A Test of EU Unity Ends in Suspended Subsidy for VW

In one sense, the dispute involves a carmaker and a commission. In another, it is a test of whether the dream of a united Europe will truly become reality.

The dispute between the eastern German state of Saxony and the European Commission (EC), based at the European Union's headquarters in Brussels, centers on Saxony's desire to keep Volkswagon within its borders. The automaker has threatened to pull out, and this would mean the loss of 23,000 jobs at VW and supplier firms. With eastern German unemployment rates in the mid-teens, this threat is something no politician can ignore.

So in July the Saxon government defied the EC by making a subsidy payment of 91 million marks ($61 million) to VW to keep the company in Saxony. The EC charged that the payment violates European law governing competition and free trade.

The German federal government in Bonn, sympathetic to Saxony's desire to hang onto Volkswagen but also concerned about maintaining the single market and good relations with the EC, weighed whether to join the lawsuit that Saxony filed against the EC.

After a flurry of meetings over the last several days, a compromise was reached: Bonn will freeze $61 million of its (uncontested) aid to Volkswagen to offset the state aid already paid. As long as the frozen money stays frozen, and Saxony makes no further subsidy payments, the EC will not pursue legal action against Saxony.

Member governments' subsidies to financially troubled major employers have long been the stuff of controversy within the European Union. But in this case, Karel Van Miert, the European competition commissioner, to whose portfolio the VW case belongs, has said he sees something new here: "Saxony has called into question the basic concept of the EU; the necessity of controlling subsidies is being contested.... I see the fabled Project Europe under threat, the work of [Jean] Monnet, [Robert] Schumann, [Konrad] Adenauer, [Jacques] Delors, and [Helmut] Kohl," he said in an interview, invoking the honored names of the architects of European unity, as well as that of the current German chancellor.

The list of names Mr. Van Miert mentions is telling. Chancellor Kohl, a fervent believer in a fully integrated Europe as the haven in which reunified Germany must be anchored, is facing more and more resistance to his views among his compatriots and even party colleagues and coalition partners.

Moreover, the anti-EU, or anti-Brussels rhetoric that the Saxons have used in defending the Volkswagen subsidies - rhetoric Van Miert has denounced as "sheer populism" - reflects a broader trend throughout Europe.

Politicians, especially opposition politicians, denounce "Brussels" for being undemocratic or bureaucratic when national interests are perceived as being under attack. And when there is dirty work to be done, for instance the social welfare budget cutbacks required in preparation for the launch of the common European currency, even national governments are quite willing to tell their electorates, "Brussels is making us do it."

The dirty work gets done and, in the case of the "social net" cutbacks, it's work that economists say needs to be done anyway, Euro-currency or not. But the politicians' rhetoric undercuts popular support for European unity, and thus the EU's legitimacy.