The European Commission demanded clarification of Mr Sarkozy's €6 billion (£5.3billion) plan, fuelling a row over protectionism that has led to an emergency summit of EU leaders being called for the end of the month to thrash out the limits of state intervention.

Mr Sarkozy, who has promised €3billion of soft loans to both Renault and Peugeot-Citroën, has been criticised for suggesting that they should use only French component suppliers.

Mirek Topolanek, the Czech Prime Minister and the current President of the EU, has also taken exception to Mr Sarkozy's suggestion last week that French car manufacturers based in the Czech Republic should relocate to France.

The argument intensified as Alistair Darling joined fellow finance ministers in calling on the European Commission to prepare EU-wide guidelines on how to detoxify banks, either by creating ‘bad banks' or by an insurance scheme underwritten by the taxpayer, or a mixture of both.

Jonathan Todd, spokesman for the Commission's competition directorate, said: “The Commission has written to the French authorities to ask for clarification of their plan. We have not actually reached any conclusions as regards the French measures. We have a few concerns with what we saw in the press.

“If there were any conditions, which would mean that aid would be subject to conditions that violated the principles of the internal market, then the aid would be deemed to be illegal and the Commission would not tolerate that.â€