Protectionism row clouds looming G7 meeting

BERLIN (Reuters) - Germany took a swipe at France on Wednesday for offering state aid to its carmakers without consulting its European partners and vowed to raise the issue of rising protectionism at a weekend G7 meeting in Rome.

France has been hit by a hail of criticism from EU allies over a 6 billion euro (5.4 billion pound) loan offered to Renault and PSA Peugeot-Citroen earlier this week in return for an unwritten pledge not to close French sites.

The row erupted after French President Nicolas Sarkozy urged domestic carmakers last week to move production back home from countries like the Czech Republic.

That drew a sharp response from Prague, which holds the rotating EU presidency, and other member states joined in after Paris unveiled its car aid plan.

The splits now threaten to overshadow the meeting of Group of Seven (G7) finance ministers this weekend, which world powers had hoped would offer a show of unity against the global downturn.

A senior Canadian official said on Tuesday that controversial U.S. "Buy American" policies would be discussed at the meeting and Germany, Europe's biggest economy and the world's top exporter, will also raise free trade issues.

"This is less about what we know as direct protectionism in the form of tariffs and import quotas and the like," finance chief Peer Steinbrueck's deputy Joerg Asmussen told reporters. "It's more about what is now called indirect protectionism."

FRENCH DENIALS

Top French ministers took to the airwaves on Wednesday to defend their car plan, denying it breaks European Union state aid rules as some member states have suggested.

The European Commission has expressed legal concerns over the French plan and said it wants more details before deciding whether to grant approval.

"It is not protectionism. It is defending our industry and defending our jobs. I think it is the least one can expect from the government when faced by this crisis," European Affairs Minister Bruno Le Maire told France Info radio.

Economy Minister Christine Lagarde said the French measures would end up helping some countries that were criticising them.

"If traditional (carmakers) from the major countries don't do well, then things won't go well in the Czech Republic, in Slovenia or in Romania," she told Canal Plus television.

But she added: "The priority is to keep industry in France. Have no doubt about that."

French Prime Minister Francois Fillon is due in Brussels on Thursday to defend the car scheme and Le Maire said he would visit a number of EU countries next week to do likewise, including France's most vocal critic, the Czech Republic.

Other EU states, including Italy, have introduced measures to help prop up slumping auto sales, but France has gone further than its partners by looking to link job protection to aid.

The issue is particularly sensitive in Germany, the biggest car producer in Europe and home to such major brands as Mercedes, BMW and Volkswagen.

Asked about the French aid plan at a regular news conference on Wednesday, German government spokesman Thomas Steg took an indirect swipe at France for not consulting about the aid.

"In Europe we agreed that countries could introduce national packages, anti-crisis measures to boost and stabilise growth based on their own individual situations. But we also agreed that these should be coordinated and agreed within Europe," Steg said. "For Germany, coordination means that national aid measures should benefit all European countries."

GROWING PRESSURE

EU leaders agreed in December to avoid unilateral stimulus steps that could have "beggar-thy-neighbour" fall-out on other European countries, but the deepening recession has raised pressure on governments to shield domestic jobs.

Czech Prime Minister Mirek Topolanek, who has sharply criticised Sarkozy in recent days, refused to stoke the fire further on Wednesday, calling the French president "my friend."

The Czech presidency has called a summit on March 1 in Brussels to discuss the crisis response.

Divisions within the EU are widening less than two months before a hotly anticipated summit of G20 nations in London to agree reforms of the global financial system.

German Chancellor Angela Merkel is to host a summit of European G20 nations on February 22 to agree a common position before the Apr. 2 London meeting.

(Additional reporting by Crispian Balmer and Mark John)

(Writing by Noah Barkin; editing by Patrick Graham)