EU probes state aid to Peugeot

(BRUSSELS) - The European Commission on Thursday opened an inquiry on whether restructuring by PSA Peugeot Citroen, France's biggest carmaker and Europe's second after Volkswagen, complies with European Union rules on state aid.

A restructuring plan notified by France includes a seven-billion-euro state guarantee as well as grants and repayable advances of 85.9 million euros.

"The opening of an investigation in no way prejudges its final outcome," a commission statement said.

"At this stage, the Commission intends to verify whether the assumptions underlying the restructuring plan to restore the company's long?term viability without continued state support are sufficiently realistic, in particular given the recent trend on the car market."

State aid to firms in difficulty is a type of aid that can distort competition by allowing firms to remain on the market that would not otherwise have been able to.

PSA's restructuring forecasts a return to viability in 2015 and includes measures to limit distortions of competition.

In February, the Commission authorised France to temporarily rescue the car-maker to the tune of a six-month 1.2-billion-euro guarantee. But it said it wanted to see within six months a restructuring plan for the entire group.

Global sales by the auto company dropped 16 percent last year to below 3.0 million units, as the firm fell victim to slumping demand in Europe where the company makes about 60 percent of its turnover.