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Friday, 18 September 2009

Subsidy war: don't make me laugh?

Why the media, isn't hammering him over this, I don't know but the increasingly pathetic Lord Mandelson is whining to Brussels because of a perceived "susbsidy war" between EU countries over the Magna purchase of Opel.

Let's get the first thing straight. There are no subsidies as yet, not even loans, just loan guarantees, but let's not quibble. The truth is that the German government, who have been fiscally prudent, run a tight shop and have got their economy moving again, have some spare borrowing capacity, and can afford a contingent liability or two. More importantly, they have cut a deal with Magna that works for both sides.

The British, and for that matter the Belgians, have been caught cold, and anyway don't have the spare cash to come up with anything like the German offer without having hundreds of other companies, particularly those who can't get funding from backs, cry foul. So they do what any self-regarding politician who had spent most of their lives accumulating a small fortune at the expense of tax payers would do: they go to the EU and try to block the German/Magna deal.

Now any smart negotiator might question the wisdom of trying to kill another bidder's deal whilst simultaneously trying to add on your own. To do so misunderestimates the other party's position (they don't have to be there and they don't have to deal with you), which could backfire if and when Magna walks away.

But the most stupid part of the whole deal is to complain about a "subsidy war" when you haven't put in your own offer. There won't be a subsidy war unless Mandelson is able to outbid the Germans, but he can't and he is fooling nobody.

Mandelson can't come anywhere near the German offer so he is trying to kill their deal. Magna have no reason to take worse terms from Mandelson and since the Germans are not renowned for frittering away their money, the chances are that the deal would be off if Magna were forced to worse terms by the EU. I didn't see many other bidders bidding for the deal if Magna does get blown out.

Either way, Mandelson's parsimonious approach is likely to lead to big job losses in the UK. We should not see his efforts as an attempt to save jobs, but to project the blame elsewhere (onto the Hun) when the jobs are lost and the Vauxhall plants do close.


crockhamtown said...

When are you going to use a spelling checker?

Alex said...

I know some people spell Mandelson as a 4-letter word, but I prefer the full spelling.